WHEELS UP EXPERIENCE INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes and our audited consolidated financial statements. This discussion contains forward-looking statements which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons including the risks faced by us described in "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q (this "Quarterly Report"). Unless the context otherwise requires, references in this"Management's Discussion and Analysis of Financial Condition and Results of Operations" section to "we," "us,""our," and "the Company" are intended to mean the business and operations ofWheels Up and its consolidated subsidiaries. Overview of Our Business Our mission is to disrupt private aviation by delivering innovative, accessible, travel through cutting edge and simple-to-use proprietary technology and mobile applications. We have become a recognized market leader and are redefining private flying by leveraging our unique technology-enabled marketplace platform. We connect flyers to private aircraft, and to one another, creating memorable lifestyle experiences. We have a diversified and evolving business model generating revenue through flights, membership fees, management of aircraft, and other services. We operate under one reportable segment, which is private aviation services. Flight revenue includes both retail and wholesale charter.Wheels Up has one of the largest and most diverse mix of available aircraft in the industry. We have over 180 aircraft in our owned and leased fleet that includes Turboprops, Light, Midsize, Super-Midsize and Large-Cabin jets, more than half of which areWheels Up branded aircraft. As ofSeptember 30, 2021 , we also have a managed fleet across all cabin classes of approximately 160 aircraft and an extensive network of third-party operators available in our program fleet from whom we can access over 1,200 additional safety vetted and verified partner aircraft. Members pay a fixed quoted amount for flights plus certain incidental or additional costs, if applicable. The quoted amount can be based on a contractual capped hourly rate or dynamically priced based on a number of variables at time of booking. Wholesale customers, such as charter flight brokers and third-party operators, primarily pay a fixed rate for flights. Members are also able to purchase Prepaid Blocks, which are dollar-denominated credits that can be applied to future costs incurred by members, including annual dues, flight services, and other incidental costs such as catering and ground transportation. Prepaid Block sales allow us to have a certain amount of revenue visibility into future flight and travel demand. Memberswho elect not to purchase a Prepaid Block "pay as they fly" by paying for their flights at the time of booking or after their flights. Membership revenue is generated from initiation and annual renewal fees across three different annual subscription tiers - Connect, Core and Business - each of which is designed to provide the varying services required across a range of existing and potential private flyers. Core membership is ideal for the more frequent individual private flyerwho wants guaranteed availability and pricing, high-touch account management, capped rates and values ultimate convenience and flexibility. The Business membership is best suited for companies of any size that want a broader group of individuals in their organization to be able to book and fly, while also requiring maximum flexibility to meet their business needs. Our Business customers include companies that fully-outsource their private travel solution toWheels Up , including but not necessarily managing their privately- owned aircraft, and those that useWheels Up to serve or supplement their in-house flight desks. We have offered Core and Business memberships with guaranteed aircraft availability and fixed rate pricing since our inception. During 2019, we launched Connect, our introductory membership tier. The Connect membership offers variable rate pricing on a per trip basis and is designed for the consumer with less frequent flight needs orwho has more flexibility in their schedule or does not seek capped rate pricing. All membership options provide access through the Wheels Up App to on-demand charter flights, dynamic pricing, a variety of Shared Flights, empty-leg Hot Flights, Shuttles, and The Community, an online platform of members-only forums to facilitate flight sharing, enabling members to reduce their cost of flying private. 33 -------------------------------------------------------------------------------- We have recently added a non-membership offering to tap into a larger addressable market and expand flyer participation in our marketplace. Non-member customers now have access to a full-scale marketplace of private aircraft through theWheels Up mobile app, available on iOS and Android (the "Wheels Up App") where they can view the real-time dynamic pricing for available aircraft classes, making it possible to instantaneously search, book and fly. These flyers are not required to purchase a membership but may pay additional transaction fees not applicable to members and do not receive membership benefits. In addition, non-member flyers do not have aircraft availability guarantees as members do and flights are priced dynamically at rates that are not capped. In our aircraft management business, we manage aircraft for owners in exchange for a recurring contractual fee. Under the terms of many of our management agreements, in addition to owners utilizing their own aircraft, the managed aircraft may be used by us to fulfill member and non-member flights on a revenue sharing arrangement with the owner. Revenue associated with the management of aircraft also includes the recovery of