WHEELS UP EXPERIENCE INC.
The following management's discussion and analysis of our financial condition
and results of operations ("MD&A") should be read in conjunction with our
unaudited condensed consolidated financial statements and the related notes
included in Part I, Item 1 of this Quarterly Report and our audited consolidated
financial statements included in our most recent Annual Report on Form 10-K for
the year ended December 31, 2021 . 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.
See "Cautionary Note Regarding Forward-Looking Statements" included in this
Quarterly Report. Unless the context otherwise requires, references in this MD&A
section to "Wheels Up", "we," "us," "our," and "the Company" are intended to
mean the business and operations of Wheels Up Experience Inc. and its
consolidated subsidiaries.
Overview of Our Business
Wheels Up strives to disrupt private aviation by delivering innovative, accessible, travel through 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. Our chief operating decision maker, our chief executive officer, reviews our financial information presented on a consolidated basis, and accordingly, 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. As ofJune 30, 2022 , we have over 200 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 ofJune 30, 2022 , we also have a managed fleet across all private aircraft cabin classes of approximately 150 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 pre-purchase amounts of dollar-denominated credits ("Prepaid Blocks"), which can be applied to future costs incurred, 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. Members who 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 flyer who 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 or who has more flexibility in their schedule or does not seek capped rate pricing. All membership options provide access through theWheels Up mobile app to on-demand charter flights, dynamic pricing, a variety of Shared Flights, empty-leg Hot Flights, 30
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Shuttles and The Community, an online platform of members-only forums to facilitate flight sharing, enabling members to reduce their cost of flying private. In addition, customers can qualify for Delta Air Lines, Inc. ("Delta") miles in the Delta SkyMiles Program as part of their membership.
During 2020, we 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 where they can view 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. We also 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, freight, group charter, safety & security, special missions and whole aircraft acquisitions and sales where we act as the broker.
Recent Developments
Completion of the Business Combination
OnJuly 13, 2021 (the "Closing Date"), we completed a business combination withAspirational Consumer Lifestyle Corp. , a blank check company originally incorporated as aCayman Islands exempted company (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 our credit facilities and promissory notes, together
with all accrued and unpaid interest in the amount of approximately
Aircraft Purchases
OnJanuary 12, 2022 , we entered into an agreement withTextron Financial Corporation to exercise our purchase option on 32 leased aircraft. The negotiated purchase price for all aircraft was$65.0 million , and in connection with the purchase we received a reimbursement of approximately$7.3 million for unused maintenance reserves. The sale was completed onFebruary 22, 2022 .
Alante Air Charter, LLC Acquisition
OnFebruary 3, 2022 , we acquiredAlante Air Charter, LLC ("Alante Air "), aScottsdale, Arizona based private jet charter business. The total purchase price forAlante Air was$15.5 million , which was paid in cash. The acquisition added 12 Light jets to our controlled fleet.
OnMarch 7, 2022 , we made a minority cash investment of$10.0 million inTropic Ocean Investors LLC ("Tropic Ocean") and entered into a multiyear commercial cooperation agreement. Tropic Ocean is the world's largest amphibious airline and leading provider of last-mile private charter and scheduled service inFlorida , theNortheastern United States ("U.S."), theBahamas , theCaribbean and beyond. 31
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Air Partner plc Acquisition
On
Fuel Surcharge and Carbon Offset Fee
On
OnMay 2, 2022 , we announced we would implement a new fuel surcharge framework effectiveJune 1, 2022 . The fuel surcharge is applied when the cost of Jet A fuel, as published by the ArgusU.S. Jet Fuel IndexTM., is more than$2.00 per gallon and is calculated based on estimated billable flight time. In addition, onMay 2, 2022 , we announced a carbon offset fee will be added to each hour of flight time effectiveJune 1, 2022 . The fee ranges from$20 per flight hour to$65 per flight hour.
Business Impact of COVID-19
For the foreseeable future, we plan to continue the Wheels Up Safe Passage™
program introduced in response to the outbreak of the coronavirus pandemic
("COVID-19"). We have not had and do not expect any material COVID-19 related
contingencies, impairments, concessions, credit losses or other expenses in
future periods.
As a result of the increased rate of COVID-19 spread during a portion of the
fourth quarter of 2021 and into the first quarter of 2022, flight volumes were
negatively impacted, primarily due to a combination of customer cancellations,
access to third-party supply and reduced crew availability resulting from
COVID-19 exposure. Although flight volumes recovered in the second quarter of
2022, we continue to experience supply chain disruptions and increased costs for
parts and supplies related to COVID-19.
Moving forward, we believe the COVID-19 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.
