Wheels Up Experience Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with the three months ended March 31, 2022, unless otherwise noted. Wheels Up provides private aviation services through flights, memberships, aircraft management and other services.
Financial and operating performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $351.8 million | $325.6 million | +8.0% |
| Operating loss | $96.7 million | $92.7 million | Loss widened $3.9 million |
| Net loss | $100.9 million | $89.0 million | Loss widened $11.8 million |
| Net loss per share, diluted | $0.40 | $0.36 | Loss per share increased |
| Gross loss / gross margin | $16.4 million / (4.7)% | $21.4 million / (6.6)% | Margin improved |
| Adjusted Contribution / Margin (non-GAAP) | $6.4 million / 1.8% | $(2.7) million / (0.8)% | Improved |
| Adjusted EBITDA (non-GAAP) | $(48.9) million | $(49.4) million | Loss narrowed $0.5 million |
| Operating cash flow | $(202.5) million | $(121.2) million | Outflow increased |
Revenue growth was led by other revenue, up $26.6 million, including higher whole-aircraft sales and Air Partner revenue. Aircraft management revenue rose 5.3%; membership revenue rose 5.0%. Flight revenue declined 1.9%: live flight legs fell 13%, partly offset by a 12% increase in flight revenue per leg. Active members declined 1% to 12,285; active users increased 6% to 13,336.
Cash and cash equivalents were $363.2 million at quarter-end, down from $585.9 million at December 31, 2022; restricted cash was $36.6 million. Cash, cash equivalents and restricted cash totaled $399.8 million. Net cash used in investing activities was $11.0 million, versus $119.6 million in Q1 2022, reflecting lower aircraft and property purchases. Financing cash outflow was $6.8 million, primarily debt principal payments.
Equipment Notes had $263.2 million principal outstanding, carry a 12% fixed rate and are secured by 134 aircraft and certain intellectual property. The company reported compliance with debt covenants at March 31, including a minimum-liquidity covenant of $125 million. Total liabilities were $1.55 billion and total equity was $163.2 million. Current deferred revenue was $975.7 million, principally prepaid flight blocks.
Material changes and notable items
- Prepaid Block sales were $99.9 million, compared with $174.6 million in Q1 2022. Deferred revenue declined about $99.4 million from year-end. Management attributed lower prepaid purchases to normalization of aviation supply and demand; this contributed to the larger operating cash outflow.
- Interest expense was $8.1 million, versus none in the prior-year quarter, reflecting the Equipment Notes issued in October 2022. Interest income increased to $3.8 million as cash-equivalent yields rose.
- The March restructuring plan generated $10.5 million of Q1 charges; cumulative charges were $17.7 million, above the initially estimated $14 million. Approximately $2.7 million remained unpaid at quarter-end.
- Sales and use tax exposure was estimated at $10.5 million and accrued. The company said ordinary-course legal matters were not expected to have a material effect, while noting litigation uncertainty.
Outlook, management commentary and risks
- Management reiterated its goal of achieving positive Adjusted EBITDA in 2024. This is a forward-looking goal, not a guarantee.
- On May 9, 2023, the company announced member-program changes expected to take effect in June, including two primary service areas and dynamic pricing outside them. Management warned implementation may cause short-term financial variability and expects the changes to support efficiency and flight margins.
- Management said certificate consolidation, fleet and maintenance changes, and the Atlanta Member Operations Center are intended to improve operations. The center was expected to open May 15, 2023. A strategic review may include divestitures of non-core assets.
- Liquidity and execution remain key risks given substantial operating cash use, declining prepaid-block sales, ongoing losses and high-cost secured debt. Management also cited exposure to fuel prices, interest rates and foreign exchange.
- Disclosure controls and procedures were assessed as not effective at March 31, 2023 because material weaknesses identified in the prior Form 10-K were still being remediated. Management stated the financial statements fairly present the company’s results and described ongoing remediation efforts.
Important facts for investors to verify
- Whether operating cash use and prepaid-block sales stabilize, and how much liquidity is available after restricted cash and contractual obligations.
- Progress toward positive Adjusted EBITDA in 2024, including actual cost savings and the financial effects of the June 2023 member-program changes.
- Compliance with the $125 million minimum-liquidity covenant and the repayment, interest and collateral terms of the 12% Equipment Notes.
- Whether the control weaknesses are remediated and tested; the filing’s stated target was completion by the end of Q2 2023 if possible, and no later than year-end.
- The filing’s Adjusted Contribution reconciliation shows a margin increase from (0.8)% to 1.8%, while the related MD&A text says the margin “decreased 260 basis points.” Clarify this apparent inconsistency with the company.