owner incurred expenses as well as recharging of certain incurred aircraft operating costs. In addition, we earn other revenue from fixed-base operator ("FBO") and maintenance, repair and overhaul ("MRO") ground services, flight management software subscriptions, sponsorship and partnership fees, and aircraft sales. Recent Developments Completion of the Business Combination OnJuly 13, 2021 , we completed the Business Combination. We received approximately$656.3 million in gross proceeds in connection with the transaction. Payoff of Credit Facilities and Promissory Notes Shortly following the Closing Date, we repaid substantially all of the outstanding principal of the credit facilities and promissory notes, together with all accrued and unpaid interest in the amount of approximately$175.5 million . AcquisitionsMountain Aviation, LLC OnJanuary 5, 2021 , we acquired all the outstanding equity ofMountain Aviation .Mountain Aviation adds to our Super-Midsize jet fleet and operations, provides full-service in-house maintenance capabilities, expands our presence in theWestern U.S. and enhances our on-demand transcontinental charter flight capabilities. Business Impact of COVID-19 OnMarch 11, 2020 , theWorld Health Organization officially declared COVID-19 a pandemic. The unprecedented and rapid spread of COVID-19 led to economic and business uncertainties resulting from governmental restrictions on air travel, cancellation of large public events, businesses suspending in-person meetings and the closure of popular tourist destinations. The future effects of COVID-19 on our business, financial condition and results of operations are still uncertain and will depend on a number of factors outside of our control. For the foreseeable future, we plan to continue the Wheels Up Safe Passage™ program introduced in response to the outbreak of COVID-19. During the year endedDecember 31, 2020 , we incurred$1.2 million of costs for COVID-19 health and safety response initiatives and have forecasted a similar level of expense on a go-forward basis. We have not had and do not expect any material COVID-19 related contingencies, impairments, concessions, credit losses or other expenses in future periods. Moving forward, we believe the COVID-19 global pandemic has led to a shift in consumer prioritization of wellness and safety, with private aviation viewed increasingly by those in the addressable market as a health-conscious decision rather than a discretionary luxury. We believe this will translate into an increase in flight demand over time. 34 -------------------------------------------------------------------------------- Non-GAAP Financial Measures In addition to our results of operations below, we report certain key financial measures that are not required by, or presented in accordance with, GAAP. These non-GAAP financial measures are an addition, and not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP and should not be considered as an alternative to any performance measures derived in accordance with GAAP. We believe that these non-GAAP financial measures of financial results provide useful supplemental information to investors, aboutWheels Up . However, there are a number of limitations related to the use of these non-GAAP financial measures and their nearest GAAP equivalents, including that they exclude significant expenses that are required by GAAP to be recorded inWheels Up's financial measures. In addition, other companies may calculate non-GAAP financial measures differently or may use other measures to calculate their financial performance, and therefore, our non-GAAP financial measures may not be directly comparable to similarly titled measures of other companies. Adjusted EBITDA We calculate Adjusted EBITDA as net income (loss) adjusted for (i) interest income (expense), (ii) income tax expense, (iii) depreciation and amortization, (iv) equity-based compensation expense, (v) acquisition and integration related expenses, (vi) public company readiness related expenses, (vii) change in fair value of warrant liability, (viii) losses on the extinguishment of debt and (ix) other items not indicative of our ongoing operating performance, including the CARES Act grant and COVID-19 response initiatives for 2020. We include Adjusted EBITDA as a supplemental measure for assessing operating performance and for the following: •Used in conjunction with bonus program target achievement determinations, strategic internal planning, annual budgeting, allocating resources and making operating decisions; and, •Provides useful information for historical period-to-period comparisons of our business, as it removes the effect of certain non-cash expenses and variable amounts. The following table reconciles Adjusted EBITDA to net income (loss), which is the most directly comparable GAAP measure (in thousands): Three Months EndedSeptember 30 ,
Nine Months Ended
2021 2020 2021 2020
Net income (loss) $ (59,455) $ 20,548 $ (120,622) $ (51,292)
Add back (deduct)
Interest expense 782 5,614 9,503 18,127
Interest income (7) (36) (25) (503)
Depreciation and amortization 13,639 14,722 40,952 44,189
Equity-based compensation expense 27,906 1,168 30,668 2,524
Public company readiness expense(1) 2,455 40 3,298 242
Acquisition and integration expense(2) 644 376 5,017 7,694
CARES Act grant recognition - (51,646) - (64,923)
COVID-19 response initiatives(3) - 323 - 773
Corporate headquarters relocation
expense(4) - 866 31 2,058
Change in fair value of warrant
liability (12,271) - (12,271) -
Loss on extinguishment of debt 2,379 - 2,379 -
Adjusted EBITDA $ (23,928) $ (8,025) $ (41,070) $ (41,111)
__________________(1)Includes costs primarily associated with compliance, updated systems and consulting in advance of transitioning to a public company.
