Hello, everyone. And welcome to the Wheels Up Second Quarter 2021 Earnings Call. My name is Bethany, and I’ll be coordinating your call today. [Operator Instructions] I will now hand the call over to your host Keith Ferguson, Investor Relations to begin, Keith over to you. .

Thank you. And welcome again to Wheels Up’s second quarter 2021 earnings conference call. Earlier today, we issued a press release announcing our financial results for the period. The 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 estimates of future events. These statements should be considered estimates only and actual results may differ materially.

During today’s call, we will refer to non-GAAP financial measures as outlined by the SEC guidelines. 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 to today’s presentation.

And with, I’d like to turn the call over to our Chairman and Chief Executive Officer, Kenny Dichter.

Kenny?.

Thank you, Keith. And thanks to all of you for joining us today. We are excited to share the Wheels Up story with you. Please check out our Analyst Day materials from April 16, 2021, which you can find on our Wheels Up Investor page. We will touch on parts of that original presentation today.

Building on my 20-plus years in the private aviation industry, Wheels Up is bringing the next phase of disruption with our marketplace platform.

Our marketplace will efficiently connect growing demand with global aircraft supply, which over time will increase access, drive down costs, open the aperture through a much larger total addressable market and improve yields for third-party operators.

Our strategy and improving yields on underutilized assets is similar to how Uber has extracted value in cars and Airbnb has done in homes. Let me share some of the highlights from this morning’s earnings release. We reported over $285 million in revenue in the second quarter, setting a quarterly record and up over 110% year-over-year.

First half revenue was just under $550 million, which is up almost 90% year-over-year. Our Active Members grew almost 50% year-over-year and now exceeds 10,500 in total. Our Live Flight Legs were up almost 150% year-over-year to over 18,000 in the quarter. Private aviation has rebounded more quickly than anyone in the industry expected.

We are seeing unprecedented demand for leisure travel and the beginnings of a return for business and international travel. Our strategy to increase and diversify our fleet, cultivate our brand, provide exclusive partner benefits and further develop innovative technology are key drivers to our performance.

We view the combination of current market conditions and our strong customer cohort purchasing behavior as a great opportunity to increase our market share. We believe this is defining moment in private aviation, where being bold matters, and we’re building relationships with consumers new to the market is critically important.

As a result, we have made the strategic decision to invest in the growth of our business, while some industry participants are pulling back. This gives us even more conviction and confidence to push forward. I’d like to take a moment to recognize our hardworking team for their tireless work and support of our customers.

I’d also like to thank our loyal members and customers for their trust in us. As I mentioned, we are seeing very strong demand. Now, allow me to explain how we are managing supply this year and our plans to enhance it. We deployed advanced machine learning algorithms that have improved our demand forecasting.

This improved forecasting allows us to make short and long-term commitments to secure supply from other aircraft operators through the use of Guaranteed Rate Programs, what we call GRPs. These asset-light GRPs now represent over one-third of our third-party capacity, up from nearly zero at the beginning of the year.

We have expanded the number of charter hours available from our managed aircraft base. These aircraft owners allow us to use their airplanes for Wheels Up members and customers at times when these owners are not flying. We will continue to unlock the latent supply in the industry.

We will use machine learning to further enhance our ability to find the right plane in the right place at the right time to drive utility and reduce repositioning hours. We are creating products and services for our aircraft management platform to drive additional asset-light lift to support our flight demand.

Our managed aircraft business provides a key component of supply. We are accelerating investments in areas of the business that we had expected to develop over a longer time horizon.

That includes investing in human capital, technology, infrastructure and key areas that will drive efficiency, reduce costs and most importantly, deliver world-class experiences in the air and on the ground.

We believe Wheels Up has a significant first-mover advantage and that this strategy will generate strong margins and create substantial shareholder value over the long-term. Now, I’d like to recap some of our recent initiatives.

We forged an exclusive partnership with American Express, a great opportunity to work with one of the most iconic brands in the world, offering unique programs and benefits to Platinum Card Members. This represents an important opportunity for lead generation.

We launched UP for Business, which formalizes our offering for businesses and their private aviation needs. With our diverse fleet and commercial relationship with Delta Air Lines, we have already seen increased interest from businesses. As I like to say, CEOs like us, CFOs love us. I see a lot of opportunities with business customers.

We recently integrated the Mountain Aviation fleet onto our Avianis Flight Management System. You will hear more about that in a few minutes. As part of our Meals Up initiative with Feeding America, we co-sponsored The Match with Tom Brady, Phil Mickelson, teeing off against Aaron Rodgers and Bryson DeChambeau.

