Hello, everyone. Welcome to Wheels Up’s 4Q 2022 Earnings Conference Call. My name is Charlie and I'll be coordinating the call today. All lines have been placed on listen-only mode to prevent any background noise. You will have the opportunity to ask a question at the end of the presentation. [Operator Instructions] I will now hand it over to your host, Keith Ferguson, Wheels Up, to begin. Keith, please go ahead.

Thank you. This morning, we announced our fourth quarter financial results. The earnings release with its supporting tables, as well as a copy of today’s presentation, can be found on our website at wheelsup.com/investors. Please refer to the slide with our disclaimer. Today’s presentation contains forward-looking statements based on our current forecast and expectations of future events. These statements should be considered estimates only and actual results may differ 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 Wheels Up’s Chairman and Chief Executive Officer, Kenny Dichter.

Thank you, Keith, and thanks to all of you for joining us today. For today's call, we are prioritizing four topics that we think are most important: one, an update on our business performance for the fourth quarter of 2022; two, our objectives for 2023; three, a progress update on our path to EBITDA profitability in 2024; four, our strong cash position at the end of the year. With that, let me provide some highlights from our quarter. We reported revenue of $408 million a record for the fourth quarter that was up nearly 20% year-over-year, meeting our guidance of approximately 15% year-over-year growth. Revenue was a record $1.6 billion for the year, up over 30%. Active members grew 5% compared to a year ago. Retention metrics across our membership tiers have remained consistent at high levels. However, we are seeing some headwinds in new membership sales due to the macroeconomic environment, as well as a conscious effort to focus our global sales and marketing towards the most efficient and profitable flight opportunities. Our live flight legs decreased 5% year-over-year, while demand and pricing remained very strong relative to historical norms, we have seen some moderation in flying, which we believe reflects current conditions. Prepaid blocks, a great indicator of our members' commitment to future flying with us were just over $1 billion for the year, a record for the company. Overall, we are very thankful for our strong foundation of loyal members and customers who continue to spend at healthy levels with us. It is critical that we continue to focus on delivering world-class service, as we look for new ways to expand our platform. We have demonstrated our ability to consistently grow our business and brand globally. Today, we are focused on leveraging that strong foundation to generate…

Thanks, Kenny. Our foundation of loyal members and our well recognized and admired brands, provide a key point of competitive differentiation for Wheels Up. As Kenny mentioned earlier, our focus is now on how we can continue to serve our customers and deliver exceptional experiences at scale, but do so profitably. Our headcount reduction announcement last week was the culmination of a thorough and difficult review over the past several months to scrutinize and prioritize our spending profile across technology, sales and corporate overhead. The expected $30 million of annualized savings from this effort is a meaningful step forward, and we are continuing to work to further streamline our cost profile, and accelerate the pace of operational improvement. As I walked through my prepared remarks, I will touch on our fourth quarter highlights, along with an update on our operating initiatives and how you should model the company going forward. Kenny touched on our total revenue performance. So let me run through the components. Membership revenue was up 13% year-over-year. That growth rate has moderated in recent quarters, reflecting some macro headwinds and a recent shift to more connect members, as we are increasing the mix of on-demand charter flying to balance out our network. We have also focused our sales and marketing spending to target more profitable revenue that leverages network density in specific regions and at specific times. Flight revenue was up 9% year-over-year and higher than expected. The increase was due to a 14% year-over-year increase in flight revenue per live leg, offset by a 5% decline in live flight legs. Without Air Partner, which reports on a net revenue basis, flight revenue per live flight leg was up 19% year-over-year. Aircraft management revenue was $62 million in the quarter, continuing to hover in the $60 million…

Thank you, Todd, and thanks to all of you who have joined us today. Our base of $1.6 billion of annual revenue is a huge advantage for us. We have proven we can grow. Today, we are focused on proving to you that we can leverage our incredible foundation into a strong and sustainable business. The actions we highlighted today give us confidence that we will achieve positive EBITDA in 2024. It is up to us to execute. I look forward to sharing our progress. With that, let's take some questions.

Thank you. [Operator Instructions] Our first question comes from Ellen Page of Jefferies. Ellen, your line is open. Please go ahead. Ellen, your line is open. Please proceed with your question.

Sorry, can you hear me?

Yes, we can hear you.

Okay. Thanks for the question. Good morning. So you initiated 2023 guidance, implying revenue down maybe low single digits organically, including some strategic shifts. But can you parse out how much of that is related to like the number of members versus peers like per member going forward?

Yeah. Hi, Ellen, it's Todd. Yeah, let me take that. I mean, I would say, we expected our member growth to largely track our overall flight revenue, I think as we look at the outlook for 2023, and we think about where we're positioned, we feel good about the foundation that we built over almost $1.6 billion in 2022. That gives us the capability to deliver what we need to -- as we -- as you said and as we've guided a relatively flat profile for the total year. And I think that's a mix of a couple of things. One, the macro environment that we see as the backdrop as well as some of the increased selectivity that we're focused on. And I think within that revenue profile, what we're trying to accomplish is a little bit of a shift in the mix, particularly driving more on-demand charter, which we think will be very helpful to us. And ultimately, we have a goal to say, hey, how do we -- in an environment where that top line remains relatively flat, increased our margins in a meaningful way and deliver more leverage in the P&L.

Helpful. Thank you. And just looking at your EBITDA guidance of maybe negative 7% to negative 8% for the full year. How do we think about the path from there to positivity in 2024? And maybe how do we think about the exit rate for 2023 to get there?

