Hello, everyone, and thank you for joining the Wheels Up 3Q 2022 Earnings Call. My name is Darius, and I'll be the operator for today. [Operator Instructions] I now have the pleasure of handing you over to your host, Keith Ferguson. Please go ahead, Keith. Your line is now open..

Thank you. This afternoon we announced our third-quarter 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 forecast and expectations 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 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 the call over to Wheels Up’s Chairman and Chief Executive Officer, Kenny Dichter..

One, ensuring that we continue to prioritize safety and support of our members, including delivering world-class service with great pilots, enhanced maintenance capabilities, and improved execution.

However, we know that while prioritizing those areas we must make significant cost reductions elsewhere to ensure we achieve our committed path to positive adjusted EBITDA. And two, streamlining our organization to improve focus and accountability.

Our current structure limits our ability to focus on driving specific outcomes at the appropriate levels in the organization.

In order to address this, we are eliminating the role of president and transitioning to a more granular organizational design focused on operations, digital transformation, and more specifically, our marketplace, while evolving our product offering.

I want to thank the Vinayak Hegde for his service in the President's role and look forward to his continued partnership in an advisory capacity. Before I turn it over to Todd, I want to highlight our recent EETC debt financing, which gives us added flexibility to continue to invest in our business as we execute on our strategy.

In the current market, having added cash reserves is extremely valuable, and will help us support continued progress on our operations, customer experience, and technology initiatives. In summary, Wheels Up has built a strong foundation with great people, a well-respected brand and a substantial base of loyal high value customers.

Our goal is to turn that foundation into a scaled and profitable business. Our goal is profitable growth. 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 our entire hard working global team for their tremendous effort and commitment to Wheels Up.

Now I'll turn it over to Todd, who will provide more details on our third quarter, and our go-forward plan..

first, improving our dispatch availability by ensuring we have pilots ready to fly our planes; second, improving our maintenance availability through better scheduling and productivity; and third, consolidating our operations through the FAA certificate consolidation, and building the new MOC, or Member Operations Center, in Atlanta.

One key to improving our dispatch availability is to increase our pilot staffing, which requires a focus on hiring, training and retention. On the hiring side, we have exceeded our pilot hiring goals over the past year, with over 450 pilots hired year-to-date.

We are excited to have these new pilots join Wheels Up and appreciate the significant and important role they play as the face of our company to our members day in and day out.

While we believe our pilot hiring is going well, training continues to be a bottleneck for the entire industry, with it often taking up to 90 days for a pilot to get the required simulator time to enter service after they have been hired.

That's why we've made a concerted effort to secure additional flight simulator availability in order to get our pilots into service faster. This will expedite our onboarding process, giving us a larger pool of active pilots to best serve our customers and drive more utility on our aircraft. We believe we are making progress on this challenge.

Pilot retention has been relatively stable over the past six months, despite strong industry demand for pilots. That's largely due to our Aircrew 360 program, designed to improve the career opportunities and quality of life of our pilots.

We strive to be the employer of choice in private aviation and a place where pilots can enjoy long rewarding careers. Turning to maintenance, while ensuring the highest safety standard, we are working diligently to improve our maintenance availability.

Having as many aircraft as possible available to meet our strong demand is critical to ensuring our levels of service as well as improving our financial performance.

A robust preventative maintenance program, efficient cycle times and the ability to respond quickly to unscheduled maintenance events are all critical capabilities that we are working to improve.

Relative to that last area, we are on track to boost our mobile service unit capacity by over 50% this year, providing faster response times to address unscheduled maintenance at remote airports. Given the large number of remote airports we serve, this is a critical capability.

Improving dispatch and maintenance availability has high incremental margins, as it better utilizes our assets and it reduces our reliance on expensive third-party fulfillment costs. Next, I want to provide an update on the consolidation of our FAA operating certificates.

Today, each certificate is an operating silo, whereby a pilot certified on one aircraft type cannot fly the same aircraft on one of our other certificates, even though we are one company. That creates unnecessary friction on our pilots scheduling, as well as added travel and logistical costs.

Once we complete the consolidation, we will have significantly greater scheduling flexibility, which will improve our service and lower our costs. We are working closely with the FAA and look forward to sharing our progress in coming quarters.