I’m proud to announce that to-date we have inspired funding for over 60 million meals. We continue to focus on diversity, equity and inclusion, both inside and outside our organization.

Partnerships with organizations like C200, a powerful community of the most successful women in business, representing companies with more than $1.4 trillion in combined revenue and the NFL Players Association and its Community MVP program are two such examples. Next up, I want to introduce to you Vinayak Hegde, our Chief Marketplace Officer.

Vinayak is the newest member of our C-suite having joined us this May. He is responsible for all of our marketplace initiatives, including the product and technology that will power it. Vinayak was previously a senior executive at Airbnb, Groupon and Amazon.

Vinayak was introduced to us by the Chairman of our Marketplace and Board Advisor, Greg Greeley works when we partnered with Amazon and Airbnb. Vinayak is a force of nature and is already doing great things for us. With that, I’m now going to turn over the call to Vinayak..

The app and the customer-facing user interface and the features that enhance our go-to-market; integrated tool sets that are force multipliers to enable our service teams to better manage flights and overall customer experience; Avianis or flight management system which is the ERP of our flight operations; and machine learning and optimization systems that make all the above more efficient.

We’ll be rolling out significant new enhancements on our app over the next year that will allow customers to better search for specific destinations, compare prices based on time of week and day, a better visibility to shared flights and set up alerts for their travel preferences. About 50% of our flights today are booked through the app.

There is still room for improvement. The features that just highlighted are a step in the right direction with much more to come.

Once you have a booking, the goal is to automate the actual flight back office functions, including personalizing the experience to align with customer preferences, procuring the right supply and otherwise ensuring the flight proceeds as effortlessly and seamlessly as possible.

Our improve demand forecasting tools have given us advanced notice to anticipate demand and schedule supply before others. We expect to further improve efficiency through the full deployment of the global aircraft search engine that we detailed on our analyst day.

It’ll give us high-fidelity view of all the applicable aircraft, their locations and their availability. This Uber-like system will evolve from Avianis, which is a critical enabler of our strategy. Our flight management system which is the core component of Avianis, is the brains behind the flight operations or the so-called ERP system.

It provides flight tracking, crew scheduling, transaction settlement, analytics and a host of other features that are essential to operating a fleet efficiently. In June, we converted our Mountain Aviation fleet onto the Avianis platform, which is an important milestone.

Floating fleets are exponentially more complex than home-based fleets, but also the greatest opportunities to drive efficiency and utility across our asset-right fleet.

We learned a lot from our Mountain Aviation conversion and are working quickly to drive enhancements to further blaze the path to a much wider deployment, both within our own Company and commercially for our third-party operators. We will be building a platform to incorporate machine learning into aspects of optimization across our operations.

We can improve fleet availability by optimally timing maintenance at an individually aircraft level and intelligently scheduling flights and crews to reduce empty leg flights. Driving dynamically will help us maximize yield for both our owned and managed fleets and our partner fleets.

This will improve unit economics and provide immense benefit to our customers. Let me conclude by saying, with the strong demand generation we have today, Wheels Up has an incredible foundation to harness a lot more value for shareholders.

I see a lot of similarities with other marketplaces that I have been involved with at the earlier stages of their life cycles. With that, let me turn it back to Kenny..

Thank you, Vinayak. Our team has accomplished a lot in our short history. We have built a strong brand and foundation, and have an experienced and diverse management team, which I believe has the vision to take us to the next level, as we create a marketplace platform for our high-value customers.

Let me now turn it over to Eric Jacobs, our CFO, to run through our financials..

membership; flight; aircraft management; and other. Let me start with membership revenue, which grew 23% year-over-year. This revenue is highly visible and largely recurring. Given our strong 80%-plus retention rate for core members. These core members make up most of our membership revenue.

In the second quarter, we added more than 600 net new members with Active Members growing 47% year-over-year. We were pleased to have crossed the 10,000 member mark, finishing the quarter with 10,515 Active Members.

While I except that we will add more lower-priced connect members versus core members over time, we’ve added more core members than connect this year by a ratio of roughly 2 to 1.

Our core offering that is guaranteed availability and cap pricing across all asset classes is clearly resonating with the market, particularly as industry pricing has increased and supply has tightened. That said, I want to stress that we don’t manage our business for any one type of customer, whether member or non-member.

Our goal is to serve all customers and address their specific needs. Like Amazon or Costco, the member relationship is a key driver of our total revenue. We’re actively working to open up the aperture to attract other customers who are not yet members. Now, I’ll move to the next revenue category, flight revenue.

Flight revenue is the largest contributor to our top-line. It was up 12% sequentially this quarter, and up 154% year-over-year. As I said during our Analyst Day, we think the best way to model flight revenue is to multiply Live Flight Legs by revenue per Live Flight.

