Wheels Up Experience Inc. (NYSE:UP) Q1 2024 Earnings Call Transcript

Prepaid blocks were $114 million for the quarter, seasonally lower versus Q4, but up 14% year-over-year. We believe this reflects our improved operating performance and stronger partnership with Delta. As George highlighted, we saw particular strength from corporate customers, with corporate blocks representing the highest percentage of total blocks in our history. This reflects the success of our efforts to increase our exposure in that important customer segment. We ended the quarter with total liquidity plus reserve deposits of $301 million, which includes cash and cash equivalents, the undrawn revolver from Delta and the $20 million EETC reserve deposit. Although that was down versus the prior year, our cash usage for the quarter was a fraction of the first quarter of 2023 and improved by over 60% year-over-year.

That reflects the increased block performance and improved cash management and working capital initiatives we have executed on. Our deferred revenue balance was down 28% year-over-year to what we believe is a more sustainable level. We are encouraged by the fact that our deferred revenue additions and usage was the most balanced it has been in the first quarter since 2020. We also continued to divest excess aircraft and used a portion of the proceeds from those sales to pay down $16 million of our long-term debt. Next, I want to provide additional color on the structural changes that we have made to our business and how those initiatives position us for long-term profitability and success. Last June, we took the difficult but necessary step to overhaul our Programmatic offering to focus our controlled fleet on primary service areas where we had a network density advantage.

We knew that transition would be challenging and take some time to show up in our numbers as we honored previous commitments to fly anywhere in the country. Today, less than 20% of our current block balances are on those legacy pre-June 2023 rule sets, allowing us to take the next steps to more fully transition and consolidate our controlled fleet flying within our regional footprint. We have made a lot of progress in overhauling the mix of our business. We have been successful in our efforts to increase our mix of profitable Charter flying, much of which is fulfilled on an asset light and capital efficient basis. As George touched on, we are seeing growing momentum with our corporate initiatives. Securing a higher mix of corporate blocks is a crucial step in balancing our flying over the days of the week, creating significantly more opportunities for weekday travel to complement the weekend concentration we typically see from our leisure flyers.

This balance is a key component of our financial plan to drive asset utilization and deliver higher incremental margins going forward. As we just announced a few weeks ago, a key next step operationally is to open a new flagship maintenance facility at Palm Beach International Airport later this year. That move, along with the closing of underutilized maintenance facilities in Cincinnati, Ohio and Broomfield, Colorado, is a crucial step in the reallocation of our maintenance capabilities to be appropriately concentrated where our fleet will be flying. We were also pleased to partner with FEAM Aero and AVEX Aviation to offer a career path for our affected employees. Those actions, combined with the completion of our certificate consolidation and further rightsizing of our fleet, should allow us to significantly increase our asset utilization and efficiency with faster response times and improved service for our customers.

So now let me walk through how those actions we have taken and are in the process of taking position us to achieve positive adjusted EBITDA later this year. As George highlighted, our operations are performing better than ever with strong customer service metrics. Those results are the first proof points that our initiatives are working, as they are the direct result of actions taken by our management team to consolidate our operations in our member operations center, increase our aircraft maintenance availability by over 10% year-over-year, work with the FAA to combine our certificates and reduce complexity in our operations, and execute on an overhaul of our program changes that position the company for long-term success. Admittedly, to-date, those actions have been more customer-centric.

Focusing on customers is the first step to building a strong and sustainable business. We believe the flying experience with Wheels Up today is significantly better than it was a few years ago and even a few months ago, and we are committed to continuing that improvement journey. We anticipate that financial benefits will become more apparent through the remainder of the year. We expect to take further steps to optimize our fleet size to match demand in our network, consolidate our maintenance operations in our new facility at PBI, and see benefits from improved revenue and schedule management efforts that will allow us to shape demand in off-peak periods. In addition, our new Chief Commercial Officer will continue our efforts to better integrate our commercial, marketing and revenue management activities to help us maximize profitable revenue growth and utility.