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,
These non-GAAP financial measures are in addition to, and not a substitute for, measures of financial performance prepared in accordance withU.S. GAAP and should not be considered as an alternative to any performance measures derived in accordance withU.S. GAAP. We believe that these non-GAAP financial measures of financial results provide useful supplemental information aboutWheels Up to investors and are utilized internally by our management team to assess certain aspects of our performance. However, there are a number of limitations related to the use of these non-GAAP financial measures and their nearestU.S. GAAP equivalents, including that they exclude significant expenses that are required byU.S. 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 and 32 -------------------------------------------------------------------------------- (viii) other items not indicative of our ongoing operating performance including restructuring charges. We include Adjusted EBITDA as a supplemental measure for assessing operating performance and for the following:
•Use 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 loss, which is the most
directly comparable
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Net loss $ (92,760) $ (28,954) $ (181,800) $ (61,167)
Add back (deduct)
Interest expense - 4,164 - 8,721
Interest income (405) (6) (482) (18)
Income tax expense 320 - 320 -
Other expense, net 850 - 880 -
Depreciation and amortization 16,134 13,482 30,362 27,313
Equity-based compensation expense 20,781 1,348 43,335 2,762
Public company readiness expense(1) - 370 - 843
Acquisition and integration expense(2) 7,511 1,116 11,345 4,374
Restructuring charges(3) 2,809 - 5,483 -
Change in fair value of warrant
liability (2,129) - (5,760) -
Corporate headquarters relocation
expense - - - 31
Adjusted EBITDA $ (46,889) $ (8,480) $ (96,317) $ (17,141)
__________________
(1)Includes costs primarily associated with compliance, updated systems and
consulting in advance of transitioning to a public company.
(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)During 2022, we recorded restructuring charges for employee separation
programs following strategic business decisions.
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. 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:
•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.
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The following table reconciles Adjusted Contribution to gross profit (loss),
which is the most directly comparable U.S. GAAP measure (in thousands, except
percentages):
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Revenue $ 425,512 $ 285,580 $ 751,147 $ 547,237
Less: Cost of revenue (408,898) (255,188) (741,656) (489,695)
Less: Depreciation and amortization (16,134) (13,482) (30,362) (27,313)
Gross profit (loss) $ 480 $ 16,910 $ (20,871) $ 30,229
Gross margin 0.1 % 5.9 % (2.8) % 5.5 %
Add back:
Depreciation and amortization $ 16,134 $ 13,482 $ 30,362 $ 27,313
Equity-based compensation expense in
cost of revenue 3,307 49 7,739 100
Acquisition and integration expense in
cost of revenue - - - 1,010
Adjusted Contribution $ 19,921 $ 30,441 $ 17,230 $ 58,652
Adjusted Contribution Margin 4.7 % 10.7 % 2.3 % 10.7 %
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 June 30,
2022 2021 % Change
Active Members 12,667 10,515 20 %
Three Months Ended June 30,
2022 2021 % Change
Active Users 13,119 11,281 16 %
Live Flight Legs 21,705 18,234 19 %
Flight revenue per Live Flight Leg 13,088 11,663 12 %
Six Months Ended June 30,
2022 2021 % Change
Live Flight Legs 39,331 33,512 17 %
Flight revenue per Live Flight Leg 13,232 12,030 10 %
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
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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 and wholesale flights and certain related fees and surcharges. 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 estimated to be three years as ofJune 30, 2022 . Members are 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 UP FMS software, fees we may receive from third-party sponsorships and partnerships, freight, group charter, safety & security, whole aircraft acquisitions and sales where we act as the broker, and special missions including government, defense, emergency and medical transport.
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
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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 allocable portions of equity-based compensation and related benefits for our executive, finance, human resources and legal teams, 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-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.
Gain on Sale of Aircraft Held for Sale
Gain on sale of aircraft held for sale consists of the gain on aircraft sold where we did not act as a broker. When these aircraft were acquired, it was our intent to sell and not to hold them long-term.
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. Interest Income
Interest income primarily consists of interest earned on cash equivalents in
money market funds,
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.
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--------------------------------------------------------------------------------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.