And Live Flight Legs were up 19% sequentially from the first quarter and 146% year-over-year. As Kenny mentioned, we continue to see strong leisure demand and the beginnings of the pickup in business and international travel.

Flight revenue for Live Flight Legs is driven primarily by stage length and cabin class mix of aircraft site, and it averaged $11,663 for the quarter. This was up 3% year-over-year. We have said in the past that flight stage lengths were up during COVID as customers generally traveled further within U.S., but less frequently.

Given that the economy is reopening, we’re starting to see a return to more normal trend. As a result, average stage length was down over 10% year-over-year in the second quarter. It is now more consistent with traditional pre-COVID travel patterns after rising over 20% year-over-year in the first quarter.

On a separate note, we’re seeing a higher mix of larger cabin flying, which is driven by continued customer interest in our recently launched and highly popular transcontinental service offering, driven primarily by our acquisition of Mountain Aviation.

You’ve heard us say how excited we are about our recent strategic initiatives and how they are resonating with our customers. Let me give you some data points to highlight this.

In the first half of 2019, prior to expanding our fleet offering and pre-COVID, our average core and business members spent slightly over $70,000 annualized with us, inclusive of membership revenue, which we believe is less than 50% of their total spend on private aviation, based on our membership survey data.

Today, those customers in the first half of 2021 are spending an average of more than $80,000 annualized. Even better, new core and business members who have joined during the past year are spending more than their historical cohorts, which should bode well for future customer lifetime value.

And we believe there’s a lot more wallet share available to us as we continue to execute and address our customers’ wants and needs.

In terms of visibility, the percentage of core members who have purchased prepaid block this year has increased significantly to over 50% and core members who buy blocks typically renew at a rate close to 90% historically. These blocks are prepaid deposits for future clients.

We receive the cash upfront and gain visibility into our customers’ future flying intentions. Revenues recognized when they fly typically over the following 12 months period.

For the quarter, prepaid blocks were $116 million, up 71% year-over-year, which is a strong showing considering the amount of blocks we sold in the fourth quarter of 2020, ahead of the resumption of the federal excise tax on flights. The next category is aircraft management.

Aircraft management revenue is generated from recurring monthly management fees as well as recovery and recharge revenue, which is largely pass-through of actual costs incurred with a small margin. Aircraft management plays a key strategic role for us as we scale our business in an asset-light matter.

When our aircraft management owner allows us to use their asset, we can leverage our leading demand capabilities to schedule that aircraft to service our customers. We strategically entered into aircraft management through our acquisitions of Gama and Delta Private Jets.

As part of a typical integration process, we’re calling through some legacy contracts that are not commercially advantageous to us. We’re also willing to make calculated tradeoffs from time to time to obtain access to certain aircraft that are well-suited for our marketplace.

They may offer lower monthly management fees or alternative hourly fee arrangements to create incentives for more charter hours and flexibility of aircraft usage. As a result, you should expect revenue from aircraft management to be roughly flattish sequentially over the remainder of the year.

Our other revenue is a small percentage of our total revenue and represents revenue earned from software, fixed base operations or FBO, maintenance, aircraft sales and special missions including defense. Switching to supply, let me quickly summarize the three categories of our asset-light fleet.

We have a first-party owned and leased fleet of about 180 aircraft. We also have access to our managed second-party fleet with roughly 165 aircraft, and a third-party fleet of over 1200 aircraft. The managed and third-party fleets are considered asset-light fleets.

The goal is to optimize utility and efficiency across all fleets to use the right plane in the right place at the right time to reduce or eliminate repositioning legs and ultimately improve costs and pricing. To manage our third-party asset-light sales closer to our customer, we’ll generally try to utilize that better positioned aircraft.

In other words, we will take a holistic approach to scheduling trips. Year-to-date, our hourly mix of using our owned and leased fleet versus asset-light aircraft was approximately 65% to 35%.

A decrease from 2020 levels of 55% to 45% was due primarily to the acquisition of Mountain Aviation, which was a wholesale provider to us last year and that showed up as a third-party provider. Let me turn now to the cost side of our business.

We an aviation industry at large, are not immune to the cost pressures and supply constraints impacting many industries. Commodity prices, like fuel, travel costs related to commercial airfare and hotels, parks and related shipping have all gone up and are tightened for many industries.

Also, third-party flight maintenance costs as well as pilot and other labor costs are increasing as it relates specifically to our industry. We are leveraging the scale of our network and software tools to find and expand supply with significant enhancements to come. While definitely not easy, we’ve been able to manage through these constraints.

