Wheels Up Experience Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Unaudited results are compared with the three months ended March 31, 2023; balance-sheet amounts are compared with December 31, 2023. Figures below are in U.S. dollars unless noted.
Business context and performance
Wheels Up provides on-demand private aviation through membership programs, charter services and related offerings. It operates as one reportable segment. Its aircraft management business was sold in September 2023, materially affecting the year-over-year comparison.
Management cited weaker industry demand and a deliberate focus on profitable flying as factors in lower flight activity. It is concentrating its controlled fleet and maintenance operations in selected service areas, growing charter offerings, and pursuing FAA certificate consolidation and cost reductions.
Financial results
| Metric | Q1 2024 | Q1 2023 | Change / context |
|---|---|---|---|
| Revenue | $197.1 million | $351.8 million | Down 44.0% |
| Gross loss | $16.6 million | $16.4 million | Gross margin was (8.4)% versus (4.7)% |
| Operating loss | $82.6 million | $96.7 million | Improved by $14.1 million |
| Net loss | $97.4 million | $100.9 million | Improved by $3.5 million |
| Adjusted EBITDA, non-GAAP | $(49.2) million | $(48.9) million | Essentially unchanged |
| Operating cash flow | $(73.8) million | $(202.5) million | Cash use decreased year over year |
Flight revenue fell 34.9% to $150.9 million; membership revenue fell 22.3% to $16.9 million; aircraft management revenue fell 95.0% to $3.2 million after the divestiture; and other revenue fell 24.7% to $26.1 million. Live Flight Legs declined 24% and Active Members declined 25%. Private Jet Charter Flight Transaction Value rose 33% to $88.7 million, while total Charter Flight Transaction Value rose 25% to $121.6 million.
Operating expenses declined alongside lower activity and prior-year restructuring costs. However, gross margin deteriorated, and interest expense increased 79% to $14.6 million, principally due to the term loan. Q1 2024 included $1.4 million of net gain on asset disposals and $1.7 million of debt-extinguishment loss. Equity compensation expense was $11.2 million, including $8.0 million for executive performance awards.
Cash, debt and liquidity
- Cash and cash equivalents were $180.9 million at March 31, down from $263.9 million at year-end. Restricted cash was $32.4 million; cash, cash equivalents and restricted cash totaled $213.3 million.
- Working capital deficit was $545.8 million. Current liabilities included $698.0 million of current deferred revenue, largely prepaid flight balances and membership amounts.
- Gross principal debt was approximately $603.2 million: $192.6 million of 12% equipment notes and $410.6 million of 10% term-loan principal, including capitalized payment-in-kind interest. The term loan’s carrying value is substantially reduced by unamortized discounts and financing costs; balance-sheet long-term debt, net, was $222.8 million, plus $22.3 million of current maturities.
- The term loan interest compounds in kind quarterly. The $100 million revolving facility had no borrowings outstanding at quarter-end. The company repaid $24.0 million of debt in the quarter, including redemption of notes on eight aircraft.
- Investing cash flow was positive $19.6 million, mainly from $26.0 million of aircraft-sale proceeds and $3.4 million related to the aircraft-management divestiture. Financing cash use was $24.3 million.
Management said it expects to meet liquidity needs for the next 12 months using existing cash, operating cash flows, strategic asset dispositions and, if needed, the revolving facility. It also noted that longer-term liquidity depends on generating operating cash and obtaining additional or alternative financing. The company reported compliance with debt covenants at March 31, including the $75 million minimum available-cash covenant.
Outlook, risks and unusual items
- No specific revenue, earnings, cash-flow or Adjusted EBITDA forecast for 2024 is provided in the filing. Management reiterates its goal of positive Adjusted EBITDA but this filing does not give a clear target date or quantified path.
- Management reported 14% higher Prepaid Block sales than in Q1 2023 and expects corporate customer activity to support weekday flying and asset utilization. Prepaid Block sales were $114.0 million versus $99.9 million in the prior-year quarter.
- Planned operating changes include opening a Palm Beach maintenance facility by year-end 2024, reallocating or closing certain facilities, reducing and adjusting the controlled fleet, and continuing FAA certificate consolidation. Expected benefits and timing remain forward-looking and uncertain.
- Significant risks include recurring operating losses, operating cash burn, a large working-capital deficit, high-cost debt and restrictive covenants, dependence on prepaid customer balances, and the need for future operating cash generation, asset sales or financing. Management cautions actual results may differ materially from forward-looking statements.
- The company is pursuing litigation against flyExclusive over termination of a fleet guaranteed revenue agreement and seeks deposits and other damages. Recovery is uncertain; the company says it cannot reasonably estimate the outcome or recovery. It notes flyExclusive disclosed limited cash and a substantial working-capital deficit.
- Estimated sales and use tax exposure was $10.5 million, recorded in accrued expenses. The company said ordinary-course legal matters are not expected to have a material adverse effect, while noting litigation outcomes are uncertain.
- New RSU and PSU awards, and the CEO/CFO performance awards, have share settlement contingent on stockholder approval; some could instead be settled in cash. Executive performance awards are tied to repayment or refinancing of the term loan and service conditions, and their share value and ultimate settlement are uncertain.
Most important facts for investors to verify
- Whether revenue and flight activity stabilize, and whether the charter and corporate-customer growth offsets declines in members and programmatic flying.
- Whether cash burn improves enough to preserve covenant headroom and meet the company’s stated 12-month liquidity expectations; confirm the availability and conditions of the revolving facility.
- How the company plans to manage approximately $603 million of gross principal debt, including payment-in-kind interest, maturity concentration and aircraft collateral requirements.
- Whether cost, fleet, maintenance and certificate-consolidation initiatives produce durable margin improvement rather than only lower revenue and activity.
- Developments in the flyExclusive litigation and collectability of the disputed deposits, as well as any change in the recorded $10.5 million tax exposure.
- Stockholder approval and potential cash or share settlement of outstanding incentive awards, including the material executive award expense and potential dilution.