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(2)Consists mainly of system conversions, merging of operating certificates,
re-branding costs and fees paid to external advisors in connection with
strategic transactions.
(3)Includes expenses for the development of enhanced cleaning and operation
protocols for our Safe Passage™ program due to COVID-19.
(4)Represents expenditures related to the build out and move to our new
corporate headquarters in New York .
Adjusted Contribution and Adjusted Contribution Margin
We calculate Adjusted Contribution as gross profit (loss) excluding depreciation
and amortization, and adjusted further for (i) equity-based compensation
included in cost of revenue, (ii) acquisition and integration expense included
in cost of revenue and (iii) other items included in cost of revenue that are
not indicative of our ongoing operating performance, including COVID-19 response
initiatives for 2020. Adjusted Contribution Margin is calculated by dividing
Adjusted Contribution by total revenue. We include Adjusted Contribution and
Adjusted Contribution Margin as supplemental measures for assessing operating
performance and for the following:
•Used to understand our ability to achieve profitability over time through scale
and leveraging costs; and,
•Provides useful information for historical period-to-period comparisons of our
business and to identify trends.
The following table reconciles Adjusted Contribution to gross profit (loss),
which is the most directly comparable GAAP measure (in thousands, except
percentages):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Revenue $ 301,978 $ 194,781 $ 849,215 $ 485,208
Less: Cost of revenue (283,495) (171,338) (773,191) (446,632)
Less: Depreciation and amortization (13,639) (14,722) (40,952) (44,189)
Gross profit (loss) 4,844 8,721 35,072 (5,613)
Gross margin 1.6 % 4.5 % 4.1% (1.2)%
Add back:
Depreciation and amortization 13,639 14,722 40,952 44,189
Equity-based compensation expense in
cost of revenue 679 109 779 226
Acquisition and integration expense in
cost of revenue - - 1,011 -
COVID-19 response initiatives in cost
of revenue - 117 - 395
Adjusted Contribution $ 19,162 $ 23,669 $ 77,814 $ 39,197
Adjusted Contribution Margin 6.3 % 12.2 % 9.2% 8.1%
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Key Operating Metrics
In addition to financial measures, we regularly review certain key operating
metrics to evaluate our business, determine the allocation of resources and make
decisions regarding business strategies. We believe that these metrics can be
useful for understanding the underlying trends in our business.
The following table summarizes our key operating metrics:
As of September 30,
2021 2020 % Change
Active Members 11,375 7,864 45 %
Three Months Ended September 30,
2021 2020 % Change
Active Users 12,011 9,280 29 %
Live Flight Legs 19,714 12,951 52 %
Active Members
We define Active Members as the number of Connect, Core and Business membership
accounts that generated membership revenue in a given period and are active as
of the end of the reporting period. We use Active Members to assess the adoption
of our premium offerings which is a key factor in our penetration of the market
in which we operate and a key driver of membership and flight revenue.
Active Users
We define Active Users as Active Members and legacy Wheels Up Private Jets LLC
("WUPJ") jet card holders as of the reporting date plus unique non-member
consumers who completed a revenue generating flight at least once in a given
period and excluding wholesale flight activity. While a unique consumer can
complete multiple revenue generating flights on our platform in a given period,
that unique user is counted as only one Active User. We use Active Users to
assess the adoption of our platform and frequency of transactions, which are key
factors in our penetration of the market in which we operate and our growth in
revenue.
Live Flight Legs
We define Live Flight Legs as the number of completed one-way revenue generating
flight legs in a given period. The metric excludes empty repositioning legs and
owner legs related to aircraft under management. We believe Live Flight Legs are
a useful metric to measure the scale and usage of our platform, and our growth
in flight revenue.
Component of Results of Our Operations
The key components of our results of operations include:
Revenue
Revenue is derived from flight, membership, aircraft management, and other
services.
Flight revenue consists of retail, wholesale and special mission flights.
Members can either pay as they fly or prepay for flights when they purchase a
Prepaid Block.