And our hardworking team across the entire Company deserves a lot of credit for that. Also, given the rapid acceleration of demand, our strong commitment to deliver for our customers, we have absorbed some near-term pressure on our contribution margin, which we expect will be flat to slightly down in the second half of the year versus the first half.

In addition, we continue to invest in sales and marketing. We are hiring more sales reps and account managers to address the strong demand we are experiencing. We hope that we can safely restart and host our signature Wheels Up events soon and also expand a number of regional events so that we can engage with our growing membership base.

Events were all virtual last year. Year-to-date, sales and marketing expense was 6% of revenue versus 9% in the same period last year. Our technology and development investments are key to driving operational efficiencies, both Kenny and Vinayak highlighted. We previously discussed enhancements we are making to our mobile app.

And we’re looking forward to the commercialization of Avianis’ real-time supply dashboard, which will help us streamline scheduling and optimization for the marketplace.

Going forward, we expect to increase our spending on technology, including capitalized software to generate increased efficiencies across the organization, particularly in our flight operations, customer service and sales and marketing areas. With regard to EBITDA. Our adjusted EBITDA improved $7.6 million in the quarter compared to last year.

While we’re almost a year ahead of schedule in our revenue growth, in this short term, we have strategically traded lower contribution and adjusted EBITDA margins to achieve that growth. Core member retention are lifetime value are very important to our long-term success.

So, we’re striving to go the extra miles to ensure our customers are getting the best possible experience in this environment. While this requires additional investments in the business, we still believe in our long-term margin potential. Turning to capital expenditures.

CapEx was $10.5 million in the first half of 2021, more than half of which was capitalized software. With CapEx at approximately 2% of revenue, we’re demonstrating lower capital intensiveness of our business.

We’re able to better utilize our own capacity, leverage asset-light list to achieve the strong growth we reported, including the 146% year-over-year increase in Live Flight Legs with only minimal additions to our owned and leased fleet. Now, I’ll briefly review our capitalization and liquidity.

At quarter end, Wheels Up had ample liquidity, the cash and cash equivalents of $161 million. After the quarter, we received gross cash proceeds of $656 million from our merger with Aspirational. We used a portion of those proceeds shortly after closing to pay off all of our $182 million of then outstanding debt.

This debt payoff included all of our aircraft-related financing and all of our other notes related to our prior acquisitions. Today, we believe we are in a much stronger position if we wanted to tap to debt market. With the ability to securitize our owned aircraft, if we need to help fund our business and any opportunistic acquisitions.

I will now turn to our financial outlook and guidance for full year of 2021. When we started conversations last year with Aspirational, our initial projections were for $912 million in revenue for 2021. As we have discussed on the call, we’ve seen very strong flight demand in the first half of the year.

The earlier strength in the first quarter continued into the second quarter with over $0.5 billion of revenue year-to-date through June. Given the strength in the first half, we now expect 2021 revenue to be in the range of $1.05 billion to $1.1 billion.

For those who have reviewed our S-4 filing, we’re almost a year ahead of the initial Aspirational long-term revenue projections. And we will be crossing the $1 billion revenue threshold in only eight years of our existence. With regard to GAAP net loss, we expect to report a GAAP net loss of between $145 million to $160 million for 2021.

While we are not immune from the near-term inflationary pressures, we have chosen not to raise cap rates to date. We’re also increasing investments in operations, technology, product development and customer service. When you put it all together, we expect adjusted EBITDA to be in a range of negative $40 million to negative $50 million for the year.

We expect CapEx spending will be $25 million to $35 million this year to support the growth and demand. Specifically, in the remainder of the year, we may add a small number of aircraft, given the strong demand. And we expect our technology-related investments will lead to an increase in capitalized software year.

Year-to-date, roughly half of our CapEx is related to capitalized software for technology development. And CapEx also includes spending for our New York headquarters, which will be substantially completed by the end of the year.

From an income tax perspective, we anticipate that we will generate net operating losses for income tax purposes in the near term that may be carried forward indefinitely. Now I would like to briefly touch on share count.

You can see in the appendix of our slide deck, a table that outlines our capitalization as of July 13th, which is the date the merger with Aspirational closed. The table is inclusive of warrants at $11.50 and earnout shares that we’ve got at $12.50, $15 and $17.50.

And it also reflects the acceleration of certain equity awards, as part of the closing of the merger. Lastly, please be aware that the appendices and our SEC filings, such as the Super 8-K A, provide important reconciliations, as well as certain quarterly operating metrics and other financial data.

Before I turn the call back to the operator, I want to thank each of you for listening to our first quarterly earnings conference call. With that, let me turn the call back to the operator, so we can take your questions..

