Wheels Up Experience Q3 2023 Earnings Call Transcript

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November 9, 2023

There are 4 speakers on the call.

Operator

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

Speaker 1

Thank you. This morning, we announced our Q3 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.

Speaker 1

These statements should be considered estimates only and actual 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 it over to Wheelz Up's Chief Executive Officer, George Madsen.

Speaker 2

Thank you, Keith, and thanks to all of you for joining us today. In October, I eagerly took this role for one simple reason, To position WheelsUp as the best run global private aviation company in the world that provides unmatched flexibility And accessibility to its customers. And not only within private aviation, but across Delta's commercial offerings And our global charter subsidiary, Air Partner. For the first time, customers will be able 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 private commercial hybrid. My recent customer interactions have reinforced the need for our industry to deliver unique solutions that enable customer choice.

Speaker 2

And as we realize the potential of our strategic partnership with Delta and our other alliance shareholders, we expect to build and deliver And even more compelling and distinctive value proposition and to do so profitably. Over the last several weeks, We have worked to integrate our corporate sales teams and marketing initiatives with Delta. I have personally participated with the joint teams in dozens of prospective customer discussions, and I'm pleased with the reception to the broad set of solutions we can deliver together. On October 31, we launched our new UP for Business corporate program focused on Delta's 45,000 Small and medium sized enterprise or SME customers. We are actively engaged with 150 new prospects Within the 1st 6 business days after launch.

Speaker 2

The opportunities to collaborate with Delta span Across both our traditional Wheels Up member business as well as our Air Partner Global Charter Business. Under Todd Smith's leadership as Interim CEO, the company took significant steps to align on the right goals. We have improved our execution and value to our members, a direct result of our adjustments we made to our programmatic offering in June. We have shifted our focus from growth to prioritizing performance, fleet optimization and reliability. Our work to regionalize our programmatic flying and focus on our network strengths provides both a cost advantage to wheels up And better pricing to our members.

Speaker 2

80% of our programmatic flying is in our new primary service areas, East of the Mississippi, the western area of the country and TransCon trips between those regions, where we have a significant network and cost To drive utility and efficiency and improve our asset utilization. Customers flying in those regions We'll continue to take advantage of our guaranteed capped rates and benefit from our ability to dynamically price down during off peak times. That is a significant value proposition for our customers flying in those regions. That is a direct result of our fleet density. These changes enabled WheelsUp to shape demand and reduce empty repositioning flights simultaneously.

Speaker 2

Outside of those primary service areas where we lack density for our controlled fleet, we are still providing service to our customers at a market based rate. Those flights leverage both our controlled fleet and AirPartners' industry leading asset light charter capabilities to offer competitive rates Using safety verified 3rd party operators, AirPartner is already playing an increasingly vital role, including in our Delta partnership In complementing and extending our footprint, both domestically and internationally, as Wheelz Up members and Our growing base of business customers fly globally. There are many additional steps We are taking to improve the performance of our business and drive operational excellence. For most of its 10 year history, Wheels Up was focused on growth to build scale, and today, it is one of the largest and most recognized private aviation companies in the world. Over the last couple of years, operational performance was challenged, exacerbated by the pandemic driven demand spike.

Speaker 2

We appreciate our members' patience and loyalty through this transition. And over the last year, we have built a strong foundation for our operation to propel us forward, A journey that will be a central focus for the company. To further improve our operations, Delta has and will continue to share its expertise with WheelsUp in maintenance and operations, revenue management and network planning and optimization. In May, we consolidated multiple facilities into a new state of the art member operations center or MOC in Atlanta. Modeled after the Delta Operations customer center and with nearly everyone under one roof, Our communication and coordination have greatly improved.

Speaker 2

Our MOC is led by Dave Holtz, a veteran operations leader Tremendal and Delta's rise to today's reputation of best in class operational excellence. We are applying that same leadership and measurement driven approach At Wheels Up and are already seeing the results. The MOC operation should be fully ramped by the end of this year. We are already seeing operating benefits from the consolidation of 6 FAA operating certificates into 3 this year, with improved scheduling ability, Faster recovery times, more efficient operations and lower overhead and travel costs. The move to all operations on a single certificate, Which is expected next year, should provide further improvements to our efficiency, productivity and margin profile.

Speaker 2

All of these actions have contributed to stronger service metrics over the past year. Our completion rate is approaching 99% With almost 90% of our flights departing within 60 minutes of the scheduled time, inclusive of ATC, weather, maintenance and customer delays. In the month of September, we exceeded all of our internal operating targets across the board for the first time. While we are proud of the improvements we've made to date, we know we still have much work to do to give our customers the level of service They deserve. Importantly, our goals will not remain static.

Speaker 2

As the flywheel of operating improvement accelerates, we will reach for more ambitious targets In a continuous process of improvement. Our improvements in commercial engagement and operations are well underway And have been further advanced due to the company's improved financial position with the recent cash infusion from Delta Airlines And our new investors, Certari's, Knighthead, Cox and others. We closed the $350,000,000 term loan from Delta And our new investors in September, which also included an additional undrawn $100,000,000 credit commitment from Delta. In addition to that financing, I'm pleased to report that we are in active discussions to secure the remaining $50,000,000 Of the $500,000,000 financial investment, Delta and our new investors have a vested interest in the long term success of the company And we'll own approximately 95% of the total equity of the company after the final issuance of shares following today's shareholder meeting. This is a testament to the fact that Delta and our new investors view us as an important strategic investment.

Speaker 2

The confidence of these investors Following a comprehensive due diligence process in our strategy and go forward plan was a contributing factor to why I joined the company. Our new Board and our entire WheelsUp team are highly engaged in the business and focused on the long term success of the company. I'm very excited to lean into the range of expertise in travel, tourism and capital markets from our newest investors And the deep experience and commitment of our world class team. So let me turn to my priorities over the next 12 months. Our goal is to provide customers the flexibility and accessibility they need to optimize each and every trip, Business or leisure, domestic or international, operated on our owned operated fleet or fulfilled with 3rd party aircraft.

Speaker 2

Historically, the vast majority of Wheels Up flying is for leisure customers. That means much of our flying is primarily on weekends and holidays, Leaving us with underutilized capacity on many weekdays. We expect our collaboration with Delta on new commercial engagements will lead To increase corporate customers that typically engage in more midweek flying, a higher mix of corporate flying We'll further leverage our network density and increase our asset utilization and efficiency, driving down our unit costs. Within the next year, we expect nearly all of our controlled fleet flying will be on the new regional program, Which will let us harness the density advantages inherent in our in region network for our owned leased aircraft and allow us to reduce the size of our controlled fleet. As I have already indicated, we expect to continuously improve our operating performance.

Speaker 2

We believe our performance today matches up well with the rest of the industry, Though it is hard to compare since the private aviation industry does not publish performance statistics like their commercial counterparts. Our goal is to lead the industry in operating performance and to add customers as we grow with the confidence that we can provide An exceptional and differentiated service. All of these actions support our plan to achieve positive adjusted EBITDA In 2024 and position the company well for a sustainable future. As Todd will more fully describe, We have already made steady quarter over quarter improvements toward this goal. Before I turn the call over to Todd to do a financial review, I want to take a minute to thank him for his leadership and guidance over these past 6 months.

Speaker 2

The company is in a much stronger position today because of his efforts And critical contributions in getting the company through a difficult period that has led to this new and exciting chapter. So with that, I will let Todd provide a financial review. Thanks, George. It's been my pleasure.

Speaker 3

It is great to be with you all today. For the operating and financial update, I will focus on 3 topics: the highlights from our Q3 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 Q3. Revenue was $320,000,000 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.

Speaker 3

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 $53,000,000 of revenue in the 3rd quarter. Our adjusted contribution margin was 11% in the quarter, including $5,900,000 of one time software license revenue. Excluding that, our underlying adjusted contribution margin was 9.2%, up sequentially and at the highest level in over 2 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.

Speaker 3

Adjusted EBITDA loss was $18,500,000 for the quarter, including the one time software license revenue that I just mentioned And an almost $6,000,000 gain from aircraft sales, net of related debt extinguishment cost. Excluding those items, adjusted EBITDA loss was $30,400,000 the narrowest loss in almost 2 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 $144,800,000 including a $56,200,000 non cash charge for the impairment of goodwill.

Speaker 3

Prepaid blocks were $79,000,000 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 Q4 will be the strongest of the year. We ended the quarter with $245,000,000 of cash and cash equivalents on our balance sheet and total liquidity of $365,000,000 Including a $100,000,000 undrawn revolver from Delta and a reserve deposit on our WTC notes. In addition, as George highlighted, we are in active discussions on the last $50,000,000 of our recent capital raise To bring the total proceeds to $500,000,000 The 3rd 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.

Speaker 3

Our cash balance at the end of the quarter includes the $350,000,000 that was funded in September. A portion of those funds were used to repay a $70,000,000 bridge loan extended by Delta during the quarter as well as one time transaction expenses and working capital uses during the quarter. We expect our year end cash balance to be flat to up versus the 3rd 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 $100,000,000 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.

Speaker 3

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 costs, 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.

Speaker 3

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 Striking the right balance of what we call programmatic in regions line 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 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 cost Through our certificate consolidation efforts, we expect further efficiencies as we complete that consolidation.

Speaker 3

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 3rd 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, So, Tarrez, Knighthead and Cox for their confidence and wheels up and what we can accomplish together.

Speaker 3

With this new capital infusion, we have the resources we need

Speaker 2

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.

Speaker 2

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.

Operator

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

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Key Takeaways

  • WheelsUp solidified its strategic partnership with Delta, launching the UP for Business program targeting 45,000 SME customers and integrating corporate sales and marketing with Delta.
  • The company shifted its focus from growth to operational performance by optimizing fleet utilization, regionalizing programmatic flying in high-density areas, and leveraging AirPartner charters outside core regions.
  • Operational enhancements—including a new Member Operations Center in Atlanta and FAA certificate consolidation—have driven a completion rate approaching 99% and 90% of flights departing within 60 minutes of schedule.
  • WheelsUp closed a $350 million term loan (plus a $100 million undrawn credit) from Delta and new investors, positioning the company to pursue its goal of positive adjusted EBITDA in 2024.
  • In Q3, revenue was $320 million (down year-over-year) but adjusted contribution margin rose to 9.2%, and adjusted EBITDA loss narrowed to $30.4 million, marking the best performance in over two years.
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Earnings Conference Call
Wheels Up Experience Q3 2023
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