Business context and reporting period
Wheels Up Experience Inc. provides private aviation services, including flights, memberships, aircraft management and related services. This unaudited Form 10-Q covers the three and six months ended June 30, 2022; comparisons are with the same 2021 periods.
Financial performance and position
| Metric | Q2 2022 | Six months 2022 | Comparable 2021 period |
|---|---|---|---|
| Revenue | $425.5 million, up 49% | $751.1 million, up 37% | $285.6 million Q2; $547.2 million first half |
| Net loss attributable to Wheels Up | $92.8 million | $181.4 million | $26.2 million Q2; $55.6 million first half |
| Adjusted EBITDA (non-GAAP) | $(46.9) million | $(96.3) million | $(8.5) million Q2; $(17.1) million first half |
| Adjusted Contribution Margin (non-GAAP) | 4.7% | 2.3% | 10.7% in both comparable periods |
| Operating cash flow | Not separately stated | $(140.2) million | $(118.9) million first half |
Revenue growth reflected more members and flying, higher flight revenue per leg, aircraft management activity, acquisitions and aircraft sales. Q2 operating loss was $94.1 million; first-half operating loss was $186.8 million. GAAP net loss per share was $0.38 for Q2 and $0.74 for the first half, versus $0.15 and $0.33, respectively, in 2021.
At June 30, cash and cash equivalents were $427.0 million and restricted cash was $27.4 million, compared with $784.6 million and $2.1 million at year-end 2021. Cash, cash equivalents and restricted cash declined $332.3 million over the first half. Investing cash use was $181.1 million, including acquisitions, aircraft purchases and capital spending. The company reported no long-term debt; operating lease obligations totaled $119.2 million. Current liabilities were $1.272 billion, including $1.039 billion of current deferred revenue, largely prepaid flight blocks and jet cards.
Management said available cash was expected to cover projected working capital and capital expenditure needs for at least the next 12 months. No specific revenue or earnings guidance was provided.
Changes, outlook and risks
- Margins weakened as cost of revenue rose 60% in Q2 and 51% in the first half, faster than revenue. Management cited fuel costs, pilot availability, maintenance challenges, wage inflation and higher third-party fulfillment costs.
- Q2 active members increased 20% to 12,667; active users rose 16% to 13,119; live flight legs increased 19% to 21,705; and flight revenue per live leg rose 12%.
- Acquisitions included Alante Air for $15.5 million and Air Partner for $108.2 million. Air Partner contributed $34.8 million of revenue and $4.9 million of operating income from its April 1 acquisition date through June 30. The company also purchased 32 leased aircraft for a negotiated $65.0 million, partly offset by a $7.3 million maintenance-reserve reimbursement.
- A fuel surcharge framework began June 1, alongside a carbon offset fee. Fuel surcharges generated $15.6 million of Q2 revenue. Fuel represented 15% of cost of revenue; a hypothetical 10% fuel-price increase would have raised fuel expense by about $6.2 million in Q2 and $11.1 million in the first half. The company had no fuel hedges.
- Management reported that flight volumes recovered in Q2 after COVID-related disruptions earlier in the year, but supply-chain constraints and higher parts and supply costs continued. Management also cited potential long-term demand support from increased consumer focus on wellness and safety.
- A sustained share-price decline and weaker operating margins triggered impairment testing; the company reported no impairment of long-lived assets or goodwill. Estimated sales and use tax exposure was $9.5 million, accrued in the financial statements. The company described ordinary-course legal matters as not expected to have a material effect, while noting litigation uncertainty.
- Other notable items included $43.3 million of first-half equity-based compensation, compared with $2.8 million in 2021, and a $5.8 million first-half noncash gain from the change in warrant fair value. The company disclosed privacy and data-security compliance risks, including under U.S. state laws and GDPR/UK GDPR.
Key facts for investors to verify
- Whether revenue growth can translate into improved margins given cost inflation, capacity constraints and the company’s reliance on third-party aircraft and crews.
- Cash consumption, capital spending and acquisition-related outlays against management’s stated 12-month liquidity expectation.
- The sustainability and composition of revenue growth, particularly prepaid flight sales, aircraft sales and contributions from recent acquisitions.
- Deferred revenue, jet-card refund terms and restricted Air Partner customer deposits, including the distinction between cash available for operations and customer-related obligations.
- Potential dilution from equity awards, warrants and earnout shares, and the impact of substantial equity-based compensation.
- Developments in sales and use tax exposure, legal matters, foreign-currency risk and privacy or data-security compliance.