[Operator Instructions] The first question comes from Sheila Kahyaoglu from Jefferies. Sheila, your line is open..

Hi. Good morning, guys. And thank you so much for the time. And congratulations on your first quarter, out of the gate very strong. Maybe I could ask about membership grew 47% year-over-year. Can you give us any color about the growth between connect and business core? And you also talked about members going from 70k to 80k annualized spend.

Kind of how you think about a normalized level of spend?.

Sheila, thanks for being here and thanks for that question. I would just say that we have a lot of work to do in a very good way on business, and it’s a great opportunity coming forward and the segmentation on the connect membership. Overall, we feel really good about where things are. Of course, we like the amped up spend.

And I’m going to hand that to Eric to get detail there. Eric Jacobs, our CFO..

Thanks, Sheila. I appreciate it. So, as we said -- as I said in my remarks, we’re really agnostic to what kind of member we have whether it is core business or connect, or even if they’re not member, it’s really about getting people to fly.

The membership has its privileges in terms of allowing, particularly for the core member, which is resonating with customers, because they essentially get the dynamically priced and cap rates as well as the scheduling certainty [Technical Difficulty] trans-con product that we have. That’s really helping to drive that spend per member.

The new cohort, as we said, is really performing better than what we’ve seen historically. And that’s, as you think about lifetime value, that’s super exciting. And I would also add that the -- this is all happening with business and really traditional leisure travel just coming on.

What we’re seeing is all in really high net worth at this moment in time, but we are seeing business and traditional travel starting to be talked about by our membership..

That’s great. And then, maybe one more on the guidance if that’s okay. Your 2021 guidance seems to imply the second half growth 27% versus 90% growth in the first half.

So, are you just being conservative there? What drives that deceleration?.

So, if you look at the back half guidance, it’s essentially saying, look, we’re -- right now, we want to be conservative, hopefully in terms of back half being relatively consistent with we saw the first half. So, if business and international continues to come back and that could bode well for us.

But right now, given that the comps were much tighter in the back half of the year, we just want to be conservative..

The next question comes from Michael Bellisario from Baird. Michael, your line is open..

Thanks. Good morning, everyone. First question relates to demand.

Can you help us understand how quickly do you guys see bookings and/or new members signups increase, as you have a sponsored event or you do some sort of marketing promotion, just thinking about the golf tournament that you mentioned?.

Yes. I would say that, of course, when we get the brand out there, whether it’s an event like The Match that drew over a couple of million people on the Turner networks, or you do something with an ambassador, you definitely see an influx of lead activity and demand activity.

I would say, even bigger, you looking at a partnership with an iconic partner like American Express, and we announced something with their Platinum group, you immediately saw a spike in interest in people coming in. And I think we’re just getting started as it relates to the opportunities that we have with global scale partners in this area.

I’m going to kick it over to Vinayak, who’s out in Seattle. Again, Vinayak came in and joined us about three months ago, spent some great time at Amazon and Airbnb, and as Chief Global Sales.

So, Vinayak?.

Thank you, Kenny. I mean, the key thing that we look at is, from the time people become a member to how quickly they book. And we are very encouraged by the results. That’s the strength of how our platform is actually helping. And we actually look at burn rates. We have significant amount of people who use blocks.

So, in addition to events, it’s also based on seasonality. And then, what we see here is people who become our members are actually trying our product much faster than before, which is very encouraging for us..

And I’m going to kick it over to Eric. I think he’s got a bullet here..

Yes. I think that last point that Vinayak said is interesting one. If you looked historically, people generally become a member when they had a need to fly. And what we’ve seen recently is that the timeframe between when someone joins and flies has decreased, which is nice to see..

And then, just in terms of the balance sheet and potential uses of your cash.

Can you help us understand what you’re thinking about today? I know you mentioned M&A and acquisitions, but where is that on the priority list today?.

Yes. I would say, look, we’re in very unique position. You talk about first-mover advantage and being the first public company in the private jet space in the history of private jet space.

So, having the public ammunition, I mean the $656 million available and being in that very unique position, we have a lot of different moves on the just table but we evaluate and we kick the tires everywhere. We’re going to be focusing on aggregating supply in an asset-right way, big partnerships.

And I’m going to kick it over to Eric for maybe a follow-up bullet on that..

Yes. So, look, we have a strong balance sheet, we paid off our debt, we like where we sit. We think that for our business, it’s very important to demonstrate to our customers that we have very strong balance sheet. That’s where we stand..

Got it.

And just one follow-up there, any update on the Textron partnership that you guys announced recently?.

Yes. We have a great relationship, a long-term relationship with Textron and Scott Donnelly and his team over there. The most recent announcement we made was in the VTOL -- possibly moving to eVTOL as that technology emerges with Scott, we believe Textron is going to be a great partner.