Results of Our Operations for the Three Months Ended
The following table sets forth our results of operations for the three months
ended
Three Months Ended June 30, Change in
2022 2021 $ %
Revenue $ 425,512 $ 285,580 $ 139,932 49 %
Costs and expenses:
Cost of revenue 408,898 255,188 153,710 60 %
Technology and development 14,606 8,025 6,581 82 %
Sales and marketing 33,688 17,895 15,793 88 %
General and administrative 46,973 15,786 31,187 198 %
Depreciation and amortization 16,134 13,482 2,652 20 %
Gain on sale of aircraft held for sale (663) - (663) 100 %
Total costs and expenses 519,636 310,376 209,260 67 %
Loss from operations (94,124) (24,796) (69,328) (280) %
Other income (expense):
Change in fair value of warrant
liability 2,129 - 2,129 100 %
Interest income 405 6 399 **
Interest expense - (4,164) 4,164 (100) %
Other expense, net (850) - (850) 100 %
Total other income (expense) 1,684 (4,158) 5,842 141 %
Loss before income taxes (92,440) (28,954) (63,486) (219) %
Income tax expense (320) - (320) 100 %
Net loss (92,760) (28,954) (63,806) (220) %
Less: Net loss attributable to
non-controlling interests - (2,798) 2,798 100 %
Net loss attributable to Wheels Up
Experience Inc. $ (92,760) $ (26,156) $ (66,604) (255) %
** Percentage not meaningful.
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Revenue
Revenue increased by$139.9 million , or 49%, for the three months endedJune 30, 2022 , compared to the three months endedJune 30, 2021 . The increase in revenue was primarily attributable to the following changes in membership revenue, flight revenue, aircraft management revenue and other revenue (in thousands, except percentages): Three Months Ended June 30, Change in 2022 2021 $ % Membership$ 24,020 $ 16,188 $ 7,832 48 % Flight 284,071 212,660 71,411 34 % Aircraft management 60,718 49,955 10,763 22 % Other 56,703 6,777 49,926 737 % Total$ 425,512 $ 285,580 $ 139,932 49 %
Growth in membership revenue was driven primarily by a 20% increase in Active
Members compared to the three months ended
Flight revenue growth was driven by a 19% increase in Live Flight Legs year-over-year, which resulted in$40.5 million of growth, and a 12% increase in flight revenue per Live Flight Leg, which drove$30.9 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 and the acquisition of Air Partner. Flight revenue for the three months endedJune 30, 2022 also includes$15.6 million of fuel surcharge revenue, which we began collecting effectiveJune 1, 2022 . In addition, flight revenue increased due to the acquisition of Air Partner, which added$13.3 million for the three months endedJune 30, 2022 . 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 sales of aircraft inventory and the acquisition of Air Partner for the three months endedJune 30, 2022 . Cost of Revenue Cost of revenue increased by$153.7 million , or 60%, for the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . The increase in cost of revenue is primarily attributable to the increase in Live Flight Legs, the increase in aircraft management revenue and increased whole aircraft sales. In addition, excluding aircraft owner expenses, fuel expense increased by$21.0 million for the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 , which was primarily attributable to an increase in fuel prices. Adjusted Contribution Margin decreased 600 basis points for the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 , which was primarily attributable to cost pressures and supply constraints impacting us and the industry, partially offset by the acquisition of Air Partner and additional whole aircraft sales. Specifically, pilot availability, increased fuel costs, maintenance challenges, wage inflation and increased third-party fulfillment costs each 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$6.6 million , or 82%, for the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . The increase in technology and development expenses was 38 -------------------------------------------------------------------------------- primarily attributable to an increase of$3.7 million in employee compensation and allocable costs combined with third-party consultant fees increasing$4.5 million . The increase in employee costs and consultant fees was partially offset by higher capitalized costs related to the development of internal use software of$4.0 million . Additionally, enterprise software expense increased by$1.3 million . Lastly, technology and development expenses increased due to the acquisition of Air Partner, which added$1.1 million for the three months endedJune 30, 2022 . Sales and Marketing Sales and marketing expenses increased by$15.8 million , or 88%, for the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . The increase in sales and marketing was primarily attributable to an increase of$4.7 million for employee compensation costs and allocable costs. In addition, sales commissions increased$1.8 million driven by higher sales activity. Expenses related to in-person Wheels Down events and member benefits increased$3.7 million as we resumed holding events for our members after COVID-19 restrictions were lifted, which was partially offset by a decrease in advertising spending of$0.9 million . Lastly, sales and marketing expenses increased due to the acquisition of Air Partner, which added$6.5 million for the three months endedJune 30, 2022 .
General and Administrative
General and administrative expenses increased by$31.2 million , or 198%, for the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . The increase in general and administrative expenses was primarily attributable to a$13.0 million increase in equity-based compensation expense due to additional awards that were granted during the three months endedJune 30, 2022 . In addition, personnel expenses and allocable costs increased$4.0 million and professional service-related fees increased$7.9 million for the three months endedJune 30, 2022 . Public company related costs, travel and entertainment expenses, office expenses and other costs also increased by approximately$0.8 million . Additionally, general and administrative expenses increased due to the acquisition ofAlante Air and Air Partner, which added$0.3 million and$5.2 million , respectively, for the three months endedJune 30, 2022 .
