Wheels Up Experience Inc. (NYSE:UP) Q4 2023 Earnings Call Transcript

Wheels Up Experience Inc. (NYSE:UP) Q4 2023 Earnings Call Transcript March 7, 2024

Wheels Up Experience Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Welcome to the Wheels Up Fourth Quarter 2023 Earnings Conference Call 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 fourth quarter financial results. The earnings release with the 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 forecast 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.

With that, I’d like to turn it over to Wheels Up’s Chief Executive Officer, George Mattson.

George Mattson: Thank you, Keith, and thanks to all of you for joining us today. Over the past five months as CEO, I’ve had the privilege of meeting with many of our loyal customers and partners who form a powerful Wheels Up community and also with many of our prospective customers interested in the next chapter of the Wheels Up journey launched late last year in conjunction with the strategic investment by Delta Airlines and our other new investors. I’m very pleased that following the challenging period the company faced last year, we are seeing an accelerating level of engagement and we believe that our value proposition is resonating with customers across our offerings and market segments. I’m also pleased to report on the progress we’ve made since our last earnings call, including solidifying our financial position, enhancing our operating team and structure, building our traditional new business pipelines and scaling our Delta customer initiative while continuing to invest and deliver an exceptional experience for our customers.

Wheels Up has built a strong foundation of flexible and accessible aviation solutions to offer our customers through programmatic member offerings in the US as well as on demand private, group charter and cargo offerings here in the US and around the world, on fleet, off fleet and in partnership with Delta, offering a seamless connection between premium commercial and private travel, the only one of its kind in our industry. Although most people know Wheels Up for its well-recognized brand and membership offerings, some may view us as simply a North American operator focused on leisure customers, our signature events and legacy turboprop aircraft, but we’re much more than that. With Air Partner, we are also one of the largest Part 135 charter providers in the world.

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Q&A Session

Our combination of capabilities enable customers to choose their optimal mode of travel, trip by trip, business or leisure, domestic or international, short, medium or long haul, and exclusively private or commercial or a hybrid of the two. Our reported revenue fully reflects the total dollar amount of our programmatic flying. However, we only recognize in GAAP revenue a fraction of the total spend of our charter customers on those flights. Todd will elaborate in a few minutes on the accounting conventions, but to better illustrate the scale, diversity and mix of our business, we’re introducing a new metric which we believe fully captures the commercial activity and absolute customer spend on our charter business within Wheels Up, which we call Flight Transaction Value or FTV.

That represents the total amount our customers spend with us on all flight services. Our asset-light charter business, powered by Air Partners leading global platform, is an increasingly significant and critical piece of our flight solutions that has greatly enhanced our ability to serve the full breadth of our customers’ needs, here in the US and around the world, and is a great complement to our programmatic member offerings. We delivered $1.2 billion of FTV in 2023. That is up significantly from the year before we bought Air Partner. Equally important is how this acquisition transformed our business. Programmatic flying refers mostly to flights by our members in our primary service areas. Those members benefit from guaranteed access, attractive pricing with guaranteed cap rates and many other benefits.

Programmatic flying was the core of Wheels Up prior to our acquisition of Air Partner and today it represents the largest and a strategically critical part of our business, representing just over half of FTV. Our charter business is a large and growing component of FTV. In addition to private jet charter, we also offer group charter for 15 or more passengers and cargo transportation for high-value-time-critical customized solutions. Our charter capabilities have significant scale and are a growing and profitable business for us. We are one of the largest charter brokers in the world. The United States is our largest market, but not our only market. With the acquisition of Air Partner, we expanded our global reach and now have access to growth opportunities around the world.

With our robust capabilities, we are growing with high-value corporate customers. Today, corporate flying represents over one quarter of our FTV and we expect corporate to be a larger segment of our business over time as we focus across the business on corporate opportunities and leverage our strategic partnership with Delta. We’re forging a tighter integration with Delta’s sales team and are seeing strong interest in our offerings from among their largest and most important customers. We believe a balanced mix of individual and corporate flying would be ideal to allow us to shape demand, drive asset utilization and scale access across our network and improve our overall operations and profitability by smoothing our flying volume seasonally as well as across the days of the week.

I’m really excited about our leadership position in the market, where we’re heading and the opportunities in front of us. So let me now turn to the steps we’re taking to strengthen the company and position us for a sustainable and profitable future. First, we significantly strengthened our financial position with the addition of $490 million of committed capital led by Delta. That includes the mid-November second closing of our term loan in which we welcomed new investors, core capital and white-box advisers. Our cash balance was up sequentially as we had previewed and we ended the year with over $260 million of cash to fund our operations as well as a $100 million undrawn revolver from Delta. As we announced last month, we beefed up our management team by adding operations talent that brings a collective 250 plus years of operating expertise, much of that coming from our partner and industry leader, Delta Airlines.