And we think what their engineering, Mitch down at Bell Helicopter, we’ve chosen the right partner. Look for end of the fourth quarter of this year where we’re going stand on some VTOL action over there. It’s a platform where we can enable our technology on that deal.

And again, Textron is an unbelievable partner for us, very proud that we were able to make that announcement with them. And there’s a lot to do. They are a big part of our fleet..

Got it. Helpful. Thank you..

The next question comes from Gary Prestopino from Barrington Research. Gary, your line is open..

Hey. Good morning all. A series of questions.

First of all, Eric, could you comment on maybe how much your member retention improved sequentially and year-over-year?.

Yes. So, as historically -- or I guess, last year, we said that our core member retention was about 80%. It’s over 80% now. And as Kenny said, also back down at our Analyst Day, people that fly with us that are spenders are renewing it and our core membership at over 90%. So, we’ve seen very strong retention during this past six months..

Okay. And then, couple other questions here. Kind of back of the envelope, after your transaction, post Q, the end of the quarter, your net cash on the balance sheet is about $630 million.

Is that right?.

I think, it’s a little less than that. In July, we had some burn. So, about -- you see spending in terms of -- bigger burn in the summer months. And I’ll give you the number in a minute or two. But, it’s little bit less than that..

Yes. I would just say on that question, it’s very healthy for us to have a good burn, provided that the retention numbers that Eric stated stand. And we’re excited, again, our biggest customers, our biggest members from a spend perspective or our members that we’re retaining is over 90%.

What we’re excited about is, if you look at the overall business, people putting down blocks is very important to us. So, what we’re seeing is people burning their hours off. And again, that’s good for us, very healthy, and then replacing and replenishing it. We have more block buyers than we’ve ever had..

So, Gary, if you look at page 15 in our deck that we posted on our website, to accompany presentation, you’ll see roughly $575 million pro forma summary balance sheet as of June 30th..

And again, just to double click on what Eric’s talking, he mentioned the -- very unique in our space to be debt-free and have the ability to back member assets, should an opportunity come our way..

No, I just think that’s great. I just wanted to make sure I got that clarified. So, that -- when you’re talking about these prepaid blocks, that leads to my next question here. It looks like the deferred revenue was down from the end of the year.

And as I recall, that deferred revenue is a reflection of prepaid blocks and the amount of flight time people have paid for that has not been used. So, could you comment on that, considering that you said that the prepaid block purchases were pretty strong in the quarter? Does that normally happen....

Sure, Gary. Yes. So, once again, I’ll refer you back to our Analyst Day where we talked about blocks have a sort of seasonality to them and typically come down, our deferred revenue will come down during the summer months as flying picks up. And then, usually, at the end of the year, there’s a large uptick.

Last year, with the federal excise tax -- flights coming back, we had over $230 million blocks I think in the quarter. So that’s -- well, I don’t want to say, it’ll be $230 million this quarter -- end of this year, because of the not having a federal excise tax situation, we do expect blocks to come up.

And if you look, historically, year-over-year, deferred revenue has been up at the end of the year..

Okay. That’s just the explanation I wanted. I’ve got a couple of more if I may. It looks like your guidance on adjusted EBITDA relative to when you did the transaction, there was a negative delta of $11 million to $21 million.

Can that all be explained by the fact that you’re increasing your investments in technology, people, et cetera?.

I would say -- this is Kenny and I’ll let Eric give you a bullet or two here. Vinayak Hegde being on this call is a product of that. We made a decision and that decision was to take care of the member. We’re seeing a great influx of demand.

We’re committed to take caring of the member today, because we think that lifetime value was -- is the way that you want to play that.

And then, on top of the focus on the member, bringing in Vinayak, and him putting a team together, beginning of a team in Seattle that’s focused on technology and making investment all that going good on the top-line is really how we see it. We’re playing a long game here.

And Eric, can give you a little bit more detail on how we came up with the numbers that he bundled..

Sure. Thanks, Kenny. So, as I discussed earlier, we’ve absorbed the cost pressures and supply constraints that are affecting probably aviation as well as the other industries. We have not raised cap rate to date and we do typically raise pricing annually.

In terms of some of the investments, we’re investing in additional $20 million to $25 million in OpEx this year, on an annualized basis in our operations and service delivery capabilities. And that will enhance customer experiences and drive aircraft availability, scheduling optimization, and third-party supply.

It also includes investing in our pilots through a series of initiatives to enhance recruitment and retention of new and existing pilots. We’re also investing an incremental $15 million this year on an annualized basis in technology and the marketplace. And that’s to generate increased long-term efficiencies..

