Welcome to the Wheels Up Fourth Quarter 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] It is now my pleasure to introduce Keith Ferguson. Mr. Keith Ferguson, you may now begin the conference call.

Thank you, and welcome again to Wheels Up's Fourth 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/investors. Please refer to the slides with our disclaimer. Today's presentation contains forward-looking statements based on our current forecasts and expectations of future events. These statements should be considered estimates only, and actual results may differ materially. During today's call, we will refer to non-GAAP financial measures as outlined by SEC guidelines. Unless otherwise noted, all income statement-related financial measures will be non-GAAP other than revenue. Reconciliations of GAAP to non-GAAP financial measures and definitions of non-GAAP financial measures are found within the financial tables of our earnings release and appendix of today's presentation. And with that, I'd like to turn the call over to our Chairman and Chief Executive Officer, Kenny Dichter.

Thank you Keith. And thanks to all of you for joining us today. Quick disclaimer, I have a little cold and my voice is little raspy. That said, I’m pleased to report another quarter of record revenue as we continue to see unprecedented demand across our platform. The private aviation industry is ripe for disruption. Despite flying highly sophisticated aircraft, the industry has historically taken an analog and antiquated approach to optimizing supply and demand. The surge in demand over the past year have exposed the limitations of the industry's fragmented supply, and consumers have felt the pain. What it has also done is to highlight the tremendous efficiencies that can be gained with a technology enabled marketplace that seamlessly connects supply and demand. We are building that marketplace. We are still in the early stages for our playbook similar to the one used by Uber and Airbnb is a proven winner. In short, our vision has never been clearer. Our strategy has never been more relevant, and we continue to make meaningful progress in building the future marketplace for private travel. Bringing demand onto your platform, it's typically the most difficult part of building a two sided marketplace. That is not the case where we hold up. Today we are a clear leader with a growing base of more than 12,000 members. We have built an iconic brand in private aviation and forged a strong and unique commercial relationship with Delta Airlines, as well as brand partnerships with global powerhouses like American Express and Porsche. And after a two year hiatus, we have returned to hosting certain signature live events around the Super Bowl, around the Masters, and around Art Basel. And we continue to work with a host of ageless ambassadors to help Wheels Up tell its story…

Thank you, Kenny. It's great to be with all of you today. As Kenny highlighted, the confidence in our decision to absorb near term margin pressure, as it is in the best interest of the company and the customer over the long term. The proof is apparent in the strength of our customer codes, and the very early results of our strategic initiatives. I want to provide you some context and my priorities since I assumed the role of the company President in October. We focused on three essential areas that we believe will drive both short term improvements and results while unlocking significant potential in our business as we redefine success in our industry. In order to achieve this unlock, we will first drive operational rigor across our entire organization especially during this period of rapid growth. Second, align both sides of the supply demand flywheel to fully capitalize on the current customer and industry trends. And third, continue to invest in critical technology initiatives that extend our relationships with customers and suppliers instrumental first mover advantage as a digital disruptor. I will provide some color on each. First to focus on operational rigor. As Wheels Up has grown both organically and through acquisition. The need for data driven decision making is greater than ever, to help us make the right decisions quickly by developing a single operating system across the company. Simply put, the feasible way to rapidly share information, align priorities in an organization or discipline, as we continue to scale towards a more structured approach to decision making without sacrificing speed and give them a single source of truth and a common vocabulary across all our metrics. This in turn, makes us more attuned and responsive to the drivers of the business, and more nimble in…

Thank you Vinayak. Hello everyone. As Kenny noted, we are very pleased with our strong revenue growth with fourth quarter revenue growing 64% year-over-year to $345 million, and full year revenue jumping 72% to $1.194 billion. That strong performance was due to the incredible efforts of our team to secure supply and service our customers during the challenging period for the industry. Providing more detail on revenue. Our membership revenue grew 38% year-over-year in the quarter and 27% for the full year. As we've discussed previously, we believe our membership revenue is highly visible and largely recurring, especially since our retention rates continue to remain strong at approximately 80% for core business members overall, and approximately 90% for core business members who purchase prepaid blocks. In the fourth quarter, we added 665 net new members with active members growing 31% year-over-year, our core business offerings with their guaranteed availability, and cap rates across all asset classes continue to resonate with customers even as we raise certain cap pricing tiers in November. Those membership tiers were a key driver of growth in the quarter, along with the continued success of our American Express partnership. As Kenny mentioned, we implemented a temporary moratorium on flying for certain new members and pay as you go flying during the fourth quarter, so that we could prioritize our supply to service our existing members. I'm pleased to say that while there was a temporary headwind and adding perspective members, overall membership trends and prepaid blocks remained strong throughout the moratorium. Also new membership sales had picked up following the lifting of the moratorium in February. Turning to flight revenue. Flight revenue was up 66% year-over-year for the quarter and up 76% for the full year. Live Flight Legs were up 63% year-over-year in the quarter…

[Operator Instructions]. Our first question comes from Michael Bellisario from Baird. Your line is now open. Please go ahead.