Today, expanding our presence in Atlanta, we have what I believe is the best operations team in the industry and I’m confident they will help us continue our journey to lead the industry and to share with you our progress. Along those lines, I’m very proud of our strong and improved customer service metrics. In our last quarter report, my first as CEO, we started down the path of greater transparency and communication on our performance, including committing to provide regular updates of our completion rates and on-time performance. I’m pleased to report that our completion rates and on-time performance have improved significantly over the past year and remain in line or above two key internal targets, with the first being at least a 98% completion rate and the second being over 85% on-time performance.

We define on-time performance as takeoff or wheels up within 60 minutes of scheduled time. These metrics include all sources of delay, weather, air traffic control, unscheduled maintenance events and even customer delays. Wheels Up is the first company in private aviation to disclose these types of performance metrics, and it reflects our confidence and our commitment to provide an exceptional experience to our customers. We are more than happy to compete on a transparent and open playing field. Beyond operations, we’ve also made significant improvements on the commercial side of our business. We’ve brought in additional leadership resources to lead the integration of our scheduling, pricing and revenue management. These functions form the nucleus of our commercial engine that positions us to better shape demand and drive revenue optimization that works hand in hand with the capacity and scale of our network.

We expect our efforts will result in greater optimization of pricing and revenue management, greater choice and differentiation for our customers, and higher-incremental margins for Wheels Up. I’m pleased to see corporate customers committing to fly with us. They represent an increasing percentage of our customer mix and see the value in our broad capabilities, flexible offerings and the top-notch service we provide. That’s why our pipeline of new business continues to grow, and I expect further wins through our integrated selling efforts with the Delta corporate team. So before I hand it over to Todd for the financial review, let me summarize the three foundational pillars of our strategy. First is to become the best run and most reliable private aviation company in the world.

I detailed the enhancements we made to our leadership team and our ability to leverage the unrivaled resources of our strategically aligned partner, Delta. Our state-of-the-art member operations center in Atlanta, the heartbeat of our operation, has been critical to an improvement in our service and I’m confident our operations team will lead the industry in service delivery as we see additional benefits associated with the completion of the consolidation of our operating certificates later this year. We remain committed to be transparent with our customers and will continue to share our operating metrics. We encourage our competitors to do the same. Second is to provide the broadest array of flexible and accessible aviation solutions in the industry by seamlessly integrating our Wheels Up program and Air Partner global charter offerings and effectively connecting our offerings to Delta’s premium commercial platform.

We want to meet every customer’s needs flight by flight with the aircraft they need, where they need it, whether they fly exclusively private or want to combine Delta and Wheels Up offerings into a single aviation relationship. Third, we will invest in the customer experience and look at how we can enhance every aspect of that experience, every touch point and every process to make flying Wheels Up as simple and convenient as possible. Our member operations center has vastly improved our communications and interactions with our customers and we strive to do even better. It goes without saying that all of these actions are in support of our plan to achieve positive adjusted EBITDA during this year and position the company for a sustainable and successful future.

So with that, I will let Todd provide a financial review.

Todd Smith: Thanks, George. It is great to be with you all today. For the financial review, I will focus on three topics, highlights from our fourth quarter performance, additional color on the mix of our business from a flight transaction value perspective and why that’s important, and our plan to deliver on our commitment to achieve positive adjusted EBITDA in the year. Starting with this quarter’s highlights, revenue was $246 million for the quarter. More than half of the year-over-year decline was the result of lower aircraft sales revenue and divesting of our aircraft management business at the end of the third quarter, which allowed us to focus on our core operations. Flight revenue was down year-over-year as we continued to execute on our plan to focus on our network strengths where we have an advantage and can be profitable.

Along those lines, our charter volumes were up approximately 20% year-over-year, reflecting the success of our efforts to shift our mix to more profitable charter flying as we increasingly serve our customers with an integrated global aviation solution. Our adjusted contribution margin was 1.2% in the quarter, reflecting lower overall volumes that drove underutilization of our fixed assets and was inclusive of several additional cost adjustments related to maintenance and other operational areas that are not expected to be recurring. Over the past 12 to 18 months, we have been on a very focused journey to enhance and mature our financial processes and further strengthen our control environment as a public company. I am pleased with the progress we have made in this area, and we recognize the importance of maintaining strong controls relative to our financial and information technology processes.

Our team has made significant progress in reducing our operating expenses, which were down $14.7 million sequentially and by far the lowest level since first quarter of 2022, which was before we bought Air Partner. That improvement is driven by our restructuring efforts, the sale of our aircraft management business and disciplined spending on our technology, sales and marketing efforts. Adjusted EBITDA loss was $38.1 million for the quarter. While that has improved year-over-year, it is down sequentially, partially reflective of the adjustments I described earlier. We have made key structural improvements in our service offering and cost structure that create the foundation on which we can grow and set the business on a path to be sustainably profitable.

GAAP net loss was $81.1 million for the quarter, much improved year-over-year, primarily due to the absence of a good will impairment charge that impacted last year’s results. Prepaid blocks were $207 million for the quarter, up over 150% sequentially and by far the strongest quarter of the year. This reflects normal seasonality as well as our improved financial position and continued strong interest in our service offering from corporate and individual member flyers. Our cash balance was $264 million, up sequentially from the third quarter as we had previewed in November, reflecting strong prepaid block sales and the additional $40 million capital raised from our term loan. We ended the quarter with total liquidity plus reserve deposits of $384 million, which includes the undrawn revolver from Delta and the $20 million double ETC reserve deposit.