I want to give Vinayak the microphone here. I know Vinayak, this is one that’s close to your heart and put your Amazon and Airbnb add-on. I think this play has been run and we’re committed to running it..

Yes. Thanks, Kenny. I mean, in terms of technology, I mean, there is a lot of technology to be built here. But the thing is, the efficiencies you’re going to get out of this is going to help us in the long-term. And that’s also going to differentiate us from other companies. And it reminds me of my early days at Amazon.

When we actually built, what I call -- built software for what is called the plumbing and the undifferentiated stuff that nobody actually pays attention to.

Aircraft serves scheduling, trip planning, maintenance, and that takes a lot of investment, but the end result is actually it will allow us to have efficiencies in the long run that very few people can actually match up with. So, that’s why I’m very excited about the investment here that allows us.

And the other thing that happens here is, if you look at the actual software available in the private aviation space, there’s no like proprietary software where you can buy and put things together. It has to be custom-built for the company. And that’s what this investment allows us to actually differentiate ourselves in the long run..

Okay. And while I have you on here, I’m just going to ask this question, because I think it’s important longer term.

I mean, with the industry platform, technology you are developing the global aircraft search engine, how long is it going to take to this to get developed to where you would actually be able to employ the integrated platform in the market? And if you could give us a couple of bullets as to how this improves your operations, once this thing is in the market, that would be very helpful..

Thank you. So, the way we think about this is we -- there’s no big bang here, right? So, what we’re going to do is launch this in stages. So, there is not going to be a big bang.

What we are doing is we are ripping the monolith apart and building what I call a service-oriented architecture, which allows us when we need to make changes that we can actually do it very, very fast. As I told you, we already migrated Avianis, our integrated Avianis for our Mountain Aviation fleet. But, you’re going to see features come in stages.

And we’ll start getting improvements over a period of time. As an example, once we integrated Mountain Aviation into Avianis, we can take care of automatic fleet optimization capabilities for Avianis. As we add more and more, there is going to be incremental optimization that is going to come. The same is true with the website.

As we actually automate more and more of the front end, we can improve search, which would improve conversion. So, it’s a playbook that I’ve done in many other places where we are optimizing stuff across the board and continually actually improving as we go along. Doing a big bang is very risky.

So, first will be the service oriented architecture, and then start actually migrating things one at a time. There’s no clear timeline. We are actually making changes as we speak. And it’s going to be coming one after the other..

Okay. Thank you. That’s very helpful. That’s all I have. Congratulations again for getting the Company public and your first quarter out of the box..

Thank you..

The final question comes from Oliver Chen of Cowen. Oliver, your line is open..

Hi. Thank you very much. Machine learning is a core competency at Wheels Up.

What customer interaction data is really important, and what are the nature of the training sets that you’re pursuing to drive that customer experience? And as you think about ML across the organization, what’s the lower hanging fruit, and where might it have the most impact in other departments? Kenny, I would also love your take on experiential and membership, and how you see that evolving as a lifestyle brand over the customer lifetime value as well.

Thank you..

I’m going to have Vinayak take the first piece. And then, Vinayak, I’ll pick up the brand and the Aspirational elements of what we’re doing on the lifestyle side..

Thank you, Kenny. I mean, when I look at private aviation and when I took the job, I mean, there were very few places where you can apply machine learning to so many aspects of the business. Let me start with the simpler ones at the back end. One is, fleet [ph] optimization and scheduling.

How do you play the right plane at the right time? That’s where we can use machine learning. Second, we can now do prediction, we already do this right now where we can actually predict demand by cabin class that allows us to secure inventory much better than before.

I mean, if you think about GRP, one of the reasons we are able to do this Guaranteed Rate Programs is we have conviction and the production of demand that we are going to get. So, that helps us a lot. Search result, how we actually optimize search results, we can use machine learning.

Prediction for understanding propensity to continue to work with a sort of propensity to attract from our platform, so our sales team can actually work with the customer. Machine learning can be used for actually predicting maintenance. I will give you a very simple example. Let’s say, one of our planes is coming for maintenance.

So, our prediction could say this part could fail pretty soon. We could actually take the same unscheduled maintenance and add the predictive maintenance and get it done in one place, so our planes are on the sky more and are utilized more.

So, pretty much every aspect of what the front end and the back end, we can start using machine learning, which is what is working very exciting about this platform.

Kenny?.

Thanks, Vinayak. And Oliver, as it relates to our aspiration intended on building a world-class lifestyle brand.

First on, having somebody like Vinayak and Greg Greeley who help be those develop Amazon Prime, on the marketing side, we have Lee Applbaum who engineered over the last six, seven years an unbelievable outcome for Patrón, the largest standalone sale of a liquor brand to Bacardi.

