Wheels Up Experience Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Amounts below are in millions of dollars unless noted. Wheels Up provides private aviation services. The July 13, 2021 business combination was accounted for as a reverse recapitalization; historical financial statements are those of Wheels Up Partners Holdings.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $302.0 | $194.8 | $849.2 | $485.2 |
| Operating income (loss) | $(68.6) | $26.1 | $(121.0) | $(33.7) |
| Net income (loss) attributable to Wheels Up | $(58.5) | $18.9 | $(114.1) | $(47.3) |
| Adjusted EBITDA, non-GAAP | $(23.9) | $(8.0) | $(41.1) | $(41.1) |
| GAAP gross margin | 1.6% | 4.5% | 4.1% | (1.2)% |
| Adjusted Contribution Margin, non-GAAP | 6.3% | 12.2% | 9.2% | 8.1% |
Revenue grew 55% in Q3 and 75% year to date. Q3 flight revenue rose 56%, membership revenue 35%, aircraft management revenue 51%, and other revenue 177%. For the nine months, flight revenue increased 81%; management attributed growth to more flight legs, increased activity by members, the Mountain Aviation acquisition, and comparison with pandemic-affected 2020 results. Active members increased 45% to 11,375; active users rose 29% to 12,011; live flight legs increased 52% to 19,714 in Q3.
Cash flow, balance sheet and liquidity
- Cash and cash equivalents were $535.3 million at September 30, 2021, plus $2.2 million restricted cash. Total assets were $1.68 billion and total equity was $793.1 million.
- Operating cash flow was $(152.4) million for the first nine months, versus positive $5.4 million a year earlier. The company cited the net loss and a $69.4 million reduction in deferred revenue as key factors. It sold $356.9 million of Prepaid Blocks, compared with $323.3 million in the prior period.
- Investing cash flow was $(8.4) million; financing cash flow was positive $373.4 million, principally reflecting business-combination proceeds net of transaction costs and debt repayments.
- The company received approximately $656.3 million in gross business-combination proceeds, incurred $70.4 million of transaction costs, and repaid substantially all debt. At quarter-end, reported debt was approximately $153,000: $131,000 current and $22,000 long-term.
- Current liabilities included $585.3 million of deferred revenue, primarily prepaid flight blocks and jet cards. The company stated cash on hand was expected to cover projected working capital and capital expenditure needs for at least the next 12 months.
- Operating lease payments totaled $163.0 million, undiscounted, with a recorded lease obligation of $119.4 million. In October, the company began contracts for aircraft access requiring minimum aircraft and flight-hour commitments; deposits paid totaled $33.5 million as of the filing date.
Material changes and unusual items
- Q3 operating results shifted from profit to loss despite strong revenue growth. Cost of revenue increased 65%, faster than Q3 revenue growth of 55%, and Adjusted Contribution Margin fell to 6.3% from 12.2%. Management cited industry cost and supply pressures, pilot availability, and maintenance challenges.
- General and administrative expense rose 192% in Q3, mainly due to accelerated equity-award vesting associated with the business combination; Q3 equity-based compensation was $27.9 million versus $1.2 million a year earlier.
- The prior-year comparison included CARES Act grant income of $51.6 million in Q3 and $64.9 million for the nine-month period. No such grant was recognized in 2021.
- The company recorded a $12.3 million non-cash gain from the change in warrant-liability fair value and a $2.4 million loss on debt extinguishment in 2021. Warrants are classified as derivative liabilities and remeasured each reporting period.
- Mountain Aviation was acquired in January 2021 for $40.2 million, including $30.2 million in equity and $10.0 million cash, with potential additional contingent consideration of up to $15.0 million. Its reported post-acquisition revenue through September was $87.2 million.
Outlook, commentary and risks
No numerical revenue, earnings, or margin guidance is provided. Management expects continued net losses for the foreseeable future, while stating that available cash should meet projected needs for at least 12 months. Management believes pandemic-related safety concerns have supported private-aviation interest but notes that future COVID-19 effects remain uncertain.
Key disclosed risks include demand and member-prepayment trends, competition for pilots and aircraft capacity, fuel prices, maintenance and supply constraints, reliance on third-party operators, acquisition integration, and significant lease commitments. The company does not hedge fuel; a hypothetical 10% rise in fuel prices would have increased fuel expense by approximately $4.6 million in Q3 and $12.1 million year to date. It also disclosed estimated sales and use tax exposure of $7.9 million, accrued in the accounts. Management reported disclosure controls effective at a reasonable assurance level; the filing also describes remediation work related to a material weakness previously identified at Aspirational, the SPAC predecessor.
Investor verification priorities
- Confirm that revenue growth translates into improved unit economics, particularly given the sharp Q3 decline in Adjusted Contribution Margin.
- Track operating cash use, deferred-revenue and Prepaid Block balances, and whether management’s stated 12-month liquidity expectation remains supportable.
- Assess whether pilot availability, maintenance capacity, fuel costs, and third-party aircraft access constrain growth or raise fulfillment costs.
- Review the cost and terms of the new minimum-capacity operator contracts, including future deposits and commitments.
- Monitor equity-based compensation, potential dilution from awards, earnout shares and warrants, and non-cash warrant-liability remeasurement effects.
- Follow the sales and use tax exposure, CARES Act compliance restrictions, and progress on internal-control remediation.