Wheels Up Experience Inc. Q4 FY2022 earnings call

• Business performance update: Fourth quarter revenue was a record, up nearly 20% YOY; annual revenue up over 30%; active members grew 5%; prepaid blocks over $1 billion for the year. - 2023 objectives: Focus on serving customers profitably; continue to grow and build a scaled business. - Path to EBITDA profitability in 2024: Three key components - cost reductions, pricing initiatives and program changes, and operational efficiency. - Cash position: Cash balance of nearly $600 million at the end of the year. - Cost-cutting: Headcount reductions in several areas excluding pilots and front line maintenance, expected $30 million of annualized savings. - Sales team integration: Integrate Wheels Up and Air partner sales teams for a global approach. - Technology use: Use dynamic pricing, e.g., pricing offer for King Air 350i fleet; invest in technology to shape demand and drive density; automate billing and deploy scheduling optimization capability. - Incentive program: Increase weighting of incentive program to favor adjusted EBITDA versus revenue growth. - OpEx: Sales and marketing expenses 6.4% of revenue, down sequentially; technology and development expenses 3.2% of revenue, total dollars down 18% sequentially but up 42% YOY; G&A expenses 5.9% of revenue, flat sequentially in dollar terms. OpEx down $5 million sequentially in the quarter, on track for positive adjusted EBITDA in 2024.

In the fourth quarter of 2022, Wheels Up reported revenue of $408 million, a record for the quarter, up nearly 20% year-over-year, and annual revenue reached a record $1.6 billion, up over 30% year-over-year. Membership revenue was up 13% year-over-year. Flight revenue was up 9% year-over-year, with flight revenue per live leg up 14% year-over-year but live flight legs down 5%. Without Air Partner, flight revenue per live flight leg was up 19% year-over-year. Aircraft management revenue was $62 million in the quarter. Other revenue was $50 million, up significantly year-over-year due to the addition of Air Partner and an increase in aircraft sales. The adjusted contribution margin for the fourth quarter was 4.7%, down slightly sequentially but at the high end of the guidance range of 4.25% to 4.75%. Excluding Air Partner and aircraft sales, the core Wheels Up adjusted contribution margin was up sequentially.

• First quarter revenue expected to increase mid single-digits year-over-year. - First quarter adjusted contribution margin expected to fall in the 3.5% to 4% range. - Second quarter adjusted contribution margin expected to be the highest the company has posted in almost two years. - Full year adjusted contribution margin expected to be 6.5% to 7.5% on average, with high single-digit at year end. - First quarter adjusted EBITDA loss expected in the range of $45 million to $50 million. - Full year adjusted EBITDA loss expected in the range of $110 million to $130 million. - GAAP net loss for first quarter expected between $95 million and $105 million, and for the year between $300 million and $320 million. - 2023 capital spending expected to be in line with normal capital spending in the mid-single-digit range of revenue going forward.

• Macro-economic environment headwinds on new membership sales. - Moderation in flying reflecting current conditions. - Execution risk of cost-cutting measures. - Inflationary pressures on pilots' parts, maintenance, etc.

Q: Could you parse out how much of the 2023 revenue guidance is related to like the number of members versus peers like per member going forward?

A: Todd Smith said member growth would largely track overall flight revenue, mix of macro environment and increased selectivity, with a shift to more on-demand charter to help.

Q: How do we think about the path from the 2023 EBITDA guidance (negative 7% to negative 8% for full year) to positivity in 2024?

A: Todd Smith said expected to make meaningful progress in 2023 relative to objectives, with high single-digit adjusted contribution margin at year end 2023, and combined with low-teens non-GAAP SG&A as a percentage of revenue, should be in strong position for 2024.

Q: When did you see the slower new member sales and reduced flying start to slip? Any specific customer type or aircraft category that was an outlier into year end?

A: Kenny Dichter said saw a bit of slowing at the end of the fourth quarter, January a bit slower than expected, but February and March booking levels stronger; mentioned special offer on Kinnar east of the Mississippi.

Q: Any aircraft sales assumed in your 2023 revenue guide?

A: Todd Smith said will assume some aircraft sales, but first quarter will be a reasonably light component.

Q: Have you seen any improvements in cost pressures or changes with the outlook for pilots' parts or maintenance as we flip the calendar into 2023?

A: Todd Smith said recognized inflationary pressures, built into profile, and seeing some favorability on third-party pricing as supply rebalances.

Q: Could you maybe characterize the booking uptick at the end of February and into the first week of March?

A: Todd Smith said combination of broader demand pick-up (super-mid and TransCon flights strong) and actions to drive demand, using dynamic pricing to shape demand. Kenny Dichter supplemented about demand shaping and partnership with Delta helping.

Q: How to get from the high-single adjusted contribution margin in 2023 to the mid-teens in 2024?

A: Kenny Dichter said related to the three pillars of cost, pricing and program changes, and operational execution and efficiency, including technology investment, consolidated MOC opening, certificate consolidation, and shaping demand.

Q: How significant was the up-tick in bad debt expense in your full year guidance?

A: Kenny Dichter said bad debt charge in fourth quarter was largely related to historical cleanup, not reflective of ongoing condition, with strong and affluent customer base.