Wheels Up Experience Inc

NYSE:UP

Earnings Call Transcript 2022-Q1

[Operator]

Hello, and welcome to the Wheels up Experiences First Quarter 2022 Earnings Conference Call. My name is Harry and I'll be your operator today. If you'd like to ask a question during the presentation, you may do so question Stalevo your telephone keypad. It is now my pleasure to hand you over to from apologies.

It's now pleased to hand you over to Keith Ferguson from Wheels Up to begin See, please go ahead.

[Keith Ferguson, Investor Relations]

Thank you, and welcome to Wheels Ops first quarter 2022 earnings conference call. This afternoon, we issued a press release announcing our financial results for the period. The release with its supporting tables as well as a copy of today's presentation can be found on our Investor Relations website at wheels.com/investors. Please refer to the slide to enter 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. In today's call, 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 the call over to our Chairman and CEO, Kenny Dick.

[Kenneth Dichter, Founder, Chief Executive Officer & Chairman]

Thank you, Keith, and thanks to all of you for joining us today. I am pleased to report record revenue for the first quarter as we continue to see unprecedented demand across our platform and more broadly across our industry. It has long been our goal to build a technology-enabled marketplace for private aviation that connects strong and growing demand with highly fragmented supply. This marketplace playbook is a proven to structure in many other verticals, and we are relentlessly focused on providing an unparalleled member experience in the air and on the ground, backed by an unwavering commitment to safety. Our strategy is already showing results.

Today, we are a clear leader with a growing base of more than 12,000 active members and well north of $1 billion of annual revenue. We have built an iconic brand in private aviation, and we have forged a strong and unique commercial relationship with Delta Airlines as well as significant brand partnerships that deliver even greater value to our members. While generating demand is typically the more difficult part of building a marketplace, it is where we have been very successful. In fact, our first quarter is a testament to that success. We reported revenue exceeding $320 million, again, a record for the first quarter and up almost 25% year-over-year. Active members are 26% higher than a year ago, and our live legs were up 15% year-over-year as we marked the anniversary of the rebound in travel during the pandemic. Prepaid block sales, a great indicator of future demand were exceptionally strong, over $170 million for the quarter and up over 150% year-over-year.

Overall demand remains strong at the start of the second quarter, and our average pricing is increasing. Our core member retention continues to be robust, and our core members continue to spend more than $80,000 per year with us on average. Our newest cohorts spend more than our prior cohorts, we'll also continue to spend with us at a healthy clip. We believe all of these factors provide a strong foundation for future revenue growth. Our key strategic priority is to aggregate the supply side of private aviation that drives the scale utility and efficiency that enables the network effect of our marketplace. This is the key to unlocking additional profitable consumer demand. Ultimately, the difference maker for us will be the industry-disrupting technology and innovation we deploy. We see an enormous opportunity to improve the customer experience and effectively create a broader and more accessible marketplace for private air travel as much as Uber has done for taxis and black car and Airbnb for vacation home rentals. Vena will talk in more detail about our operating and technology initiatives.

I'm encouraged by the steady progress in both areas, and we are in a much stronger position today than we were at the beginning of this year. As a direct result of those initiatives, our operations improved each month throughout the quarter, and we continue to improve in April. In fact, absent the impact of higher fuel prices during the quarter, our adjusted contribution margin would have improved sequentially in the first quarter. With the benefit of our fuel surcharge, our recent pricing actions and program adjustments and the contribution from Air partner, coupled with our improving operating performance, we believe we are poised to show margin improvement throughout the remainder of the year. Let me now highlight our most recent acquisition and a strategic minority investment. We closed on the Air Partner acquisition on April 1. Air Partner is a great fit with our growth strategy, giving us an asset-light platform to extend our offering globally and includes attractive adjacent businesses that we can grow over time.

The company has a seasoned and well-respected management team that will lead our international expansion and enable us to provide a true end-to-end solution for our members who are increasingly looking to travel around the world. Beyond the strategic rationale, the Air Partner acquisition makes great financial sense as well. Next, we made a strategic minority investment in Tropic Ocean Airways, a leading provider of SemiCaravan splays, which is ideal for last mile service in Florida, the Bahamas and the Caribbean and a great addition to our marketplace. We see opportunities to expand their service to other geographies and introduce their offerings to a much wider customer base. We look forward to keeping you updated on our progress. We will also continue to broaden our supply capability through the strategic acquisitions of charter management companies and opportunistic aircraft purchases. As we have said many times, we are not demand-constrained. That's why we are focused today on building our supply network while deploying our technology to be best positioned in a supply-constrained environment. I'd like to provide an update on our environmental initiatives. Sustainability is something that is incredibly important to me and where Wheeldocan be a leader over the long term. Sustainability is a journey that we have embarked on, and I'm pleased to announce beginning in June that we will fully offset the carbon emissions of our member and customer plans.

Carbon offsets are important, but we are also focused on how to reduce the overall impact of our operations on the environment. Even seemingly small things like using sustainable, responsibly sourced materials and reducing single-use plastics can make a difference in the aggregate. We will be sharing more details on these important initiatives as they develop. One quarter into the year, we are moving quickly to invest in our members and in our customers, expand our supply network, further develop our technology-enabled marketplace and capture a much larger overall TAM. Before I turn it over to Venia, I wanted to share that our CFO, Eric Jacobs, will be stepping down later this month to pursue a new endeavor. I'd like to thank Eric for his many contributions to Wheel software. He's been a key member of our executive leadership team and played an integral role in taking Wheels Up public. He has helped build a tremendous finance team that he leaves in the very capable hands of Arcadises who has served as our SVP Finance for over 3 years and will serve as our interim CFO.

