Wheels Up Experience Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Financial statements are unaudited. Amounts below are in U.S. dollars; financial figures are rounded to millions unless stated otherwise.
Business context
Wheels Up provides private aviation services, including flights, memberships, aircraft management and other aviation offerings. It reported one operating segment. On September 30, 2023, it completed the sale of its non-core aircraft management business; Q3 results include that business, but management does not expect significant related revenue or expenses in future periods.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $320.1m | $420.4m | $1,006.9m | $1,171.5m |
| Operating loss | $(129.0)m | $(151.7)m | $(378.6)m | $(338.5)m |
| Net loss | $(144.8)m | $(148.8)m | $(406.3)m | $(330.6)m |
| Adjusted EBITDA, non-GAAP | $(18.5)m | $(45.2)m | $(107.7)m | $(141.5)m |
| Adjusted contribution margin, non-GAAP | 11.0% | 5.1% | 5.9% | 3.3% |
Revenue fell 23.9% in Q3 and 14.0% for the nine-month period. Q3 reported gross margin was 1.5%, versus 0.2%; nine-month gross margin was (2.0)%, versus (1.7)%. These gross margin figures are as presented in the filing’s reconciliation. Net loss improved slightly in Q3 but widened for the nine months. Adjusted EBITDA and adjusted contribution margin are non-GAAP measures and are not substitutes for GAAP results.
Q3 flight revenue declined 23.0%, primarily reflecting 21% fewer live flight legs and a 2% reduction in flight revenue per leg. Active Members fell 15% year over year to 10,775; Q3 live flight legs declined 21% to 16,581. For the nine months, live flight legs declined 17%, while revenue per leg rose 3%.
Cash flow, liquidity and debt
- Cash and cash equivalents were $244.8m at September 30, 2023; restricted cash was $29.3m. Working capital deficit was $459.3m.
- Net cash used in operating activities was $661.5m for the first nine months, compared with $288.3m in 2022. The company attributed significant pressure to lower Prepaid Block sales: $274.9m versus $658.7m, contributing to deferred revenue declining to $692.4m from $1,076.9m at year-end 2022.
- Investing activities provided $36.6m, including $53.9m from aircraft sales and $13.2m cash proceeds from the aircraft-management divestiture. Financing activities provided $283.2m, principally from the new term loan.
- At quarter-end, principal debt was approximately $583.6m, including $232.6m of 12% Equipment Notes and $351.0m of the 10% Term Loan, including capitalized interest. The balance sheet reports long-term debt, net, of $235.4m plus $25.2m current maturities, reflecting substantial unamortized discount and financing costs.
- The Term Loan matures in 2028 and bears 10% interest, payable in kind. If the Deferred Issuance is not completed by January 18, 2024, its rate increases to 20% until completion. Delta committed a $100m revolving facility; none was drawn at quarter-end, and availability is subject to conditions and cash-related repayment provisions.
- The Equipment Notes carry a $75m minimum liquidity covenant, secured by liens on aircraft and certain intellectual property. The company reported compliance with debt covenants at September 30.
Material changes, outlook and risks
- Financing and dilution: On September 20, the company received a $350m term loan and issued lenders 141.3m shares, stated as approximately 80% of fully diluted shares at the specified September 15 reference date. A further 529.9m shares were agreed to, subject to stockholder approval of an authorized-share increase; together, the issuances were intended to represent approximately 95% on that reference basis. Lenders also received board designation rights. The filing reports 167.1m shares issued at September 30 and 166.8m outstanding as of November 6; the contemplated additional issuance presents substantial potential dilution.
- Goodwill and unusual items: The company recorded $56.2m of Q3 goodwill impairment and $126.2m for the nine months. It also recorded a $3.0m divestiture loss. The aircraft-management sale had stated aggregate consideration fair value of $19.1m, including $13.2m cash and contingent and other receivables.
- Operating plans: Cost reductions, revised member programs effective June 2023, FAA certificate consolidation, fleet and maintenance changes, and asset sales are intended to improve efficiency and flight margins. Management cautioned that the transition from historical Prepaid Blocks may cause near-term financial variability. A new Up for Business corporate program launched November 1, 2023. Management provided no quantified earnings or revenue guidance in the supplied filing text.
- Liquidity and going concern: Earlier adverse conditions had raised substantial doubt about the company’s ability to continue as a going concern. Management concluded that new funding, amended liquidity covenants, the divestiture and cost-reduction efforts mitigated those conditions. It expects to meet liquidity needs for the next 12 months using cash, operating cash flows, asset dispositions and, if needed, the revolving facility; these plans depend on execution and future cash generation.
- Other risks and contingencies: The company reported ongoing losses and cash outflows, significant contractual obligations, potential vendor demands for prepayments or less favorable terms, debt covenant and cross-default risks, and dependence on successful operational changes. It estimated potential sales and use tax exposure of $10.6m. Routine legal matters were not expected to be material, though outcomes remain uncertain.
- Controls: Management concluded disclosure controls and procedures were not effective at September 30 because remediation of previously reported material weaknesses was ongoing. It described remediation steps but said deficiencies would not be considered resolved until controls had operated and been tested for a sufficient period.
Important facts for investors to verify
- Whether stockholders approved the authorized-share increase and whether the deferred 529.9m-share issuance was completed, including the resulting ownership and dilution.
- Current unrestricted liquidity, operating cash burn, Prepaid Block sales and deferred revenue trends, and access to the revolving facility.
- Progress toward sustainable operating improvements, including live flight legs, member retention, adjusted contribution margin and the costs and timing of restructuring and certificate consolidation.
- Compliance with the $75m liquidity covenant and other debt terms, the Term Loan’s potential 20% rate step-up, and the company’s ability to service and refinance its obligations.
- Completion and cash realization of contingent divestiture consideration, and any changes to goodwill, tax exposures or previously identified control weaknesses.