We expect future cash balances will be driven by improving profitability through continued cost control and a higher mix of flying by our charter and corporate customers as well as managing our working capital. We expect block sales will increase over the course of the year and we will remain disciplined on our capital expenditures. Now I will transition to our new metric George introduced called flight transaction value or FTV. We believe FTV better illustrates the true size and breadth of our business and it allows us to better highlight the success of our efforts to grow our more profitable charter business and drive a higher mix of corporate flying, which generally comes with higher-incremental margins. Let me explain how the reporting convention we currently use understates the size of our charter business.

Our reported revenue includes the full amount paid by our customers for our programmatic flying but only a fraction of our customers spend on charter flight. We report our charter revenue on a net basis, only recognizing the difference between what we pay to charter the aircraft and the amount that we charge our customer. To illustrate the impact, let me walk through an example using two $20,000 customer flights, one that flew programmatically on our controlled fleet and one that flew charter. Combined, the flight transaction value was $40,000, representing what our customers actually spent for those flights. However, our reported revenue in this illustration would be around $25,000. The full amount of the programmatic flight at $20,000 would be recognized as revenue.

However, the revenue for the charter flight is only a part of that FTV or approximately $5,000 in this case. When you look at our reported results in 2023, we posted total revenue of $1.25 billion, of which just over $900 million was private jet flights and group and cargo charter. However, the full value of what we provided or total flight transaction value was $1.2 billion and 30% higher than our reported flight-related revenue. Along the same lines, private jet flight transaction value per live flight leg is 16% higher than the equivalent metric using our reported flight revenue. On an apples-to-apples basis, the full value of our members and customers payments per live flight leg grew 8% over the past year, reflecting a higher mix of longer-stage length charter flying along with larger cabin classes.

FTV captures the full value of our services and it better reflects our global and charter capabilities within the broader industry. We are also highlighting these metrics because we are focused on growing our charter mix of business, which we believe has positive profit implications for our company even within a potentially smaller reported revenue profile. This transition, along with our focus on increasing our mix of corporate flying, are key components of the steps we are taking to build a sustainable and profitable business. We expect our shareholders will be rewarded as the fastest growing parts of our business are the ones that have the highest margins. So now let me walk through the actions we are taking that give us confidence we will achieve positive adjusted EBITDA in this year.

We are continuing to improve our operating efficiency. George went through the enhancements to our operating team, including adding over 250 years of operational experience, much of it honed during careers spent at our partner and industry leader, Delta. We believe we now have the best operations team in the industry. As we have highlighted previously, we’re in the midst of optimizing our fleet. Our regional program, which was rolled out last June, concentrates our controlled fleet flying in our primary service areas where we have significant advantages from network density. We anticipate that will drive our asset utilization through improved maintenance availability and crew efficiency and allows us to reduce our fleet size. More importantly, we expect our customers will benefit from improved customer service and response times.

At the same time, we continue to offer nationwide capability for our customers via our charter business, and a significant number of our prior customers are using charter capabilities both in the non-guaranteed regions of the country and globally. We stopped selling the older and unprofitable nationwide guaranteed programs last June and are making substantial progress in migrating our flying to the newest program rules. Currently, less than 20% of our flight deferred revenue is on a pre-June 2023 rule set. This transition in our program offering as well as the increasing mix of charter and corporate flying combined are expected to provide a strong tailwind to our adjusted contribution margins in the year ahead. We also remain focused on ensuring that our infrastructure and cost base aligns with our evolving business model, with a focus on driving improved efficiency while continuing to provide exceptional and reliable service to our customers.

I’m proud of the progress our team has made, as demonstrated in our fourth quarter cost profile, though OpEx may fluctuate from quarter-to-quarter going forward. Lastly, with the commitment of our partner, Delta, and our new investors, we added $490 million of committed capital in the second half of 2023, which supports both our operational delivery for our customers as well as the work that is well underway that we anticipate will support a long-term sustainable and profitable business for all of our customers, employees and shareholders. With that, let me now turn it back to George for his concluding remarks.

George Mattson: Thanks, Todd. We are leading the industry in offering customers the opportunity to choose their optimal mode of travel trip by trip, business or leisure, domestic or international, short, medium or long haul, exclusively private or commercial or a hybrid of the two. We’re about fitting into customers’ needs, not asking customers to fit their needs into our products. Before I close, I want to thank our extremely talented team for their strength, commitment and passion to the company, which is evident in their work and dedication to delivering for our customers an always safe and exceptional flight experience. I also want to thank our customers for their continued loyalty. We ended the year on an operationally strong note and I look forward to leading our exceptional team in delivering for you every day. Thanks for your interest.

Operator: Ladies and gentlemen, thank you for joining today’s call. Have a great rest of your day. You may now disconnect your lines.

End of Q&A: