Wheels Up Experience Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited consolidated results; amounts below are in U.S. dollars. Wheels Up operates a private aviation services business, including flights, memberships, aircraft management and other services.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $420.4m | $302.0m | $1,171.5m | $849.2m |
| Operating loss | $(89.7)m | $(68.6)m | $(276.5)m | $(121.0)m |
| Net loss | $(86.8)m | $(59.5)m | $(268.6)m | $(120.6)m |
| Adjusted EBITDA (non-GAAP) | $(45.2)m | $(23.9)m | $(141.5)m | $(41.1)m |
| Gross margin | 0.2% | 1.6% | (1.7)% | 4.1% |
| Adjusted Contribution Margin (non-GAAP) | 5.1% | 6.3% | 3.3% | 9.2% |
- Q3 revenue grew 39%; nine-month revenue grew 38%. Flight revenue rose 28% in Q3 and 29% year to date. Other revenue increased sharply, including whole-aircraft sales and Air Partner revenue.
- Q3 flight revenue included $16.9m of fuel surcharges; the nine-month amount was $32.5m. Whole-aircraft sales revenue was $35.9m in Q3 and $63.9m year to date.
- Costs grew faster than revenue in both periods. Management cited fuel, maintenance, wages, pilot availability and third-party fulfillment costs, as well as supply constraints. Nine-month cost of revenue increased 48%.
- Basic and diluted loss per share was $(0.36) in Q3 and $(1.10) for the nine months, versus $(0.25) and $(0.60), respectively, in 2021.
Cash, liquidity and obligations
- At September 30, 2022, cash and cash equivalents were $285.5m and restricted cash was $26.4m. Cash, cash equivalents and restricted cash totaled $311.9m, down $474.8m from year-end 2021.
- Nine-month operating cash outflow was $288.3m, versus $152.4m in 2021; investing cash outflow was $171.7m, versus $8.4m. Investing included acquisitions, aircraft purchases and capital expenditures.
- Wheels Up reported no long-term debt balance in the presented September 30 balance sheet and said it had repaid substantially all prior debt in 2021. After quarter-end, on October 14, it issued $270m of equipment notes, receiving $259.2m before expenses. The notes carry 12% interest, require 10% annual principal amortization, and are secured by 134 owned aircraft and certain intellectual property. Management estimated pro forma cash of approximately $544.7m and said liquidity should cover projected needs for at least 12 months.
- Current liabilities included $966.4m of deferred revenue, primarily prepaid flight blocks and jet cards. This is customer funding for future services, not equivalent to unrestricted cash available for general use.
- Future minimum operating lease payments were approximately $154.8m as of September 30, 2022.
Material changes, outlook and risks
- Air Partner was acquired in April for $108.2m cash, adding international operations across 18 locations in four continents; Alante Air was acquired in February for $15.5m cash, adding 12 light jets. The acquisitions contributed revenue but also integration costs and goodwill.
- Active Members increased 12% year over year to 12,688; Q3 Active Users rose 11% to 13,339 and Live Flight Legs rose 7% to 21,025. Flight revenue per Live Flight Leg increased 20% in Q3.
- Management cited recovery in flight volumes in Q2 and Q3 after COVID-related disruption, while noting continued parts and supply-chain issues and higher costs. It expects private aviation demand to benefit over time from consumer focus on wellness and safety.
- The company planned to relocate significant member operations functions to a new Atlanta center, expected to begin operations in mid-2023. Management identified execution, employee-retention, cost and timing risks.
- Key risks include ongoing cash burn, ability to meet debt and lease payments, restrictive financing covenants, aircraft fuel-price exposure, operational supply and staffing constraints, and foreign-currency exposure from Air Partner. A 10% fuel-price increase, based on nine-month consumption, was estimated to raise fuel expense by $16.8m for the nine-month period. The company reported no fuel or foreign-exchange hedges.
- The filing reported a potential sales and use tax exposure of $9.9m, accrued in the financial statements. Management said pending ordinary-course legal matters were not expected to have a material effect, while acknowledging litigation uncertainty.
- Management reported effective disclosure controls at a reasonable assurance level. Integration of acquired-company controls and systems conversions were ongoing; the filing said the conversions were not prompted by an identified material weakness.
Most important facts for investors to verify
- Whether operating cash burn and losses improve, and how much liquidity remains after debt service, capital spending and customer-related restrictions on cash.
- The terms, covenants, collateral coverage and payment burden of the October 2022 equipment notes, including their effect on aircraft availability and financing flexibility.
- Whether gross and Adjusted Contribution margins recover as fuel, maintenance, staffing and third-party capacity pressures change.
- The sustainability and cash economics of revenue growth, particularly fuel surcharges, whole-aircraft sales, prepaid blocks and acquisition contributions.
- Progress and costs associated with Air Partner and Alante integration, systems conversions and the planned Atlanta operations center.