Wheels Up Experience Inc.

Hello and welcome to the Wills Up third quarter 2021 earnings call. My name is Alex and I'll be your operator for today. If you would like to ask a question at the end of the presentation, you can press star one on your telephone keypads. If you'd like to withdraw your question, you can press star two. I will now hand over to Keith Ferguson from Wills Up. Keith, over to you.

Thank you and welcome again to Wills Up's third quarter 2021 earnings conference call. Earlier today, 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 wheelsup.com slash investors. Please refer to the slides in 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 material. 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 our Chairman and Chief Executive Officer, Kenny Dixon.

Thank you, Keith, and thanks to all of you for joining us today ahead of Veterans Day, the National Day of Remembrance. I wanted to say a special thank you to all of our veterans who so honorably served our country. We are incredibly fortunate to have many veterans in our ranks, including pilots, mechanics, corporate staff, executive leadership, our board, and, of course, our members. It has been the driving force since we founded Wheels Up. We continue to disrupt private aviation. We are building a technology-driven marketplace platform connecting our robust demand with fragmented supply. This is similar to how Uber disrupted the traditional taxi and limousine market and how Airbnb created value in vacation homes. The unprecedented demand that the private aviation industry is experiencing today and the related stressors it's putting on the available supply further validates our strategy and the tremendous opportunity that exists in the market. We have plenty of positives to recognize this quarter, including our record growth. With our trusted and iconic brand, we are a leading demand generator in our space. Our membership programs and other flight options, like shared flights, make private aviation more accessible than ever and are resonating with consumers. Our Wheels Up events and exclusive partner benefits continue to add important value to member experience and support retention. In addition, our public listing has given us a very strong balance sheet with over $500 million of cash and essentially zero debt. We are very well positioned to invest in our business and build on our significant first mover advantage. With that backdrop, let me share some highlights from this morning's earnings release. We reported over $300 million in revenue in the third quarter, setting another quarterly revenue record of 50% year over year. Revenue for the first nine months was nearly 850 million, which is up 75% year-over-year. We are now over 11,000 active members, growing 45% year-over-year. In the past 12 months, we have added over 3,500 active members. And our live flight legs were up over 50% year-over-year to 19,700 and a quarter. Now, with unprecedented demand comes supply challenges that are also unprecedented, particularly in the light of COVID-19, Supply constraints are an issue for almost all industries, including ours, and have been widely reported on. As consumers, we experience this every day, from commodities to durables and luxury goods. These supply challenges were significantly exacerbated during the third quarter, which impacted contribution margin and our profitability. We pride ourselves in providing exceptional service for all of our customers, including members and non-members, and they deserve no less, given this is the cornerstone of our business. That said, while we believe we have performed better than most this quarter, we haven't met the high expectations that we have set for ourselves and our brand. As much as external factors have driven most of the challenges, we will not rest on that as an excuse. The good news is we believe the challenges are largely in our control, fixable, and being addressed today. And with seemingly no end in sight to the continued demand for private aviation from both consumers and businesses, We are more encouraged than ever, but it will take some time and patience to address these supply constraints and increase costs. So let me take a few minutes to explain what we are doing today, starting with our pilots. The biggest gating factor for us today is our ability to hire enough pilots to serve the rapid increase in demand and offset turnover. Unlike some other sectors facing labor shortages that can quickly train and deploy more workers, Wheels Up pilots receive extensive training and must meet stringent qualification requirements. The end result was that we could not fully crew our first-party fleet during the third quarter. This reduced the utility in our fleet versus our prior quarter. Pilot shortages were also experienced by many of the partners we worked with. This resulted in less third-party aircraft available to us and increased costs in obtaining that supplemental lift. With regards to addressing the issue for our fleet, we are increasing compensation and benefits for all of our pilots. This includes providing our pilots with the first-ever broad-based equity grant in our industry, one of the incredible benefits we have as being a publicly traded company. Equity provides a unique competitive advantage for us going forward, allowing our pilots to share in the success of the company. Beyond compensation, we are investing in the quality of our travel management program, for pilots when they are on duty as we reserve hotels, ground transportation, and food. These may sound like simple things, but during and after a long day of flying, they're incredibly important for quality of life. Our pilots represent some of the best trained, most dynamic individuals in the industry and are frontline with our customers. We want Wheels Up to be their employer of choice. Now let me move to customer service. We always focus on providing the best service possible to our customers. Given heightened demand, we are spending more to secure and lock up third-party aircraft supply. And recently, that has