Membership revenue is comprised of a one-time initiation fee paid at the
commencement of a membership and recurring annual dues. In the first year of
membership, a portion of the initiation fee is applied to annual dues. The
remainder of the initiation fee, less any flight credits, is deferred and
recognized on a straight-line basis over the estimated duration of the customer
relationship period, which is currently estimated to be three years. Members are
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charged recurring annual dues to maintain their membership. Revenue related to
the annual dues are deferred and recognized on a straight-line basis over the
related contractual period. If a member qualifies to earn Delta miles in the
Delta SkyMiles Program as part of their membership, then a portion of the
membership fee is allocated at contract inception.
Aircraft management revenue consists of contractual monthly management fees
charged to aircraft owners, recovery of owner incurred expenses including
maintenance coordination, cabin crew and pilots, and recharging of certain
incurred aircraft operating costs such as maintenance, fuel, landing fees and
parking. We pass recovery and recharge amounts back to owners at either cost or
at a predetermined margin.
Other revenue primarily consists of (i) ground services derived from aircraft
customers that use our FBO and MRO facilities, and (ii) flight-related services.
In addition, other revenue includes subscription fees from third-party operators
for access to our Avianis flight software, fees we may receive from third-party
sponsorships and partnerships, and whole aircraft sales.
Costs and Expenses
Costs and expenses consist of the following components:
Cost of Revenue
Cost of revenue primarily consists of direct expenses incurred to provide flight
services and facilitate operations, including aircraft lease costs, fuel, crew
travel, maintenance and third-party flight costs. Cost of revenue also consists
of compensation expenses, including equity-based compensation and related
benefits for employees that directly facilitate flight operations. In addition,
cost of revenue includes aircraft owner expenses incurred such as maintenance
coordination, cabin crew and pilots, and certain aircraft operating costs such
as maintenance, fuel, landing fees and parking.
Other Operating Expenses
Technology and Development
Technology and development expense primarily consists of compensation expenses
for engineering, product development and design employees, including
equity-based compensation, expenses associated with ongoing improvements to, and
maintenance of, our platform offerings and other technology. Technology and
development expense also includes software expenses and technology consulting
fees.
Sales and Marketing
Sales and marketing expense primarily consists of compensation expenses in
support of sales and marketing such as commissions, salaries, equity-based
compensation and related benefits. Sales and marketing expense also includes
expenses associated with advertising, promotions of our services, member
experience, account management and brand-building.
General and Administrative
General and administrative expense primarily consists of compensation expenses,
including equity-based compensation and related benefits for our executive,
finance, human resources, legal and other personnel performing administrative
functions. General and administrative expense also includes corporate office
rent expense, third-party professional fees, acquisition and integration related
expenses, public company readiness expenses and any other cost or expense
incurred not deemed to be related to cost of revenue, sales and marketing
expense or technology and development expense.
Depreciation and Amortization
Depreciation and amortization expense primarily consists of depreciation of
capitalized aircraft. Depreciation and amortization expense also includes
amortization of capitalized software development costs and acquired finite-
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lived intangible assets. We allocate overhead such as facility costs and
telecommunications charges, based on department headcount, as we believe this to
be the most accurate measure. As a result, a portion of general overhead
expenses are reflected in each operating expense category.
CARES Act Grant
Consists of government assistance received from the Treasury under the Payroll
Support Program as directed by the CARES Act.
Change in Fair Value of Warrant Liability
Change in fair value of warrant liability consists of unrealized gain (loss) on
Warrants assumed as part of the Business Combination, including Private Warrants
and Public Warrants.
Loss on Extinguishment of Debt
Loss on extinguishment of debt consists of the write off of unamortized debt
discounts and deferred financing costs associated with the early repayment of
our outstanding credit facilities and promissory notes.
Interest Income
Interest income primarily consists of interest earned on cash equivalents from
deposits in money market funds and investments in commercial paper.
Interest Expense
Interest expense primarily consists of the interest paid or payable and the
amortization of debt discounts and deferred financing costs on our credit
facilities and promissory notes.
Income Tax Expense
Income taxes are recorded using the asset and liability method. Under this
method, deferred tax assets and liabilities are recorded based on the estimated
future tax effects of differences between the financial reporting and tax bases
of existing assets and liabilities. These differences are measured using the
enacted tax rates that are expected to be in effect when these differences are
anticipated to reverse. Deferred tax assets are reduced by a valuation allowance
to the extent management believes it is not more likely than not to be realized.