We’re working on that global lifestyle brand that -- we chose Ravi and Aspirational in large part because of their LVMH DNA. You’ve got Scott Dahnke and his team over in L Catterton. Ravi is now on our Broad. We have all the ingredients.

And I look about -- I looked at Ed Bastian and the great thing that Delta’s done with its first class, its business class customers, and of course, its status and its programming for frequent flyers. So, we have all the makings and all the ingredients, Oliver, to have a great brand.

Obviously, we’re partnered up with winners like Serena Williams and Tom Brady, Russell and Ciara, and others that really embody what we are. And we think private flying and the way that Nike says that anybody who’s exercising out there is an athlete. We think that the world, the 8.1 billion people, they’re all hard wired to be private flyers.

So again, if we can create that aspirational place where if you’re wearing a Wheels Up sweatshirt and you’re one wheel away from flying private. That’s the kind of status that we want on the brand. And again, with that we want everybody to feel invited to the party.

Stephanie Chung, who’s running our growth area has done a great job in making sure that everybody feels like this is a brand for them. So, inclusion, a big piece of that as well..

Thank you. And Eric, the presentation mentioned tightness in supply. How would you characterize the supply versus demand dynamic? And how might tightness continue and duration? I would love your thoughts on the biggest opportunities in supply as you scale as well. And which aspects of supply and which categories you scale.

And as you balance return on capital, what’s asset-right, as well as customer convenience and availability? Thank you..

Sure. Thanks, Oliver. So, a great part of our business is that we have a first-party business, the second-part and the third-party supply. And so, we are very different than most in terms of our ability to adapt to changing dynamics in the industry. And supply is tight in some ways due to just the broader situations you’re seeing across the economy.

The ability to shift to get them into position is not as simple. Just labor across the board, whether it’s at FBOs, making it -- the ability to get fuel turned sooner than you would normally, so you can get the flight moving. So, that creates tightness of supply across the board. But, I think we’re not -- the whole industry is seeing that.

We don’t think it’s something that’s systemic. We think it’s something that for us, we can deal with better than most. In terms of longer term, what does it mean? To strike that balance over time, we think we can do more asset-light.

But there is -- as I said earlier, we probably will take a couple aircraft in the back half of the year, just to make sure we have that right balance between first-party, second-party and third-party. And the aircraft management business is key for us for the long-term.

Our ability to have owners give us the access to their aircraft, so we can utilize them when they’re not using them is something that once again is a differentiator..

Thank you. And last question on this dynamic environment with the Delta variant and what we’re facing with lots of change and uncertainty, what are you seeing in your data and what can you control versus uncontrollable and the environment across the world? Thank you..

I think the Delta variant, obviously, we’re monitoring that situation closely. I think that private aviation has become in certain cases essential for people. And I think you’re seeing that in the demand. I think that once this group gets on the airplanes and actually experiences what we do, the retention numbers, they tell the story on where we’re at.

We’re continuing to press our safe passage. And Dr. Scott Gottlieb works closely with us on setting up those protocols. Scott’s doing a great job at the face of the crisis here. And we’re proud to be partnered with him. Looking forward to a world where medicine and vaccines and other mitigation protocols can solve this issue.

But I would just say we’re uniquely positioned. We’ve been operating -- I thank our pilots and our maintenance guys who are on the ground. We have been operating every day since this crisis was sort of at its onset in March of 2020. And like I said, we’re seeing a lot of demand. We’re working around all of the different protocols to keep everybody safe.

And I would say, one of the big things that came out of COVID, as it relates to Wheels Up and its brand, was the development we established at Wheels Up with Feeding America. Because I do believe that our Company needs to do good, while we’re doing good. So, over 60 million meals that have been inspired by Wheels Up, and we’re just getting started..

Thank you. Best regards..

Thank you..

We have no further questions today. So, I’ll hand the call back to Kenny Dichter for closing remarks..

Yes. Bethany, thank you very much for hosting. I appreciate it. And thanks, everyone, for joining us today and taking the time to better understand our vision, our business and our long-term strategy.

We are building an innovative technology-enabled marketplace to optimize the fragmented and underutilized supply chain and connect it with a large and growing addressable market. And all of this is supported by a trusted and iconic brand.

We firmly believe that the investments we are making in operations, technology, product development, and customer service will position Wheels Up as the undisputed leader in our industry. And we also believe we’re going to create significant shareholder values in the years to come. I look forward to continuing the journey up with all of you.

Thank you..

This concludes today’s conference call. Thank you for joining. You may now disconnect your lines..