Thanks. Good morning, everyone. Just wanted the, the one piece re-strategy information you gave was great. Can you maybe take a step back given all the changes that have occurred recently on the revenue and expense side? How do you think about the sweet spot of your business going forward in terms of balancing 1P, 2P and 3P investments?

Eric

Thanks Michael. Thanks, Kenny. So in terms of what we expect to grow each of our 1P, 2P and 3P capabilities over time, clearly in this market environment where as I said 3P costs are have increased as demand is increased across the entire market. It's more advantageous for us to put more activity on our 1P fleet or our leverage our 2P fleet. In terms of profitability overtime and we talked about this at our analyst day that our 1P fleet has the most profit opportunity for us with 30% plus target margin 2P and 3P generally have had 15% to 25% target margins, and this is more over the long term. I would say today, that's shifted a little bit in terms of -- we're seeing more profitability right now on our 2P fleet versus 1P and 3P. And we have more opportunity right now on the 1P because our utility has not improved. As we improve utility that's really where you get the benefit and margin expansion because you've already, once you've covered your fixed costs, you have the opportunity to really -- that incremental flight, those incremental flights really are at a variable cost. And so we're working through making sure that we have the pilots, the maintenance availability to get our 1P fleet running at the level that we needed to. And then we can turn on the tickets of more demand, so essentially, to drive that utility. In the first, as I said, we really haven't been opening up the marketplace and the aperture to non-members. So we can add more supply, whether it’s 1P, 2P or 3P and open it up for members and non-members.

You have like just the key utility here for us, consolidating certificates, global scheduling, is going to open that up for us in a meaningful way as well.

Got it. And then just one more from me. You've been using your balance sheet a little bit more and it seems like you're more inclined to lean in a little bit. Have you looked out maybe 12 months, 12 plus months for both ones? How much of your current investment capacity do you think you could use or do you want to use to further bolster the ones with the 1P fleet?

I'll pick that one, Kenny. So in terms of our CapEx guidance said that it implies that we're going to spend about $60 million of normal CapEx, it's about a little less than half of that is going to be related to purchasing aircraft on our balance sheet. That's the current plan for right now, that does not include those assets held for sale, which are assets, those are aircraft that we're essentially buying with the ability to either sell off to an owner that will put them in our managed fleet, or work with somebody has to be sent back to us as a still part as one team but through an operating lease, not as a [Indiscernible]. And at the end of the year, we had $18 million of assets held for sale that will probably increase to about $50 million or $60 million pretty quickly here. We've had a lot of success in acquiring aircraft that we can place into management for example, and that's a great deal for us where we have some great examples where we've been able to take an aircraft, find an owner that's looking for that aircraft, it's the type of aircraft that we actually utilize in our fleet today. And they'll pay us a management fee to manage that aircraft and that will pay them an hourly rate when we utilize that aircraft for high charter availability.

Our next question comes from Gary Prestopino from Barrington Research. Your line is now open. Please go ahead.

Good morning, everyone. Couple of questions here on your pilot retention, first of all, particularly as it relates to the [Indiscernible]. I mean, how has that stabilized or improved from where you were at the end of Q3?

Hey Gary thanks for the question. Yes, we're doing two things. So for pilot retention, right, we had a new program called Air Crew-360. It involved a kind of a comprehensive look of everything about them, the career progression, benefits, compensation. We were the first in the industry to provide stock-based compensation to our pilots. So we are stabilizing the retention on the pilots. We've also doubled down on hiring like the speed in which we hire the focus, give higher referral bonuses for our pilots, if they refer people. Overall, we are very pleased with the progress we've made both on the retention side, as well as acquisition of new pilots for the King Air as well.

Okay, so the 150 pilots that you've hired, as well, as you say, you're going to have 200 hired by the end of Q1, when will they be totally certified to start flying the King Air’s?

So about half of them are already getting certified. Unlike other industries, where a pilot gets hired, there are three or four steps that we have to take. One is there needs to be background investigation that happens on their qualification and performance. The previous companies have to give that data, then there is like the class one medical examination with an FA, qualified medical examiner, then they get interviewed through our operations right now with respect to company specific operating procedures. And then they get tight credit [ph] for a specific type of aircraft. And then they start doing what I call initial operating experience. It takes a couple of months. So half of them are coming out of training as we speak, because we've been hiring since November, right. So and so this is an ongoing process as they keep on coming more and more onto the platform for pre revenue generating flights.

So I guess, I guess, in, in what you're saying by Q4 of 2022 going into 2023, the bulk of these pilots will be able to fly these planes on regular schedules, is that kind of a good bogey there?

Well, the 150 to 200 we have hired they should be able to fly in Q2 of 2022. Not even Q4. So okay, it does not take few months. So yeah, definitely in Q2.

Okay. And then in terms of the King Air, which you said you had a lot of capacity and upside. I mean, what is going on there with the utilization? I believe it was probably down in Q4. How does that look now in Q1? And where do you think you can take it by the end of the year?