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Results of Our Operations for the Three Months Ended September 30, 2021 Compared
to the Three Months Ended September 30, 2020
The following table sets forth our results of operations for the three months
ended September 30, 2021 and 2020 (in thousands, except percentages):
Three Months Ended September 30, Change in
2021 2020 $ %
Revenue $ 301,978 $ 194,781 $ 107,197 55 %
Costs and expenses:
Cost of revenue 283,495 171,338 112,157 65 %
Technology and development 8,769 6,044 2,725 45 %
Sales and marketing 22,157 13,655 8,502 62 %
General and administrative 42,490 14,542 27,948 192 %
Depreciation and amortization 13,639 14,722 (1,083) (7) %
CARES Act grant - (51,646) 51,646 100 %
Total cost and expenses 370,550 168,655 201,895 120 %
Income (loss) from operations (68,572) 26,126 (94,698) (362) %
Other income (expense):
Change in fair value of warrant
liability 12,271 - 12,271 100 %
Loss on extinguishment of debt (2,379) - (2,379) 100 %
Interest income 7 36 (29) (81) %
Interest expense (782) (5,614) 4,832 (86) %
Total other income (expense) 9,117 (5,578) 14,695 263 %
Income (loss) before income taxes (59,455) 20,548 (80,003) (389) %
Income tax expense - - - 100 %
Net income (loss) (59,455) 20,548 (80,003) (389) %
Less: net income (loss) attributable to
non-controlling interests (970) 1,639 (2,609) (159) %
Net income (loss) attributable to
Wheels Up Experience Inc. $ (58,485) $ 18,909 $ (77,394) (409) %
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Revenue
Revenue increased by
Three Months Ended September 30, Change in
2021 2020 $ %
Flight $ 218,360 $ 140,280 $ 78,080 56 %
Membership 17,982 13,345 4,637 35 %
Aircraft management 58,005 38,402 19,603 51 %
Other 7,631 2,754 4,877 177 %
Total $ 301,978 $ 194,781 $ 107,197 55 %
Flight revenue growth was primarily driven by a 52% increase in Live Flight
Legs, which resulted in $73.3 million of growth, and a 2% increase in revenue
per Live Flight Leg, which drove $4.8 million of year over year improvement. The
increase in Live Flight Legs was primarily attributable to an increase in the
number of Active Members, as well as an increase in flying by Active Members,
the impact of COVID-19 on 2020 results and the acquisition of Mountain Aviation .
Growth in membership revenue was driven entirely by a 45% increase in Active
Members but was impacted by an increased mix of members at promotional rates.
The increase in aircraft management revenue was primarily attributable to an
increase in our recovery of owner and rechargeable costs related to operating
aircraft under management, both of which stem from increased flight activity.
The increase in other revenue was primarily attributable to an increase in whole
aircraft sales where we acted as the broker, as well as ground and catering
services, both of which increased due to an increase in Live Flight Legs.
Cost of Revenue
Cost of revenue increased by $112.2 million , or 65%, for the three months ended
September 30, 2021 compared to the three months ended September 30, 2020 . The
increase in cost of revenue is primarily attributable to an increase in Live
Flight Legs and the increase in aircraft management revenue.
Adjusted Contribution Margin decreased 590 basis points for the three months
ended September 30, 2021 compared to the three months ended September 30, 2020 ,
which was primarily attributable to cost pressures and supply constraints
impacting the industry. Additionally, pilot availability and maintenance
challenges also contributed to the decline in Adjusted Contribution Margin. See
"Non-GAAP Financial Measures" above for a definition of Adjusted Contribution
Margin, information regarding our use of Adjusted Contribution Margin and a
reconciliation of gross margin to Adjusted Contribution Margin.
Other Operating Expenses
Technology and Development
Technology and development expenses increased by $2.7 million , or 45%, for the
three months ended September 30, 2021 compared to the three months ended
September 30, 2020 . The increase in technology and development expenses was
primarily attributable to an increase of $2.0 million in employee compensation
costs, which was partially offset by an increase in capitalized costs related to
the development of internal use software of $0.4 million . Third-party consultant
fees also increased $1.5 million , which was offset by a $1.4 million increase in
capitalized costs related to internal use software. Additionally, equipment and
enterprise software expense increased by $0.6 million and $0.4 million ,
respectively.
