Hello, and welcome to the Wheels Up Experiences First Quarter 2022 Earnings Conference Call. My name is Harry and I'll be your operator today. [Operator Instructions] It is now my pleasure to hand you over to -- from -- apologies. It's now pleased to hand you over to Keith Ferguson, IR, Wheels Up to begin. Keith, please go ahead.

Thank you, and welcome to Wheels Up’s First Quarter 2022 Earnings Conference Call. This afternoon, 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 slide to enter 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. In 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. With that, I'd like to turn the call over to our Chairman and CEO, Kenny Dichter.

Thank you, Keith, and thanks to all of you for joining us today. I am pleased to report record revenue for the first quarter as we continue to see unprecedented demand across our platform and more broadly across our industry. It has long been our goal to build a technology-enabled marketplace for private aviation that connects strong and growing demand with highly fragmented supply. This marketplace playbook is a proven to structure in many other verticals, and we are relentlessly focused on providing an unparalleled member experience in the air and on the ground, backed by an unwavering commitment to safety. Our strategy is already showing results. Today, we are a clear leader with a growing base of more than 12,000 active members and well north of $1 billion of annual revenue. We have built an iconic brand in private aviation, and we have forged a strong and unique commercial relationship with Delta Airlines as well as significant brand partnerships that deliver even greater value to our members. While generating demand is typically the more difficult part of building a marketplace, it is where we have been very successful. In fact, our first quarter is a testament to that success. We reported revenue exceeding $320 million. Again, a record for the first quarter and up almost 25% year-over-year. Active members are 26% higher than a year ago, and our live legs were up 15% year-over-year as we marked the anniversary of the rebound in travel during the pandemic. Prepaid block sales, a great indicator of future demand were exceptionally strong, over $170 million for the quarter and up over 150% year-over-year. Overall demand remains strong at the start of the second quarter, and our average pricing is increasing. Our core member retention continues to be robust, and our core members…

Thank you, Kenny. It's great to be with all of you today. Kenny highlighted some of our recent top line successes, and I'm pleased to report that our pace of execution is also improving. The business operating system we have implemented is helping drive the rigor and transparency we need as we continue to scale and deliver improved core margins over the course of the year. Our operations improved steadily over the course of the first quarter, and that trend has continued so far in the second quarter. These improvements directly translate to a better customer experience and area where we are relentlessly focused. So with that, let me provide an update on the operating initiatives that I laid out last quarter, where we will continue to direct our energy and resources throughout the year. First, we're focused on improving utility in the near term to pilots and maintenance hiring. We've already hired more than 250 pilots since November, well ahead of the plan we laid out in the third quarter, and we'll continue to focus in this area. These pilots will steadily enter into service as they complete our company-specific training, giving us a strong ongoing pipeline, which will help to drive our fleet utility going forward. Our pilots are some of the most highly trained and dynamic in the industry, and they probably represent our front line with members and customers. Turning to maintenance. Our aircraft return to service time is a challenge, which adversely affects aircraft dispatch availability. One of the main challenges in this area is our reliance on third-party providers that are experiencing their own issues relating to labor, hearts and work backlogs. To address this, we are continuing to invest in internal maintenance capabilities, which allow us to be in control of the schedule…

Thank you, Vinayak. Hello, everyone. As Kenny highlighted, we are very pleased with our strong revenue growth, the revenue up 24% year-over-year. Specifically, membership revenue grew 38% year-over-year for the quarter, and we added 384 net new members, ending the first quarter with 12,424 active members, up 26% year-over-year. We saw a pickup in new membership sales following the lifting of the flight moratorium in February. Also, the mix has continued to shift towards our higher-priced core membership tier that offers more guaranteed access to the member, which is valuable in today's supply-constrained market. We believe our membership revenue is highly visible and largely recurring as our retention rates remained strong at approximately 80% for Quorum Business members overall and approximately 90% of Quorum Business members who purchased prepaid block. Turning to Flight Revenue. Flight revenue was up 24% year-over-year for the quarter, with Live Flight Legs up 15% year-over-year. We continue to see strong leisure demand and a pickup in business and international travel. We are also pleased with this level of growth, considering that supply chain constraints continue to limit our ability to address significant potential demand from connect and nonmembers through our marketplace. Flight Revenue per Live Flight Lag was $13,410 for the quarter, up 8% year-over-year. This metric is a function of multiple factors, including pricing, stage length, cabin mix and peak versus off-peak flying. During the first quarter, we began seeing an impact from the cap rate price increase that was affected last December as well as a continued shift in mix to larger cabin classes as our customers favored our jet offering. Looking forward for the remainder of the year, we expect to show an increasing benefit to flight revenue per live filing from the December and June price increases as the prepaid block…

Thanks very much. [Operator Instructions] And our first question is from the line of Sheila Kahyaoglu from Jefferies. Should your line will be open now if you'd like to proceed with your question.