increasingly included providing a significant number of cabin class upgrades to ensure that we can deliver for our customers. While we are looking to add more pilots, we are also investing in our maintenance technicians and facilities in order to return our aircraft back to service faster. We are doing all of this because we know that absorbing some short-term margin pressure make sense for the long-term value of the company and our brand. Our customers have a very high lifetime value and we are confident that the technology and operational improvements that we are working on will allow us to continue to unlock that value in the future. Our core and business members spend on average over $80,000 per year with us. When you look at our customer cohort spending, you can see how loyal customers spend more money with us year after year. Even better, Our newest customers are spending more with us than prior cohorts. These are very consistent trends. We believe the right strategy is to build loyalty for the long term. That's why we made the conscious decision not to raise our cap pricing over the summer. Our customers appreciate our integrity and recognize that one of the key benefits of our membership program is our cap rates. I am pleased to report that our customers are making increasingly long-term commitments to Wheels Up. This is reflected in the strength of our block sales, which were $172 million, up 120% year-over-year, a record for the third quarter. And the fourth quarter is positioned to be even stronger, as existing members lock in current rates before our recently announced cap rate pricing increase to take effect on December 1st. These block sales provide us great visibility to continued robust demand, and they give us confidence to lock up future supply. Now I want to touch on program changes we recently implemented that you may have seen reported in the press. The biggest change is we were requiring more advance notice ahead of travel. This will give us more time to schedule and secure capacity. In addition, we are also raising pricing and requiring larger block commitments from our members for the peak day guarantees. These program changes will allow us to prioritize our current resources and support our existing customers while continuing to sell programs that we can confidently deliver to our new customers. The most valuable brands in the world are built by doing the right thing for their customers over the long term and not taking shortcuts in the near term. Let me now turn to highlight several of our recent management additions. The supply, demand, and balance that we are currently experiencing reflects the industry's inability to scale with analog and inefficient processes. What is happening today makes it even more clear that we need to change the way things get done. That's how we are going to unlock supply and enhance margins in the future. In order to be truly disruptive, you need to start with a disruptive management team. To that end, we are augmenting our experienced private aviation industry leadership with world-class expertise in tech and digital marketplaces. Vinayak Hegde joined our company as Chief Marketplace Officer six months ago. During this time, I have been extremely impressed by his rigor and business insights that he has brought to the organization. This is the type of leadership we need as the pace of business continues to accelerate. That's why we recently announced he was promoted to president. He has important operational and technology expertise from his years disrupting and innovating industries at Amazon and Airbnb. He is going to bring us to the forefront of technology-driven innovation and automation that is going to significantly improve our access to supply. He will share some details of our technology roadmap in a few minutes. Our new Chief Product Officer, Jean McKenna, has also worked closely with Vinayak in the past. Jean is building products and tools to streamline our back-end processes, enhance our user experience, and automate our operations. Our new SVP of Pricing and Revenue Management, Julia Zhang, joined us from T-Mobile, one of the biggest disruptors in the wireless space, where she was in charge of pricing and supply chains. There's a lot of opportunity to innovate on pricing and incentivize off-peak flying to smooth demand compression and expand the market. Srikanth Satya, who joined us only a month ago as our Chief Technology Officer, headed a storage division at EMC Dell and also spent meaningful time as an executive at Microsoft and Amazon Web Services. He will lead our technology transformation. On the operations side, we have elevated Greg Farnbrook, who is the CEO of Mountain Aviation, to head our first party operations. Phil Dodick, who was president of TMC when we acquired them, is now head of our second party operations, which includes aircraft management ops. Their extensive experience, having led some of the largest third party operators in the country, will help us immensely moving forward. I'd like to close with a quick update on a couple of other recent initiatives. Our partnership with American Express, offering their members exclusive flight benefits commenced on July 1st and is off to a strong start. We are seeing new flight activity, membership purchases, block purchases, as well as an uptick in our mobile app downloads. The partnership is exceeding our expectations. Our Up for Business initiative is also gaining traction with a strong pipeline. We are seeing success cross-selling to Delta's large base of corporate customers. Our partnership with Delta gives businesses the flexibility to fly both commercial and private. We offer businesses access to a diverse range of aircraft to fit their varying needs. Before I turn the call over to Vinayak, I want to reiterate how thankful I am for our loyal customers for their patience, understanding, and continuing to put their trust in us. I would also like to take a moment to recognize our hardworking team, particularly our pilots, for their great work in support of our customers. Vinayak,