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Sales and Marketing
Sales and marketing expenses increased by $8.5 million , or 62%, for the three
months ended September 30, 2021 compared to the three months ended September 30,
2020 . The increase in sales and marketing was primarily attributable to
increases in headcount and related compensation and allocable costs of $4.0
million . In addition, sales commissions increased $1.3 million from growth in
memberships and flight revenue. For the three months ended September 30, 2020 ,
we took certain cost saving measures to reduce headcount and related
compensation costs, consistent with applicable CARES Act limitations, which
returned to normal levels for the three months ended September 30, 2021 .
Additionally, expenses related to in-person Wheels Down events and member
benefits increased $0.8 million as we resumed holding events for our members
after COVID-19 restrictions were lifted. Lastly, advertising expense increased
$2.4 million as we had reduced advertising spending during the three months
ended September 30, 2020 as part of cost cutting measures to offset the impact
of COVID-19.
General and Administrative
General and administrative expenses increased by $27.9 million , or 192%, for the
three months ended September 30, 2021 compared to the three months ended
September 30, 2020 . The increase in general and administrative expenses was
primarily attributable to a $23.5 million increase in equity-based compensation
due to accelerated vesting of all awards and restricted stock that vested in
connection with the Business Combination. For the three months ended September
30, 2020 , we took certain cost saving measures to reduce headcount and related
compensation costs, consistent with applicable CARES Act limitations, which
returned to normal levels for the three months ended September 30, 2021 . In
addition, for the three months ended September 30, 2021 , public company
readiness related costs increased $2.5 million , and we incurred $0.3 million of
public company related costs. Professional service related fees, travel and
entertainment expenses, office expenses and other costs increased by
approximately $1.6 million .
Depreciation and Amortization
Depreciation and amortization expenses decreased by $1.1 million , or 7%, for the
three months ended September 30, 2021 compared to the three months ended
September 30, 2020 . The decrease in depreciation and amortization expense was
primarily attributable to a $2.2 million decrease in depreciation expense for
our owned aircraft. The decrease was partially offset by increases in
amortization of software development costs and intangible assets of $0.6 million
and $0.5 million , respectively.
CARES Act Grant
During the three months ended September 30, 2020 , as a result of the negative
impact of COVID-19, we utilized grant proceeds from the Treasury of $51.6
million to offset payroll expenses.
Interest Expense
Interest expense decreased by $4.8 million , or 86%, for the three months ended
September 30, 2021 compared to the three months ended September 30, 2020 . The
decrease in interest expense was primarily attributable to our repayment of
substantially all of the outstanding principal of our long-term debt on July 21,
2021 .
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Results of Our Operations for the Nine Months Ended September 30, 2021 Compared
to the Nine Months Ended September 30, 2020
The following table sets forth our results of operations for the nine months
ended September 30, 2021 and 2020 (in thousands, except percentages):
Nine Months Ended September 30, Change in
2021 2020 $ %
Revenue $ 849,215 $ 485,208 $ 364,007 75 %
Costs and expenses:
Cost of revenue 773,191 446,632 326,559 73 %
Technology and development 23,818 15,345 8,473 55 %
Sales and marketing 55,846 38,893 16,953 44 %
General and administrative 76,444 38,740 37,704 97 %
Depreciation and amortization 40,952 44,189 (3,237) (7) %
CARES Act grant - (64,923) 64,923 100 %
Total cost and expenses 970,251 518,876 451,375 87 %
Loss from operations (121,036) (33,668) (87,368) (259) %
Other income (expense):
Change in fair value of warrant
liability 12,271 - 12,271 100 %
Loss on extinguishment of debt (2,379) - (2,379) 100 %
Interest income 25 503 (478) (95) %
Interest expense (9,503) (18,127) 8,624 (48) %
Total other income (expense) 414 (17,624) 18,038 102 %
Loss before income taxes (120,622) (51,292) (69,330) (135) %
Income tax expense - - - 100 %
Net loss (120,622) (51,292) (69,330) (135) %
Less: net loss attributable to
non-controlling interests (6,572) (3,944) (2,628) (67) %
Net loss attributable to Wheels Up
Experience Inc. $ (114,050) $ (47,348) $ (66,702) (141) %
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Revenue