Hi, thank you. Good afternoon, guys. And Eric, best of luck on your next venture. Can I just ask settings on the top line, I guess, on the Air Partner, we have it contributing $50 million. So it implies organic did go up about 5%. How much of that organic is an increase in membership revenues versus the price increases that are contributing?

Thanks, Sheila. I'm new here. |I’m Eric.

And I want to introduce Eric Jacobs, who has been on our side for 3 years. He's going to be helping answer some of the questions here. He's our interim CFO.

Sure.

Sheila, want to make sure I understand your question on proper. So you're asking about our -- the 28% guidance for next quarter, how much of that is organic versus Air partner. Is that correct?

For the full year, you've raised guidance by 8%. So we have Air Partner at like $50 million of contribution -- sorry, $90 million of contribution, I apologize. And then so in size, organic did go up by a few percentage points. I was just wondering how much of that is an increase in membership and other versus like pricing kicking in?

Yes. So the pricing was reflected in our initial guidance for the year. So we didn't change guidance other than to really add into our partner plus the benefit that we saw in Q1. So hopefully, that is conservative, but that's how we approach the guidance for the remainder of the year.

And then, Eric, you step way too fast for me to keep up with those numbers on the fuel surcharge. Can you just go over once more, it alleviates about 200 basis points in Q2, how much for the full year for '22? And then how do we think about that in '23?

Yes, Eric Jacobs, do you want to grab that?

Yes. Thanks, Kenny. The fuel had a roughly $9 million impact on our contribution margin for Q1, which equates to roughly 250 basis points for the quarter. As we highlighted, the new tool mechanism will take place will take effect June 1, and will largely insulate margins from future fuel price volatility. With that said, the price of fuel has continued to increase in April and May. So fuel continued to be a headwind in Q2, with the negative impact behind us in June. We've guided to 3.5% margins for Q2, and we expect the full offset to contribute 200 basis points of improvement accrue in in Q3. So it's roughly a 200 basis point sequential improvement from Q2 to Q3.

Understood. Okay. Thank you, I’ll jump back in the queue. Thank you, guys.

Thank you, Sheila. Our next question is from the line of Gary Prestopino of Barrington. Please proceed with your questions.

Sure. I'm sorry, I jumped on the call a little bit late, so I don't know if I missed some things. But could you tell me on your prepaid blocks. Are those -- can people use those without incurring a fuel surcharge? Or do they get surcharged if they use the block?

Gary, it's Kenny. The Fan cards onto the full membership with the 30 days’ notice, which is what we did effective March 9, which kicked in, we got some coverage starting April 9 program and indexed the fuel, which gives us really full coverage on our fuel -- to further be a little clarity.

Yes. Gary, unlike the block will affect the theme so far. So irrespective of whether you are an existing number or an old number with a most of the flight for everybody.

I'm trying to follow all this. You're talking about an increase in your adjustment a 200 basis points sequentially. Is that right? Or am I wrong in your guidance?

From a guidance perspective, we're guiding to 3.5% for Q2.

And you...

Fuel benefit or offset in Q3 will equate to about 200 bps. [Indiscernible] So we're looking at a 5.5% adjusted contribution margin in Q3. and so should be reflected in that contribution margin our operational efficiency with the aircraft. So if you're still if you're still looking at $45 million of adjusted EBITDA, you're really going to jump up your spending over the next at least quarter and that would continue throughout...

[Indiscernible].

So Gary, it's Eric. So I think that the hiring of a pilot that's such a highly higher maintenance tax actually helps us from a margin improvement perspective because we have -- we have aircraft that they can apply and can allow us for trips on the board, and we have a -- on the maintenance side, there's a very quick payback in terms of how they start impacting the margin.

So as Eric talked about, the 200 basis point improvement in Q3 relates to fuel, we didn't want to sort of put out a number related to operational improvements yet because we're still working through a lot of the supply chain things and things like certification going to take a longer period of time. That's really going to start hitting in 2023. So Pena, think wants to add a point here.

Okay, thank you. No, over a period of time, you should start with the improvements. Just want to clarify that.

Thank you. Sorry, Ken, go ahead.

Yes.

And just going to find some of that. We feel very comfortable with our margin guidance. And our goal is to be in beta guys. We look forward to sharing our second quarter results

Thanks, Gary. And our next question is from the line of Marvin Fong with BTIG. Proceed with your questions.

Good morning, Kenny, just a question of or, I mean, I appreciate the color you gave about current trends, and I think you said April was strong. Just maybe you could I dive a little deeper into the demand trends you're seeing? And just maybe comparatively, how did April look or even early May come compared to what actually saw in the first quarter. A follow-up...