Depreciation and Amortization
Depreciation and amortization expenses increased by$2.7 million , or 20%, for the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . The increase in depreciation and amortization expense was primarily attributable to a$1.4 million increase in amortization of software development costs. The increase was partially offset by a decrease in amortization of intangible assets of$0.4 million . Lastly, depreciation and amortization expenses increased due to the acquisition of Air Partner, which added$1.7 million for the three months endedJune 30, 2022 .
Interest Expense
Interest expense decreased by
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Results of Our Operations for the Six Months Ended
The following table sets forth our results of operations for the six months
ended
Six Months Ended June 30, Change in
2022 2021 $ %
Revenue $ 751,147 $ 547,237 $ 203,910 37 %
Costs and expenses:
Cost of revenue 741,656 489,695 251,961 51 %
Technology and development 25,797 15,049 10,748 71 %
Sales and marketing 56,931 33,689 23,242 69 %
General and administrative 85,877 33,955 51,922 153 %
Depreciation and amortization 30,362 27,313 3,049 11 %
Gain on sale of aircraft held for sale (2,634) - (2,634) 100 %
Total costs and expenses 937,989 599,701 338,288 56 %
Loss from operations (186,842) (52,464) (134,378) (256) %
Other income (expense):
Change in fair value of warrant
liability 5,760 - 5,760 100 %
Interest income 482 18 464 **
Interest expense - (8,721) 8,721 (100) %
Other expense, net (880) - (880) 100 %
Total other income (expense) 5,362 (8,703) 14,065 162 %
Loss before income taxes (181,480) (61,167) (120,313) (197) %
Income tax expense (320) - (320) 100 %
Net loss (181,800) (61,167) (120,633) (197) %
Less: Net loss attributable to
non-controlling interests (387) (5,602) 5,215 93 %
Net loss attributable to Wheels Up
Experience Inc. $ (181,413) $ (55,565) $ (125,848) (226) %
** Percentage not meaningful.
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Revenue
Revenue increased by$203.9 million , or 37%, for the six months endedJune 30, 2022 , compared to the six months endedJune 30, 2021 . The increase in revenue was primarily attributable to the following changes in membership revenue, flight revenue, aircraft management revenue and other revenue (in thousands, except percentages): Six Months Ended June 30, Change in 2022 2021 $ % Membership$ 44,667 $ 31,162 $ 13,505 43 % Flight 520,434 403,134 117,300 29 % Aircraft management 121,224 100,835 20,389 20 % Other 64,822 12,106 52,716 435 % Total$ 751,147 $ 547,237 $ 203,910 37 %
Growth in membership revenue was driven primarily by a 20% increase in Active
Members compared to the six months ended
Flight revenue growth was driven by a 17% increase in Live Flight Legs year-over-year, which resulted in$70.0 million of growth, and a 10% increase in flight revenue per Live Flight Leg, which drove$47.2 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 and the acquisition of Air Partner. Flight revenue for the six months endedJune 30, 2022 also includes$15.6 million of fuel surcharge revenue, which we began collecting effectiveJune 1, 2022 . In addition, flight revenue increased due to the acquisition of Air Partner, which added$13.3 million for the six months endedJune 30, 2022 . 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 sales
of aircraft inventory and the acquisition of Air Partner for the six months
ended
Cost of Revenue
Cost of revenue increased by$252.0 million , or 51%, for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . The increase in cost of revenue is primarily attributable to the increase in Live Flight Legs, the increase in aircraft management revenue and increased whole aircraft sales. In addition, excluding aircraft owner expenses, fuel expense increased by$33.0 million for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 , which was primarily attributable to an increase in fuel prices. Adjusted Contribution Margin decreased 840 basis points for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 , which was primarily attributable to cost pressures and supply constraints impacting us and the industry, partially offset by the acquisition of Air Partner and additional whole aircraft sales. Specifically, pilot availability, increased fuel costs, maintenance challenges. wage inflation and increased third-party fulfillment costs each 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$10.7 million , or 71%, for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . The increase in technology and development expenses was 41 -------------------------------------------------------------------------------- primarily attributable to an increase of$5.8 million in employee compensation costs and allocable costs, which was partially offset by higher capitalized costs related to the development of internal use software of$0.7 million . Third-party consultant fees also increased$7.3 million , which was offset by a$6.3 million increase in capitalized costs related to internal use software. Additionally, equipment and enterprise software expense increased by$1.3 million and$2.2 million , respectively. Lastly, technology and development expenses increased due to the acquisition of Air Partner, which added$1.1 million for the six months endedJune 30, 2022 .