I -- we have retained Russell Reynolds to conduct an external search for a permanent replacement. Eric Jacobs has graciously agreed to stay on as an adviser, and we are very happy we will be able to tap his insight and perspective going forward. As always, I am thankful to our loyal members and customers for continuing to put their trust in us. I would also like to recognize and thank the entire hardworking team at Wheels Up for the tremendous effort they put forth every day.

Now let me turn it over to Venia, who will provide an update on our technology and operating progress.

[Vinayak Hegde, President]

Thank you, Kenny. It's great to be with all of you today. Ken highlighted some of our recent top line successes, and I'm pleased to report that our pace of execution is also improving. The business operating system we have implemented is helping drive the rigor and transparency we need as we continue to scale and deliver improved core margins over the course of the year. Our operations improved steadily over the course of the first quarter, and that trend has continued so far in the second quarter. These improvements directly translate to a better customer experience and area where we are relentlessly focused.

So with that, let me provide an update on the operating initiatives that I laid out last quarter, where we will continue to direct our energy and resources throughout the year. First, we're focused on improving utility in the near term to pilots and maintenance hiring. We've already hired more than 250 pilots since November, well ahead of the plan we laid out in the third quarter, and we'll continue to focus in this area. These pilots will steadily enter into service as they complete our company-specific training, giving us a strong ongoing pipeline, which will help to drive our fleet utility going forward. Our pilots are some of the most highly trained and dynamic in the industry, and they probably represent our front line with members and customers. Turning to maintenance. Our aircraft return to service time is a challenge, which adversely affects aircraft dispatch availability. One of the main challenges in this area is our reliance on third-party providers that are experiencing their own issues relating to labor, hearts and work backlogs.

To address this, we are continuing to invest in internal maintenance capabilities, which allow us to be in control of the schedule and work out of priority at a lower labor cost. Our in-house maintenance teams are nearly 20% faster and recurring issues or 20% lower than external providers. Similar to pilots, we have made a concerted effort to hire more maintenance technicians, which accelerated in the first quarter and which we expect will continue to improve throughout the year. This increase in technicians will boost our mobile service unit capacity by over 50% this year, providing faster response time to address unscheduled maintenance at remote airports because we fly to thousands of destinations, this is a critical capability. Although parts availability still remains a challenge for aircraft manufacturers and the broader industry, we're getting smarter about increasing our inventory of the right cards in key areas where limited supply impacts of a return to service times.

I'm pleased to report that with our pilot force increasing and maintenance turnaround times improving, our dispatch availability and utility, the number of towers are top flies for revenue each month improved over the course of the quarter and are now operating at the highest levels in over 6 months. I expect these key operations initiatives will continue to drive improvements in our service levels and contribution margins. Now allow me to walk you through a few of our recent initiatives that demonstrate how we are strengthening our technology marketplace on both the supply and the demand side. As you may recall, we migrated our mountain fleet to up FMS last year. All migrations are challenging, and we have learned a lot from that experience. In 6 short months, our key migrated nearly our entire first-party fleet on to up SMS. And we are currently processing the final approvals for our entire fleet. Based on what we have learned from running our own fleets and those of over 100 customers provided more than 80 new features to FMS to make fleet management more efficient, especially for loading fleets and for rapidly changing schedules common today.

This greatly reduces complexity by providing a common high-fidelity view of all our operations. We have a robust product road map and will continuously deploy enhancements that will enable all kinds of up FMS, including our own fleet to more effectively manage daily operations. We are now focused on integrating ups with our scheduling system to further optimize utility and maximize efficiency across all of our fleets. And there are other opportunities to add automation to our marketplace by connecting our internal systems to our customer-facing platforms like the Wheels app, we can provide real-time customer incentives and tries dynamically to drive demand for off-peak flying. This will help us proactively stimulate demand to fill empty repositioning legs and encourage customers with flexibility to change their travel plans, driving higher utility. This means significant savings for our customers and revenue for Wheelsup where we would have done in the past. We also will be better positioned to capitalize on the demand supply mismatches that often occur.

Our natively built customer data platform is a critical component of improving our customer experience because it gives our account managers and customer service teams, great visibility into our customers' experiences, preferences and intentions in real time. In April, we launched a complete rebuild of our mobile app, our first major app update in 2 years. Like UFMs, the new app was redesigned on a modern service-oriented architecture that enables us to regularly add new features and functionality to improve the user experience. Since our initial launch, we have already released multiple updates with significant improvements to performance and search. These foundational elements are just the beginning of our mobile road map. Future updates will allow passengers to manage flight changes and passenger lifts. -- greatly reducing customer service interactions while simultaneously providing a better customer experience that puts our members in control, coupled with insights from our customer data platform, our app will ultimately help us shape demand by recommending alternative times, dates or even airports that better mesh with available supply.

With that, thank you all for joining. Let me turn the call back to the operator so we can take your questions.

[End of Q&A]

Thanks very much. [Operator Instructions] Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.