Wheels Up Experience Inc.
Q3 2023 Earnings Call Transcript

Published: 9 Nov 2023

[Operator:]

Welcome to Wheels Up Third Quarter 2023 Earnings Conference Webcast. It is my pleasure to introduce Keith Ferguson. Mr. Ferguson, you may begin the conference.

[Keith Ferguson:]

Thank you. This morning we announced our third quarter financial results. The earnings release with its supporting tables, as well as a copy of today's presentation can be found on our Investor Relations website at wheelsup.com/investors. Please refer to the slide with our disclaimer. Today's presentation contains forward-looking statements based on our current forecasts and expectations of future events. These statements should be considered estimates only and actual results may differ materially. During today's webcast, we will refer to non-GAAP financial measures as outlined by SEC guidelines. Unless otherwise noted, all income statement-related financial measures will be non-GAAP other than revenue. Reconciliations of GAAP to non-GAAP financial measures and definitions of non-GAAP financial measures are found within the financial tables of our earnings release and appendix of today's presentation. And with that, I'd like to turn that over to Wheels Ups' Chief Executive Officer, George Mattson.

[George Mattson:]

Thank you, Keith, and thanks to all of you for joining us today. In October, I eagerly took this role for one simple reason

[Todd Smith:]

Thanks, George. It's been my pleasure. It is great to be with you all today. For the operating and financial update, I will focus on three topics. The highlights from our third quarter performance, details on our operating priorities and progress and how we are on track to deliver on our commitment to achieve positive adjusted EBITDA in 2024. Starting with the highlights of the third quarter. Revenue was $320 million for the quarter down year-over-year, but consistent with our financial plan and a shift to a more profitable regional model. Membership revenue was down slightly year-over-year, largely reflective of the reduction in our program offering and despite continued strong retention of our existing customers. Flight revenue was down 9% sequentially and 23% year-over-year, reflecting a slowdown in industry volumes as well as company-specific market-related concerns of our financial position prior to the capital infusion from Delta and our new investors. As a reminder, going forward, our reported revenue will be lower due to the divestiture of our aircraft management business, which represented $53 million of revenue in the third quarter. Our adjusted contribution margin was 11% in the quarter, including $5.9 million of onetime software license revenue. Excluding that, our underlying adjusted contribution margin was 9.2%, up sequentially and at the highest level in over two years. We have reduced fixed costs through the opening of our member operations center and fleet consolidation, while charter margins have also improved. More importantly, customers have benefited from our operating enhancements, as evidenced by a marked improvement in on-time departures and completion rates. Operating expenses were relatively flat sequentially and down 10% year-over-year in absolute dollars, as we benefited from our restructuring actions and continued expense controls. Adjusted EBITDA loss was $18.5 million for the quarter, including the onetime software license revenue that I just mentioned and an almost $6 million gain from aircraft sales, net of related debt extinguishment costs. Excluding those items adjusted EBITDA loss was $30.4 million, the narrowest loss in almost two years. The improved result was driven by an increase to our adjusted contribution margin and lower OpEx. We still have significant work to do, but this result highlights the progress we are making. GAAP net loss was $144.8 million including a $56.2 million non-cash charge for the impairment of goodwill. Prepaid blocks were $79 million for the quarter, underpinned by the continued commitment from our existing customers, but negatively impacted by the changes to our programmatic coverage area and market speculation for much of the quarter prior to the completion of our new funding. More importantly we have seen a more than 200% increase in our daily block volumes since the closing of our funding transaction and we expect block sales in the fourth quarter will be the strongest of the year. We ended the quarter with $245 million of cash and cash equivalents on our balance sheet and total liquidity of $365 million including a $100 million undrawn revolver from Delta and a reserve deposit on our double ETC notes. In addition as George highlighted, we are in active discussions on the last $50 million of our recent capital raise to bring the total proceeds to $500 million. The third quarter had a confluence of factors that led to a much higher than normal cash usage in the quarter. So let me walk you through that. Our cash balance at the end of the quarter includes the $350 million that was funded in September. A portion of those funds were used to repay a $70 million bridge loan extended by Delta during the quarter, as well as onetime transaction expenses and working capital uses during the quarter. We expect our year-end cash balance to be flat to up versus the third quarter, reflecting improving profitability, a stabilization of deferred revenue and working capital and remaining proceeds from the term loan. In addition, we would still have $100 million available from our revolver. We are taking multiple steps to improve our adjusted contribution margins through changes to our programs and how we operate our business. These actions will allow us to focus on our strengths with the goal to drive asset utilization and efficiency. Along those lines, the new program changes are designed to focus our controlled fleet flying in our blue regions where we have significant density and a cost advantage. That density means we can be more efficient in crew scheduling and cost, more productive in our maintenance operations and provides faster response times for our customers. Leveraging our network strengths is how we plan to drive a sustainable cost advantage that will result in lower prices for customers and profitable margins for us. Equally important we will minimize flying our controlled aircraft outside of the blue regions where we lack the density to operate profitably. However, we will continue to serve customers through our leading charter capabilities at competitive market rates. Air Partner has proven it can deliver a great service, with a scale that leverages the strength of third-party operators with density in those regions. Striking the right balance of what we call, programmatic in-region flying and profitable charter out of region is a key part of our strategy going forward. Our internal actions are also contributing to improving utility and efficiency. The consolidation of our flight operations into our member operations center in Atlanta, has improved our scheduling optimization and coordination with 95% of our operations team now all, under one roof. We are also leveraging Delta's capability across Air Traffic Control planning and their leading-edge meteorology reports to schedule around ATC and adverse weather delays, including proactively offering an opportunity for customers to shift their travel plans to avoid likely delays. We are already seeing improved pilot utilization and lower costs, through our certificate consolidation efforts. We expect further efficiencies, as we complete that consolidation. These actions are a contributing factor to why we are seeing improving customer delivery metrics. And we expect continued improvements in the year ahead. We expect to continue to reduce operating expense, as a result of the sale of our managed aircraft business which was sold at the end of the third quarter, and the benefit of run rate reductions, driven by previously initiated restructuring activities. While our spending is coming down in absolute dollars, we are continuing to invest in customer service and delivery. When you put it all together and based on the progress we have already delivered, we remain confident in achieving positive adjusted EBITDA in 2024. So to wrap-up, I'm extremely thankful to Delta, to Certares, Knighthead and Cox for their confidence in Wheels Up and what we can accomplish together. With this new capital infusion, we have the resources we need to continue to service our members and customers at the highest level. With that, let me turn it back to George.

[George Mattson:]

Thanks Todd. I'm really excited about the future for Wheels Up and our ability to lean into our strategic partnership with Delta, to really do something unique in the industry that can't be matched by our competitors. We are going to be a show-me company not a, tell-me one. Our stated goal is to become the best run Private Aviation Company and deliver tangible, measurable progress every week, every month, one flight at a time. I look forward to sharing updates on our continued progress. Before I close, I want to take the opportunity to sincerely thank all of our employees, whose strength, commitment and passion to the company is evident as we work together to fulfill our most important obligation, delivering an always safe and exceptional flight experience for all of our members and customers. I also want to thank our loyal members and customers who have stood with us, despite the increased media attention and speculation in the press earlier this year. We are working tirelessly to provide you with the best possible aviation solutions, as we build toward our future. Thank you for your interest.

[End of Q&A:]

That concludes today's conference call. Thank you for your participation. You may now disconnect your lines.