Wheels Up Experience Inc. — Q1 2022 Form 10-Q
Business context and reporting period. Unaudited results cover the three months ended March 31, 2022, compared with Q1 2021. Wheels Up provides private aviation services, including flights, memberships, aircraft management and related services. It reported one operating segment. The company had over 200 owned and leased aircraft, approximately 150 managed aircraft, and access to more than 1,200 partner aircraft.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $325.6 million | $261.7 million; up 24% |
| Operating loss | $92.7 million | $27.7 million loss |
| Net loss | $89.0 million | $32.2 million loss |
| Net loss attributable to Wheels Up | $88.7 million; $0.36 per share | $29.4 million; $0.17 per share |
| Gross margin | (6.6)% | 5.1% |
| Adjusted Contribution / margin | $(2.7) million / (0.8)% | $28.2 million / 10.8% |
| Adjusted EBITDA | $(49.4) million | $(8.7) million |
| Operating cash flow | $(121.2) million | $(84.7) million |
| Investing cash flow | $(119.6) million | $2.9 million provided |
| Cash and cash equivalents at period-end | $537.7 million | $784.6 million at Dec. 31, 2021 |
| Debt and lease obligations | No long-term debt reported; operating lease obligations totaled $124.0 million | Substantially all debt was repaid in July 2021 |
Current liabilities were $1.104 billion, including $903.2 million of current deferred revenue, versus current assets of $732.9 million. Deferred revenue primarily reflects prepaid flight blocks and membership amounts, not conventional borrowings. The company said available cash should cover projected working capital and capital expenditures for at least the next 12 months.
Material changes versus Q1 2021
- Flight revenue rose 24% to $236.4 million, supported by 15% more Live Flight Legs and an 8% increase in flight revenue per leg. Membership revenue grew 38% to $20.6 million; Active Members increased 26% to 12,424.
- Costs and expenses increased 45% to $418.4 million, outpacing revenue growth. Cost of revenue rose 42%, and reported gross margin fell to (6.6)% from 5.1%.
- Management attributed margin pressure to pilot availability, higher fuel costs, maintenance challenges, wage inflation, and supply constraints. Fuel expense, excluding aircraft-owner expenses, increased $12.0 million.
- General and administrative expense increased 114% to $38.9 million, including a $13.8 million increase in equity-based compensation. Total equity-based compensation increased to $22.6 million from $1.4 million.
- Cash and cash equivalents declined by $246.9 million during the quarter. Investing outflows included aircraft purchases, capital expenditures, and the Alante Air acquisition.
Outlook, commentary and risks
- No quantified full-year revenue, earnings, or cash-flow guidance is provided in the filing. Management stated that cash on hand should be sufficient for at least the next 12 months.
- Management cited COVID-related cancellations, third-party aircraft supply limitations, reduced crew availability, and parts-and-supplies disruptions as factors affecting Q1 operations. It expected private aviation demand to benefit over time from increased focus on wellness and safety.
- The company purchased 32 leased aircraft for a negotiated $65.0 million and received approximately $7.3 million in unused maintenance-reserve reimbursements. It acquired Alante Air for $14.6 million in cash in February; the acquisition added 12 light jets.
- After quarter-end, Wheels Up acquired Air Partner for $107.0 million in cash. Purchase accounting was not finalized in the filing. The company also announced fuel surcharges and a carbon-offset fee effective June 1, 2022.
- Fuel-price exposure is material: a hypothetical 10% increase in average fuel prices would have increased Q1 fuel expense by approximately $4.9 million. The company reported no fuel derivatives and said dynamic pricing and surcharges may help offset increases.
- Estimated potential sales and use tax exposure was $9.0 million at March 31, 2022, recorded in accrued expenses. The company also cited privacy and data-security regulation as a risk. Management said pending ordinary-course legal matters were not expected to have a material effect, while noting litigation uncertainty.
- Unusual items include a $3.6 million noncash gain from the change in warrant-liability fair value and a $2.7 million restructuring charge. The filing reports $9.5 million of Q1 compensation expense related to earnout shares, although no earnout shares had vested by quarter-end.
Most important facts for investors to verify
- Whether flight-level pricing, fuel surcharges, and operating efficiencies can restore positive contribution margins amid fuel, labor, maintenance, and aircraft-supply pressures.
- The pace of cash use and the assumptions behind management’s 12-month liquidity assessment, including the effect of the Air Partner acquisition and ongoing aircraft investment.
- How deferred revenue and prepaid-block sales evolve relative to revenue recognition, flight activity, and customer demand.
- The final purchase accounting and subsequent operating contribution of Air Partner, as well as the integration and performance of Alante Air.
- The magnitude and timing of equity-based compensation, potential dilution from outstanding awards and warrants, and the resolution of the estimated sales and use tax exposure.