Sales and Marketing
Sales and marketing expenses increased by$23.2 million , or 69%, for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . The increase in sales and marketing was primarily attributable to an increase of$8.5 million for employee compensation costs and allocable costs. In addition, sales commissions increased$2.9 million driven by higher sales activity. Expenses related to in-person Wheels Down events and member benefits increased$5.6 million as we resumed holding events for our members after COVID-19 restrictions were lifted. Additionally, advertising expense decreased$0.5 million , which was partially offset by an increase in professional service-related fees of$0.2 million . Lastly, sales and marketing expenses increased due to the acquisition of Air Partner, which added$6.5 million for the six months endedJune 30, 2022 .
General and Administrative
General and administrative expenses increased by$51.9 million , or 153%, for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . The increase in general and administrative expenses was primarily attributable to a$26.7 million increase in equity-based compensation expense due to additional awards that were granted during the six months endedJune 30, 2022 . In addition, personnel expenses and allocable costs increased$7.0 million and professional service-related fees increased$10.0 million for the six months endedJune 30, 2022 . Public company related costs, travel and entertainment expenses, office expenses and other costs also increased by approximately$2.5 million . Additionally, general and administrative expenses increased due to the acquisition ofAlante Air and Air Partner, which added$0.5 million and$5.2 million , respectively, for the six months endedJune 30, 2022 .
Depreciation and Amortization
Depreciation and amortization expenses increased by$3.0 million , or 11%, for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . The increase in depreciation and amortization expense was primarily attributable to a$2.2 million increase in amortization of software development costs and a$0.4 million increase in depreciation expense for leasehold improvements. The increase was partially offset by a decrease in depreciation expense for our owned aircraft and amortization of intangible assets of$0.9 million and$0.4 million , respectively. Lastly, depreciation and amortization expenses increased due to the acquisition of Air Partner, which added$1.7 million for the six months endedJune 30, 2022 .
Interest Expense
Interest expense decreased by$8.7 million , or (100)%, for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . The decrease in interest expense was attributable to our repayment of substantially all of the outstanding principal of our long-term debt onJuly 21, 2021 .
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 ofJune 30, 2022 , we had approximately$427.0 million of cash and cash equivalents, which were primarily invested in money market funds, and$27.4 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. 42 --------------------------------------------------------------------------------
Cash Flows
The following table summarizes our cash flows for the six months ended
Six
Months Ended
2022 2021
Net cash used in operating activities $ (140,175) $ (118,911)
Net cash used in investing activities $ (181,097) $ (2,668)
Net cash used in financing activities $ (6,689) $ (30,574) Effect of exchange rate changes on cash, cash equivalents and restricted cash
$ (4,345) $ -
Net decrease in cash, cash equivalents and restricted cash
$ (152,153)
Cash Flow from Operating Activities
Net cash used in operating activities for the six months endedJune 30, 2022 was$140.2 million . In 2022, the cash outflow from operating activities consisted of our net loss, net of non-cash items of$65.5 million and a decrease in net operating assets and liabilities, primarily as a result of a$67.4 million decrease in deferred revenue attributable to a significant increase in Live Flight Legs. In addition, during the six months endedJune 30, 2022 , we sold$332.9 million of Prepaid Blocks compared to$115.9 million for the six months endedJune 30, 2021 . The increase in Prepaid Block purchases was primarily attributable to the growth of Active Members and a new program and pricing announcement inMay 2022 .
Cash Flow from Investing Activities
Net cash used in investing activities for the six months endedJune 30, 2022 was$181.1 million . In 2022, the cash outflow from investing activities was primarily attributable to$89.4 million for capital expenditures, including$12.9 million of software development costs. We also purchased$43.8 million of aircraft held for sale. In addition, we acquiredAlante Air and Air Partner for$75.1 million , net of cash acquired. The cash outflow was partially offset by$27.1 million from the sale of aircraft that were classified as held for sale.
Cash Flow from Financing Activities
Net cash used in financing activities for the three months endedJune 30, 2022 was$6.7 million . In 2022, the cash outflow from financing activities was attributable to a payment for shares that were withheld to settle employee taxes due upon the vesting of restricted stock and restricted stock units.
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 Notes to Condensed Consolidated Financial Statements included herein.
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 our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
Recent Accounting Pronouncements
For further information on recent accounting pronouncements, see Note 2, Summary of Significant Accounting Policies of the Notes to Condensed Consolidated Financial Statements included herein.
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