Wheels Up Experience Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021, compared with 2020. Wheels Up completed its business combination and became a public company on July 13, 2021; historical results before that date are those of its accounting predecessor, Wheels Up Partners Holdings LLC. Acquisition activity also affects comparability.
Business context
Wheels Up provides private aviation services through memberships, on-demand and wholesale flights, aircraft management, and related services. At year-end, its fleet included over 180 owned or long-term leased aircraft, approximately 150 managed aircraft, and access to over 1,200 third-party aircraft. It operates as one reportable segment: private aviation services.
Financial and operating performance
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $1,194.3 million | $695.0 million |
| Gross profit / gross margin | $22.4 million / 1.9% | $1.7 million / 0.2% |
| Adjusted Contribution / Margin | $82.2 million / 6.9% | $62.4 million / 9.0% |
| Operating loss | $203.3 million | $63.0 million |
| Net loss | $197.2 million | $85.4 million |
| Adjusted EBITDA loss | $87.4 million | $52.4 million |
| Cash provided by operating activities | $126.5 million | $209.6 million |
| Cash and cash equivalents at year-end | $784.6 million | $312.8 million |
Revenue rose 72%. Flight revenue increased 76% to $873.7 million, membership revenue 27% to $69.6 million, aircraft management revenue 70% to $225.3 million, and other revenue 110% to $25.7 million. Live Flight Legs rose 65% to 73,522; Active Members increased 31% to 12,040. Growth reflected more flying, recovery from the pandemic-affected 2020 period, and acquired businesses, including Mountain Aviation in January 2021.
Cost of revenue grew 76%, faster than revenue. Adjusted Contribution Margin declined 2.1 percentage points, which management attributed to supply constraints, pilot availability, higher fuel and maintenance costs, and wage inflation. Reported GAAP net loss worsened; 2020 included a $76.4 million CARES Act grant, while 2021 included a non-cash $18.0 million gain from remeasuring warrant liabilities. Equity-based compensation was $49.7 million in 2021, substantially higher than 2020, largely reflecting accelerated vesting connected with the business combination.
Operating cash flow included a $278.8 million increase in deferred revenue, principally from prepaid flight blocks. The company sold $896.7 million of Prepaid Blocks in 2021, versus $532.1 million in 2020. Year-end current deferred revenue was $933.5 million, mostly prepaid blocks and jet cards; this is a service obligation, not cash freely available without future flight costs.
Wheels Up had no long-term debt outstanding at December 31, 2021, after repaying substantially all debt and accrued interest following the business combination. It reported $2.1 million of restricted cash in addition to cash and cash equivalents. Future minimum operating lease payments were approximately $156.6 million; recorded lease obligations were $115.1 million. Management said available cash was expected to cover projected working capital and capital needs for at least 12 months.
Material changes, outlook and risks
- The July 2021 business combination and $550 million PIPE investment contributed to approximately $656.3 million in gross proceeds. Transaction costs were $70.4 million. Acquisitions and expanded operations make year-over-year comparisons less like-for-like.
- Management forecast approximately $125 million of 2022 capital spending, including $65 million to purchase 32 previously leased aircraft. The purchase was completed in February 2022. The filing provides no specific revenue, earnings, or margin guidance.
- After year-end, Wheels Up agreed to acquire Air Partner for approximately $107 million, with closing then expected by the end of Q1 2022, and acquired Alante Air for $14.6 million in February 2022. These are subsequent events, not 2021 results.
- Management expects continuing net losses for the foreseeable future. It cited growth execution, member retention and demand, aircraft and pilot availability, cost inflation, fuel prices, reliance on third-party operators, and access to capital as key risks. COVID-19-related cancellations, supply access and crew availability affected late 2021 and early 2022 flight volumes.
- Delta may terminate commercial agreements if specified annual in-kind benefits are not met, subject to applicable terms and cure rights. CARES Act compensation limits and reporting requirements continued through March 24, 2022; noncompliance could lead to repayment or other remedies.
- The company reported no goodwill impairment after testing in October and December 2021, despite a sustained share-price decline and margin deterioration prompting an interim test. A $10.3 million warrant liability is remeasured at fair value, creating potential non-cash earnings volatility.
- The company corrected an immaterial prior-period equity accounting error, with no effect on total equity or operating results. Management did not assess internal control over financial reporting for 2021, citing the business combination and unreasonable effort or expense; the auditor likewise expressed no opinion on internal controls. Aspirational, the predecessor SPAC, had previously disclosed a material weakness tied to warrant accounting and accrual controls.
- The auditor identified goodwill impairment testing as a critical audit matter because it required significant assumptions about revenue growth, margins, cash flows and discount rates. The auditor issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- Whether flight growth and member additions translate into improved unit economics, given the decline in Adjusted Contribution Margin and the continuing net losses.
- How much operating cash generation depends on prepaid blocks, member renewals and the timing of deferred-revenue recognition, and the expected costs to fulfill those prepaid services.
- Whether pilot, aircraft, fuel and maintenance constraints ease, and how pricing or higher costs affect margins and customer retention.
- 2022 capital spending and aircraft purchases, the Air Partner acquisition’s actual closing and funding, and integration costs and benefits from recent acquisitions.
- Delta agreement performance and CARES Act compliance, along with lease commitments, warrant-liability valuation, potential dilution and equity-based compensation.
- The status of internal-control remediation and any developments related to the predecessor SPAC’s disclosed material weakness; also review the underlying financial statements and notes for acquisition accounting and goodwill assumptions.