Revenue increased by$364.0 million , or 75%, for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 . The increase in revenue was primarily attributable to the following changes in flight revenue, membership revenue, aircraft management revenue and other revenue (in thousands, except percentages): Nine Months Ended September 30, Change in 2021 2020 $ % Flight$ 621,494 $ 343,571 $ 277,923 81% Membership 49,144 39,787 9,357 24% Aircraft management 158,840 93,416 65,424 70% Other 19,737 8,434 11,303 134% Total$ 849,215 $ 485,208 $ 364,007 75% Flight revenue growth was primarily driven by a 66% increase in Live Flight Legs, which resulted in$225.7 million of growth, and a 9% increase in revenue per Live Flight Leg, which drove$52.2 million of year over year improvement. The increase in Live Flight Legs was primarily attributable to an increase in flying by Active Members, the impact of COVID-19 on 2020 results and the acquisition ofMountain Aviation . Growth in membership revenue was driven entirely by a 45% increase in Active Members but was impacted by an increased mix of members at promotional rates. The increase in aircraft management revenue was primarily attributable to our acquisitions of WUPJ onJanuary 17, 2020 and Gama onMarch 2, 2020 . As such, the results of WUPJ and Gama were only included for a portion of the nine months endedSeptember 30, 2020 . The increase in other revenue was primarily attributable to an increase in whole aircraft sales where we acted as the broker, as well as ground and catering services, both of which increased due to an increase in Live Flight Legs. Cost of Revenue Cost of revenue increased by$326.6 million , or 73%, for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 . The increase in cost of revenue is primarily attributable to an increase in Live Flight Legs and the increase in aircraft management revenue. Adjusted Contribution Margin increased 110 basis points for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 , largely due to improvement in first party, controlled fleet fulfillment. The increase in Adjusted Contribution margin was partially offset by the integration of theTravel Management Company, LLC and WUPJ operating certificates, which resulted in a$3.0 million reduction in Contribution due to lower aircraft availability. Additionally, cost pressures and supply constraints, along with pilot availability and maintenance challenges, negatively impacted Adjusted Contribution Margin. See "Non-GAAP Financial Measures" above for a definition of Adjusted Contribution Margin, information regarding our use of Contribution Margin and a reconciliation of gross margin to Contribution Margin. Other Operating Expenses Technology and Development Technology and development expenses increased by$8.5 million , or 55%, for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 . The increase in technology and development expenses was primarily attributable to an increase of$6.1 million in employee compensation costs, which was partially offset by an increase in capitalized costs related to the development of internal use software of$0.9 million . Third-party consultant fees also increased$3.7 million , which was offset by a$3.5 million increase in 44 -------------------------------------------------------------------------------- capitalized costs related to internal use software. Additionally, equipment and enterprise software expense increased by$1.6 million and$1.5 million , respectively, related to an increase in headcount stemming from our acquisitions. Sales and Marketing Sales and marketing expenses increased by$17.0 million , or 44%, for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 . The increase in sales and marketing was primarily attributable to increases in headcount and related compensation and allocable costs of$9.8 million as a result of our acquisition ofMountain Aviation onJanuary 5, 2021 , as well as WUPJ and Gama that were included in our consolidated results for the full nine months endedSeptember 30, 2021 as opposed to only a portion of the nine months endedSeptember 30, 2020 . In addition, sales commissions increased$4.1 million from growth in memberships and flight revenue. Additionally, advertising expense increased$4.1 million . These costs were partially offset by a$1.0 million decrease in Wheels Down event spending due to COVID-19 restrictions. General and Administrative General and administrative expenses increased by$37.7 million , or 97%, for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 . The increase in general and administrative expenses was primarily attributable to a$25.0 million increase in equity-based compensation due to accelerated vesting of all awards and restricted stock that vested in connection with the Business Combination. Personnel expenses and allocable costs increased by$7.6 million due to headcount growth as a result of our acquisitions. In addition, for the nine months endedSeptember 30, 2021 public company readiness related costs increased$3.1 million , and we incurred$0.3 million of public company related costs. Additionally, travel and entertainment expenses, office expenses and other costs increased by$0.7 million . Settlements of various legal actions approximated$1.0 million . Depreciation and Amortization Depreciation and amortization expenses decreased by$3.2 million , or 7%, for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 . This decrease in depreciation and amortization expenses was primarily attributable to a$6.5 million decrease in depreciation expense for our owned aircraft as certain aircraft became fully depreciable subsequent toSeptember 30, 2020 . Additionally, depreciation expense related to leasehold improvements decreased$0.6 million . The decrease was partially offset by increases in amortization of software development costs and intangible assets of$1.6 million and$2.0 million , respectively, as well as an increase in depreciation related to furniture and fixtures of$0.3 million . CARES ActGrant During the nine months endedSeptember 30, 2020 , as a result of the negative impact of COVID-19, we utilized grant proceeds from theTreasury of$64.9 million to offset payroll expenses. Interest Expense Interest expense decreased by$8.6 million , or 48%, for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 . The decrease in interest expense was primarily attributable to our repayment of substantially all of the outstanding principal of our long-term debt onJuly 21, 2021 . 45