Similarly, our new MOC is an investment in our operations and our people, providing the best environment to manage and communicate across our flight, customer interaction and maintenance functions. This facility in Atlanta, close to one of the world's largest aviation hubs and our partners at Delta is scheduled to open in mid-2023.

As you've heard us talk about, we see a tremendous opportunity to apply state-of-the-art technology to transform the industry and provide an enhanced experience for our customers.

We are working to prioritize and focus our digital transformation, both on improving our customer experience and reaching more consumers at the top of the funnel as we develop a larger addressable market for private aviation. Customer experience is multifaceted.

Ease of use and robust features, deep customer engagement, and attractive prices are all central to our technology-enabled marketplace. Over the past year, we have migrated our entire fleet to UP FMS. That is the first building block of our marketplace, as it provides a clear dashboard that helps to better schedule our operations.

With this platform, we can manage our daily operations in real time. That allows us to quickly respond to last minute customer travel changes, adverse weather, and other unforeseen circumstances that happen regularly.

The consumer-facing mobile app is the other critical component of a successful marketplace, as this is the preferred way to seamlessly engage with our customers. Foremost, it needs to be easy, intuitive, and alleviate the friction points that exist in private travel today.

Customers must be able to download the app, search for the trip and aircraft they want with real-time availability and pricing, book their trip and complete all pre-flight actions without any other intervention. The real benefit is realized when we combine UP FMS and the mobile app to help shape demand. Let me take a minute to provide some context.

When we combine the demand forecasting capabilities of UP FMS with the customer signals we received from the app, including early customer searches, we have the ability to create real-time incentives to push demand to days where we have excess capacity or to destinations where we know we will have available aircraft.

Another example is the ability to help shape demand by incentivizing customers to adjust their travel plans, perhaps by changing a departure time by an hour or two or moving to a different airport that is still conveniently located for the customer, but better aligns with our flight operations.

Tightly integrating technology and pricing is an important lever for improved margins over time. When we have a fully functioning marketplace platform, we believe we will be able to optimize for the right plane in the right place at the right time, across our entire fleet of first-party, second-party and third-party aircraft.

That will drive asset utilization, reduce empty repositioning legs and provide significant benefits to customers, operators and Wheels Up. In the near term, as I touched on, we are continuing to raise prices while balancing our growth in relation to our operational and technology deliverables.

Once we have a fully functioning marketplace, we will be able to drive the growth of non-guaranteed flying, which helps to optimize our network at attractive incremental margins.

We believe all of those initiatives together will allow us to reach a mid-teen adjusted contribution margin, SG&A in the low double-digit range as a percentage of revenue, and positive adjusted EBITDA in 2024. I look forward to sharing progress on that goal each quarter. So, with that, let me now turn to our guidance for the rest of this year.

For full year 2022, we now expect revenue to be in the range of $1.55 billion to $1.58 billion for the year, with fourth quarter revenue expected to be up approximately 15% year-over-year. Moving to adjusted contribution margin.

We expect fourth quarter adjusted contribution margin will fall in the 4.25% to 4.75% range, with a lower sequential contribution from Air Partner and aircraft sales versus prior quarters. Notably, the core Wheels Up margin, excluding Air Partner and aircraft sales, is expected to continue to improve for the second consecutive quarter.

This core improvement is reflective of the underlying progress we are starting to make in the business. We expect fourth quarter adjusted EBITDA to be in the range of negative $40 million to negative $45 million. We continue to focus on SG&A reductions and expect our progress there to accelerate as we move into 2023.

We expect to report a GAAP net loss of between $90 million to $100 million for the fourth quarter. Reflected in this GAAP range are several non-cash estimates; a $20 million charge related to stock-based compensation, including earn out shares, and $17 million of depreciation and amortization expense.

In addition, we expect approximately $10 million of cash expenses related to integration and other one-time items, and another $7 million of interest expense. The range does not reflect any non-cash gain or loss related to the fair value of our warrants or any other unusual items.

We expect capital spending for 2022 will be a few million dollars below our previous guidance of $125 million. That includes what we consider a more normal capital spending of approximately $67 million for purchased aircraft and capitalized software.