Yes. First off, Marvin, I think that the trends on the demand side in our industry continue to be robust. -- wheels up to seeing tremendous interest. And obviously, you have the back to the office and businesses looking at what they're going to do travel-wise, this year. I'm working closely with the Niacin handle the demand moving forward is really where the online is for us to.

Yes. So just to be clear, today, we are not seeing any impact on the demand side in spite of the environment we have. What we are doing is trying to deliver the initiatives as fast as we can. I mean the way we look at about demand is if you look at our customer cohorts that we have seen existing customer courts continue to spend. And because we have this long-term view of what we are seeing for them for the past 2, 3 years, we're continuing to spend the newer customer cohorts are spending at higher levels and they're starting to fly a year after they become a number. So in terms of the demand, there are 2 indicators, which is new memberships that we are getting in terms of actual demand, both seem to be strong and I'm not seeing any differences based on the geopolitical conditions right now.

Terrific. And then I appreciate what you're saying that the demand environment looks good. But just considering the fact that the macro, does that actually maybe perhaps help you find owners on either the 2P or 3P side who might be looking to generate some income and are maybe more willing to participate in your programs there? Just some additional color there would be great.

Yes. That should totally help us to participate. And the other thing that happens is we have this guarantee program for our 2P owners where we can give guaranteed shorter ours to them. We have multiple other levers for demand that we have not activated. So to give you an example, we had a moratorium in November and lifted in February. But still, the vast majority of the demand is to take care of our existing core members, right? There is people searching on our platform who have created accounts, and we are not showing availability to them because we are actually focused on servicing our existing members. The advantage as we get more supply of the supply/demand, if change gets more efficient is we can actually open up that aperture for nonmember customers to search and book on our platform and those go at market rates, so with better margins for us. So we have levers to kind of change demand, not just in membership because we actually see traffic on the app where people are searching. So both on the demand side, on the supply side, I think the opportunities adjust.

Marvin, one last bullet there just to reinforce what Dana's saying, and I know Eric reported on it, the block sales continue to be strong. That gives us great revenue visibility as to what we're looking at forward. Our offering, our model is not predicated on ownership. So like I said, the demand there just feels good, but the blocks really tell the story. People vote with their ability to put bones down. I know you had one more.

Well, I actually was going to ask about that. I just want to confirm just as a housekeeping question. So the prepaid block number that was as of the end of the first quarter, right? So that wasn't affected in any way by this additional or new increase of the cap rates, right, that didn't have any impact on that.

Yes. I would say we'll not be Yes. The first quarter was not affected, and we think that early indications are that people are reacting well to both the fuel surcharges and the cap rate, which really is a membership as a privileges feature, which is -- it protects you against surge spot market pricing.

Great. I don't know if I had some comments there, but that was all I had. Thanks.

Thank you, Marvin. [Operator Instructions] Next question is from Michael Bellisario with Baird. Proceed with your questions.

Good morning, guys. Just want to go back to the business versus leisure trends that you mentioned. Are you seeing a shift in which segment is buying blocks and then also the rate at which they're being used today.

So this is Eric, Mike. So we don't really report out the details on types of members buying locks. That said, our corporate sales have been very strong, and our partnership with Delta has benefited in us as we have access to some of their corporate clients.

Yes. And I just want to add that, as Eric said, we don't report on it, but both the business and the individual customer block also year-on-year. We won't report on the specifics because we are very pleased with the growth in both the sectors.

Got it. That's helpful. And then just can you maybe dig into the active users kind of flattish sequentially? What happened in the first part of the year? Was there a step back presumably because of the flood moratorium? And then what have you seen maybe more recently after that was lifted?

Given the cane supply doubling down at servicing our membership base. So we really haven't opened up the aperture to nonmembers, and that's why you see sort of flattish view on the active user base. And you can see that active members grow essentially year-over-year.

Got it. And just related to opening that up to nonmembers. Is there an updated thinking in terms of timing for that?

Michael, we're getting smarter about how we do that, like -- so right now, our technology, either allows you to allow access to -- based on your type of membership you have, what results you get. But we can start seeing fluctuation in demand in countercyclical routes. And our plan is to add the technology where selectively, we can start actually opening up to now numbers depending on cabin class, depending on what route and over a period of time, increase, that's the fact we are building. So there's not going to be like a switch on for now numbers. What we will do is start selectively pushing that out based on availability based on the routes that start making profits. And actually, as the supply/demand starts getting better, open up that a pushes more than more; so that's what we're going to do.

Okay, thank you.

And we have no further questions today. So it would be my pleasure to hand back to Kenny Dichter for any closing remarks.

Yes. Thank you. And first off, everybody to join the call. We appreciate you spending the time. And just we look forward to our August reporting of the second quarter, and we wish everybody a great day. Thank you.

Thank you, all, for joining in today’s presentation. This does conclude today conference call. You may now disconnect your lines.