Wheels Up Experience Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed March 31, 2023. The filing presents annual results against FY2021 and selected Q4 2022 results. It does not provide Q4 2021 figures in the selected quarterly table.
Business context
Wheels Up provides private aviation services through memberships, retail and wholesale flights, aircraft management, and other aviation services. It operates one reportable segment. At year-end, it reported 215 owned or leased aircraft, approximately 120 managed aircraft, and access to more than 1,200 third-party aircraft. FY2022 included the acquisitions of Alante Air and Air Partner; Air Partner expanded international operations.
Financial and operating performance
| Metric | FY2022 | FY2021 | Change / note |
|---|---|---|---|
| Revenue | $1,579.8 million | $1,194.3 million | Up 32% |
| Flight revenue | $1,073.1 million | $873.7 million | Up 23% |
| Membership revenue | $90.1 million | $69.6 million | Up 30% |
| Aircraft management revenue | $242.0 million | $225.3 million | Up 7% |
| Other revenue | $174.5 million | $25.7 million | Up 580%, including aircraft sales and Air Partner |
| Operating loss | $(560.0) million | $(203.3) million | Widened |
| Net loss | $(555.5) million | $(197.2) million | Widened; diluted loss per share was $(2.26) versus $(0.93) |
| Adjusted EBITDA | $(185.3) million | $(87.4) million | Non-GAAP; loss widened |
| Gross profit (loss) and margin | $(26.5) million; (1.7)% | $22.4 million; 1.9% | Company reconciliation |
| Adjusted Contribution and margin | $57.9 million; 3.7% | $82.2 million; 6.9% | Non-GAAP; margin fell 320 basis points |
Revenue growth reflected 8% more live flight legs and 13% higher flight revenue per leg. Active members increased 5% to 12,661; active users rose 10% to 13,846; and live flight legs rose 8% to 79,664. Management attributed higher revenue per leg partly to pricing changes, fuel surcharges, and a greater mix of jet and large-cabin flying. Cost of revenue increased 38%, outpacing revenue growth, amid higher activity, acquisitions, fuel and labor costs, pilot constraints, and maintenance pressures.
Q4 2022: Revenue was $408.3 million and net loss was $224.9 million, including a $118.0 million goodwill impairment charge. Q3 2022 was restated to recognize a $62.0 million goodwill impairment charge.
Cash flow, liquidity, debt, and commitments
- Cash and cash equivalents were $585.9 million at year-end, plus $34.3 million of restricted cash. Management stated that cash and cash equivalents on hand were expected to cover projected working capital and capital expenditure needs for at least the next 12 months.
- Operating cash flow was $(230.7) million, compared with $126.5 million provided in FY2021. Investing cash flow was $(175.2) million; financing cash flow was $244.8 million. Cash, cash equivalents, and restricted cash decreased by $166.6 million.
- Deferred revenue was $1.077 billion, including $1.024 billion from prepaid flight blocks. The company sold $1.005 billion of prepaid blocks in FY2022. These customer prepayments support liquidity but represent obligations to provide future services.
- In October 2022, the company issued $270 million of secured equipment notes at a fixed 12% rate, receiving $259.2 million net of discount before transaction costs. The notes are secured by 134 aircraft and certain intellectual property; $27.0 million of principal was classified as current at year-end.
- The debt documents require minimum liquidity of $125 million and include aircraft loan-to-value limits and other restrictions. The company reported covenant compliance at December 31, 2022.
- Future minimum operating lease payments were approximately $152.8 million. The company reported no material off-balance-sheet arrangements.
Outlook, commentary, risks, and unusual items
- Management’s stated objective was to achieve positive Adjusted EBITDA in 2024; this is a target, not a guarantee. A March 2023 restructuring plan is intended to streamline the organization and reduce headcount outside key operational teams. The company estimated approximately $14 million of total pretax charges, with about $7 million incurred in FY2022 and most remaining charges expected by the end of Q1 2023.
- Goodwill impairment charges totaled $180 million in FY2022: $62 million in Q3 and $118 million in Q4. The charges were non-cash and related to the legacy Wheels Up reporting unit; estimates depend on forecasts and other significant assumptions.
- Internal control over financial reporting and disclosure controls were found ineffective at year-end. Identified material weaknesses involved IT access and change-management controls, and financial close and key business-process controls. A Q3 2022 goodwill impairment error led to a restatement. The auditor issued an adverse opinion on internal control, while expressing an unqualified opinion on the financial statements.
- Key risks include recurring losses and negative operating cash flow, potentially limited access to financing, high-cost secured debt and covenant requirements, pilot and labor availability, fuel and maintenance cost volatility, reliance on third-party operators, discretionary demand, and aircraft supply constraints. Delta may have termination rights under commercial agreements if specified in-kind benefit requirements are not met.
- Fuel surcharges were introduced in 2022, with a framework linked to Jet A prices above $2.00 per gallon. The company does not hedge fuel prices and says surcharges may not fully offset cost increases or may affect demand.
- The filing also describes a potential $10.4 million sales and use tax exposure at year-end, accrued in the financial statements, and a pending IRS examination of WUP’s 2020 tax year for which the outcome and potential exposure were not estimable.
Important facts for investors to verify
- Whether cash use, prepaid-block sales, and service obligations support the stated liquidity outlook, particularly against the $125 million minimum-liquidity covenant.
- Progress toward the 2024 Adjusted EBITDA target, the restructuring’s actual costs and savings, and whether contribution margins stabilize.
- Whether the company remediates the disclosed material weaknesses and avoids further restatements or reporting delays.
- Debt repayment and refinancing capacity, aircraft collateral values, and compliance with loan-to-value and other debt covenants.
- The sustainability and comparability of revenue growth given acquisitions, aircraft sales, and pricing or fuel-surcharge changes.