In addition, it also includes $58 million for the purchase of previously leased Textron aircraft that we view as a financing transaction. We expect normal capital spending to be in the mid-single digit range of revenue going forward.

In closing, it is clear that we have significant work to do to deliver the performance that our members and shareholders expect of us. I am confident that the Wheels Up team is up to that challenge, and look forward to sharing our progress in the coming quarters.

Let me turn it back to Kenny for some concluding remarks before we open the call for Q&A..

Thank you, Todd, and thanks to all of you who have joined us today. We are building a marketplace that will improve asset utilization across our industry and generate sustained profitable growth for Wheels Up in the years ahead. We have a great foundation with nearly 13,000 active members and over $1.5 billion of revenue expected this year.

We have all of the pieces. Now, it is up to us to execute. I look forward to sharing our progress. With that, let's take some questions..

Thank you. [Operator Instructions] Our first question comes from Sheila Kahyaoglu from Jefferies. Please go ahead, Sheila. Your line is now open..

Thank you, and good afternoon, everyone. Thanks for the time. So, just on your initiative, maybe first more broadly, in terms of the initiatives you have in place, SG&A going from double digits -- 16% to low double digits, that's $40 million of EBITDA benefit over the next 12 to 18 months.

How do you think about the other buckets and how that saves? And then maybe more specifically, for the quarter, adjusted EBITDA margin were slightly better sequentially from Q2.

How much of that was due to the fuel surcharge? And how do we think about some of the sequential improvement going into ’23, too?.

Yes, thanks, Sheila. I'll take that. So, I think overall, you're right. At the current revenue levels, that would equate to about the range of SG&A reduction.

I think the way we think about this is that, first and foremost, as we said earlier, we'll always prioritize safety, service delivery, pilots and maintenance, and the member experience, that's always going to be first and foremost. But at the same time, we also think we need to continue to make some investments in technology.

We'll continue to do that. But I think as we think about that spending level, our goal is to reduce a lot of the overhead spend, be more focused on our marketing and advertising, and then deliver savings for -- by consolidating a lot of activities that are performed in a more decentralized manner today.

We still have a lot of silos out across the organization. And I think there's ways that we can bring that activity together in a more centralized fashion, use systems and technology to automate it, and then that's really going to help us. I would say some of the sequential improvement we've already seen is the result of some of the actions.

We've already started hiring and headcount freezes, reduced internal travel, and some headcount reductions. And then, we're going into our cycle right now to work on our 2023 budgets.

So, we're doing a lot of work, looking at the organization, the organizational structure, and really developing that quarter-by-quarter cost framework that will execute and use in 2023. You asked about like the fuel, as well. I think in the third quarter, we saw about a $6 million benefit in terms of our cost structure related to fuel.

So, we are seeing that fully indexed fuel surcharge now helping us mitigate some of that pressure that we saw earlier in the year. And we effectively look that. Now it's in place and ensuring that we shouldn't have any significant adverse impact from fuel fluctuations going forward..

Got it. And then maybe just a quick follow-up on the top-line. In terms of live flight legs, I think, they slowed down a little bit.

How do we think about what's going on there?.

Yes, I mean, I think we're still seeing some improvement. I mean, year-over-year, the live flight leg and the revenue per live flight leg is up significantly, up 20%, 25% if you exclude Air Partner. So, I do think that we're seeing some progress there. I mean, it was slightly on a sequential basis.

But if you think about the revenue impact of that, I think that's really driven by -- starting to see some of those pricing increases come through. As we mentioned earlier, only about 20% of the revenue -- flight revenue in the third quarter was on that new June pricing basis. And still around 50% or so was even pre-December of 2021.

So, increasingly, we'll start to see more of that move through the book and now continues to give us some blips on the revenue per live flight leg. And then we're continuing to watch the live flight leg itself in terms of that activity, but still feel pretty good about the strength there.

Obviously, a lot of variables that drive that in terms of how that translates into revenue, but I think our outlook is so positive there..

Okay. Thank you..

[Operator Instructions] It appears we have no questions at this moment. So, I'm just going to hand back to the management team for any final remarks..

Yes, thanks to everybody for joining us today, and thank you for being involved with Wheels Up. And we appreciate you, and have a great day..

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