Look, we don't specify actual utilization numbers. There are three things that affect utilization, right. One is what we call green planes and green pilots. We can dramatically improve the maintenance by improving green planes. As we get pilots we have, we can improve dramatically the number of pilots we have for the green planes and green pilots, and then we can optimize the optimizer. These utilization numbers that we have are something we have achieved in Q2 of last year. So we can easily beat that as we improve our pilot ratios, and use software to optimize the schedules. We won't provide specific utilization numbers, but these are things that we have achieved in the past. And as we get pilot ratios to be better we can get it going. One thing on Q4, we were not immune to Omicron related shortages, both on the maintenance side, both on first party and third party and crews itself as you know, when they fell sick during Q4 as you might have heard through other even airlines who have last few weeks of December there was a pilot related shortages. We do believe, with higher pilot ratios that were software to manage this crew and scheduling and optimizing, we can dramatically increase the utilization looking at fleet.

Okay, thank you. And then Eric, lastly you cited a bunch of below the line components in Q1 to get to the adjusted EBITDA, could you just go through those again, I couldn't, I couldn't write them down quick enough.

Sure, Gary [Indiscernible] I noticed there, but essentially it was $40 [ph] million of depreciation was one of them. There's I think $10 million related to a burnout shares. These are all non-cash items. There was like $15 million related to stock-based comp, and 10 million related to restructuring costs and other non-cash items. So then talking about add backs are about 55 million.

Thank you.

[Operator Instructions] Our next question comes from Marvin Fong from BTIG. Your line is now open. Please proceed with your question.

Great. Good morning. Thanks for taking my questions. The first question on deal. Sounds like your fuel surcharges won't be hitting in the first quarter. So just do you have a sense of if the surcharges were in place for the first quarter, like what would your EBITDA, adjusted EBITDA number come in at? And then I have a follow up question.

So Marvin, it’s Eric. I’ll take a broader approach to this. And I'll then I'll zero down a little bit more on your questions. So like as I mentioned in my prepared remarks, we implemented a fuel surcharge for our members, including those with prepaid blocks. And it's the first time in our history that we've taken such an action, even though our contracts permitted. And as you mentioned, this surcharge takes effect April 9, 30 days’ notice, so therefore, it will offset our costs increases our costs and in the second quarter. And that surcharge ranges from $295 to $895 per hour, that's based on cabin class. So some history on our fuel costs. So fuel was about 50% of our gas costs of revenue for 2021. That's about $155 billion. And so a 10% change or increase in fuel expense would increase our costs by about $16 million a year on a similar amount of flight volumes. The commodity price of fuel comprises about 50% of our total fuel costs. If you look at distribution taxes, those are more fixed and that's sort of the remaining other half. The Jet fuel commodity index price was about $2.16 per gallon, at year end, and that's pumped from the $1.34 at the end of 2020. And so the other day, the index crossed the $4 mark, which would increase our costs by double, which is double the increase in the last two months. At the current index cost, our fuel costs have increased by about 50%. But that would be substantially offset by that originally announced surcharge. If the fuel costs continue to rise, we do have the ability to take further action by amending our terms of service. In terms of what the impact was, I can give you sort of what the rough impact is on barge. And that would be about $3 million to $4 million was based on sort of that increase. It's hard to kind of go back and say, depending on what rates you use, for the beginning of the year, and such. But to give you a sense of the incremental impact for us for March is about $3 million or $4 million.

Okay, all right. That's, that's super, super helpful. Thanks for that. And then my other questions, the Air Partner acquisition gets to a year of -- could you discuss any businesses they were doing, what, with Russia, Ukraine area, and also, just as you're thinking about expansion into Europe, change at all. Are you seeing essentially more of an opportunity there or any additional thoughts on geographic expansion would be great? Thanks.

Yes, Marvin. It's Kenny, thanks for the question. And as we've talked about, since our public offering we see our brand as a global brand. Air Partner has 60-year history, incredible talented people at that light. Their exposure in Russia is minimal, non-material, which is great. They service Europe, if you think about being a Wheels Up member and the value of being a Wheels Up member, there's plenty of folks that are going to fly over on a Delta airline, airplane or an affiliate. And they're going to pick up the Air Partner network and vice versa. Mark Briffa, their CEO is excited to be our person in Europe working directly with Vinayak on the business forward. But we always talked about planting a flag there. I think they have some great opportunistic opportunities. We talked about our cash position, leaving this year with over $750 million. And that doesn't account for our ability to back lever our assets that we paid down. So you have another couple of $100 million plus to utilize, should we want to want to do that. But really, really exciting, super talented team. And, again, like I said, we see a global opportunity here. So, so excited about Air Partner.

Thanks Kenny, and I appreciate it.

That was our final question. So I'll hand it back to Kenny Dichter for closing remarks.

Hey Maxim, thank you so much for hosting. And thanks to everybody for joining us today. I'm going to leave everybody with one final thought. We're making substantial progress in building an innovative technology enabled marketplace to optimize fragmented supply. We will connect that supply with a large growing and dynamic addressable market, all supported by our trusted and iconic Wheels Up brand. Want everybody to have a good day and thanks again. We'll…

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.