-------------------------------------------------------------------------------- Liquidity and Capital Resources Overview Our principal sources of liquidity have historically consisted of financing activities, including proceeds from the Business Combination, and operating activities, primarily from the increase in deferred revenue associated with the sale of Prepaid Blocks. As ofSeptember 30, 2021 , we had$535.3 million of cash and cash equivalents, which were primarily invested in money market funds and$2.2 million of restricted cash. We believe our cash and cash equivalents on hand, will be sufficient to meet our projected working capital and capital expenditure requirements for at least the next 12 months. Cash Flows The following table summarizes our cash flows for the nine months endedSeptember 30, 2021 , and 2020 (in thousands): Nine
Months Ended
2021 2020
Net cash (used in) provided by operating activities $ (152,416) $ 5,401
Net cash (used in) provided by investing activities $ (8,428) $ 87,082
Net cash provided by (used in) financing activities $ 373,398 $ (54,084)
Net increase in cash, cash equivalents and restricted cash $ 212,554 Cash Flow from Operating Activities Net cash used in operating activities for the nine months endedSeptember 30, 2021 was$152.4 million . In 2021, the cash outflow from operating activities consisted of our net loss, net of non-cash items of$63.5 million and a decrease in net operating assets and liabilities, primarily as a result of a$69.4 million decrease in deferred revenue attributable to a significant increase in Live Flight Legs. In addition, during the nine months endedSeptember 30, 2021 , we sold$356.9 million of Prepaid Blocks compared to$323.3 million for the nine months endedSeptember 30, 2020 . The increase in Prepaid Block purchases was primarily attributable to the growth of Active Members. Net cash provided by operating activities for the nine months endedSeptember 30, 2020 was$5.4 million . In 2020, the cash inflow from operating activities consisted of our net loss, net of non-cash items of$48.3 million and an increase in net operating assets and liabilities, primarily as a result of a$28.2 million decrease in accounts receivable. The increase in net operating assets and liabilities was partially offset by a$16.8 million decrease in accounts payable and a$9.0 million decrease in accrued expenses. Cash Flow from Investing Activities Net cash used in investing activities for the nine months endedSeptember 30, 2021 was$8.4 million . In 2021, the cash outflow from investing activities was primarily attributable to$16.3 million for capital expenditures, including$9.6 million of software development costs. The cash outflow was partially offset by$7.8 million from the acquisition ofMountain Aviation , including cash acquired. Net cash provided by investing activities for the nine months endedSeptember 30, 2020 was$87.1 million . In 2020, the cash inflow from investing activities was primarily attributable to$97.1 million from the acquisitions of WUPJ and Gama, including cash acquired. In addition, we used$10.0 million for capital expenditures, including$5.1 million of software development costs. Cash Flow from Financing Activities Net cash provided by financing activities for the nine months endedSeptember 30, 2021 was$373.4 million . In 2021, the cash inflow from financing activities was primarily attributable to gross proceeds of$656.3 million 46
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received in the Business Combination, net of$70.4 million of transaction related costs. The cash inflow was partially offset by$213.9 million in repayments of our credit facilities and promissory notes. Net cash used in financing activities for the nine months endedSeptember 30, 2020 was$54.1 million . In 2020, the cash outflow from financing activities was primarily attributable to$54.8 million for repayments of our credit facilities offset by proceeds of$0.8 million . Contractual Obligations and Commitments Our principal commitments consist of contractual cash obligations under our operating leases for certain controlled aircraft, corporate headquarters, and operational facilities, including aircraft hangars. For further information on our leases see Note 12 "Leases" of the accompanying condensed consolidated financial statements. Critical Accounting Policies and Estimates For further information on our critical accounting policies and estimates, see "Management's Discussion and Analysis of Financial Conditions and Results of Operations - Critical Accounting Policies and Estimates" included in the Prospectus and Note 2 to the audited consolidated financial statements for the year endedDecember 31, 2020 included in the Prospectus. Recent Accounting Pronouncements For further information on recent accounting pronouncements, see Note 2 "Summary of Significant Accounting Policies" of the accompanying condensed consolidated financial statements.
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