Yeah. I mean, I think there was a couple of things that we mentioned a little bit in the prepared remarks. But I think, look, we expect, as we said previously, to make meaningful progress in 2023 relative to our objectives of getting to adjusted EBITDA profitability in 2024. So if you think about what we're trying to achieve, as we exit the 2023 levels, we expect high single-digit adjusted contribution margin. And then we've also guided that our non-GAAP SG&A will be in the low-teens as a percentage of revenue. And both of those, when combined with our total year guidance should help you frame out kind of the magnitude of progress that we're expecting. And I think if we execute and deliver the things that we expect to and the things we've already have underway, we should be in a strong position coming out of 2023 to have an extremely credible path to deliver what we need to in 2024.

Okay. Thanks. That's helpful. I'll get back in the queue.

Thank you. Our next question comes from Michael Bellisario of Baird. Michael, your line is open. Please proceed with your question.

More, you mentioned slower new member sales and reduced flying. But I guess, one, when did you see that start to slip? And then two any specific customer type or aircraft category that was an outlier into year end?

Yeah. Thanks, Michael. We did see a little bit of slowing as we came through the end of the fourth quarter, although we still posted a strong number and revenue up 18%. So -- but I would say as we gotten into the first part of this year, I would say January, traditionally a bit of a volatile time in terms of some of the flight schedules coming out of the holidays, a little slower than what we had initially expected. But I'd say we've seen good improvement through the month of February and our booking levels heading into March now that we're in through the first week or so, look much stronger. And I think that's given us real confidence as we go into the remainder of the year that we're well positioned. We're, again, fortunate to be starting with a strong foundation, a great brand, a really loyal member set. I think -- and I think as we talked a little bit in some of the comments, we're increasingly trying to use dynamic pricing as a way to kind of drive even more revenue, but the right kind of revenue, on the right days, in the right locations. We mentioned this special offer that we have out at the moment on Kinnar [ph], east of the Mississippi, again, in a way that helps support the efficiency and the utility goals that we have that are aligned to the profitability targets of the business.

Thanks. And then just one the house-keeping item on guidance. Any aircraft sales assumed in your 2023 revenue guide?

Yes, yes. We'll assume that we'll continue to have some aircraft sales. But I think for the first quarter that will be a reasonably light component of our profile. But we'll continue to look opportunistically for where there's opportunities there, and we'll see some come through, but not a meaningful contributor in the first quarter.

Got it. And then just last one for me on expenses. You didn't touch on this too much in your prepared remarks, but have you seen any improvements in cost pressures or changes with the outlook for pilots' parts or maintenance as we flip the calendar into 2023.

Yes. I mean, look, we're not immune like everyone in the industry. We felt certainly some of those inflationary pressures. We've got that built into our profile. And I think that's informed a lot of the actions that we're taking elsewhere, both in some of the price increases that are increasingly working its way through the book, but also some of the cost actions and the productivity efforts that we're driving towards. So look, we recognize and expect that, that inflationary pressure is a reality, and we're working to make sure that we take the actions we need to. I'd say one of the things that we are seeing a little bit of favorability on is some of the third-party pricing obviously, with a supply-constrained market in 2022, the margins there came under pressure a bit. I think as supply is rebalanced a bit towards the end of the year and heading into certainly the first part of 2023, we're seeing a little bit more favorability there as we're securing some of that third-party supply in the market.

Thank you. That's all for me.

Thank you. [Operator instructions] Our next question comes from Marvin Fong of BTIG. Marvin, your line is open. Please go ahead.

Good morning. Thanks for taking my questions. Thanks to Todd for walking us through in pretty good detail. I had three questions. I just wanted to touch base again on the commentary about the booking uptick that you saw at the end of February and into the first week of March. Could you maybe characterize that? I mean, were you guys or break that down between potentially any marketing that you guys are doing to drive demand, or do you believe that, that was more or less just a general improvement in customer demand?

I would say it's a combination of both things. I mean I think we certainly saw some of the broader demand start to pick-up. I think super-mid and some of the TransCon flights, in particular, really strong. And I think that's probably some of the seasonal things you would expect as people are making longer flight East Coast out West and things of that nature. So that's been strong. And then I think it's been a result of some of the actions that we're trying to drive. One of the benefits that members have enjoyed when they join our program and put down prepaid blocks is, we give them cap rates protection on pricing, but they're also able to participate in the dynamic pricing on a regular basis. And I think as we're looking at the environment in 2023, we think that represents a better opportunity for us to be a little bit more offensive about using that dynamic pricing to help shape demand and drive that demand, particularly in areas that work for us in terms of efficient trips and better utility shaping some of that demand off of the Friday and Sunday typical trips where there's more compression into other days of the week. And to the extent that we can do that and do that effectively, then that certainly helps improve our contribution margins as we go through the year. And I think, in some ways, underpins our objective to say, hey, even in an environment where the top line is relatively flat, we think we can drive meaningful margin improvement through the year. And I think, as I commented a little bit on in the prepared remarks, as we go into the second quarter where we have an outlook of a bit of a move up and sequential improvement certainly in revenue versus the first quarter profile, those actions and the things that we've done to reduce the cost base and other things should create real leverage for us that should push up the margins in a meaningful way, in Q2 and beyond as we go through this year.

Marvin, this is Kenny. Just real quick to supplement what Todd said, demand shaping and having folks fly in the pockets that we need them to fly geographically and from a day in time perspective, we've put a lot of emphasis on our business segment. Our partnership with Delta is yielding us some great partners on the business flying, and that's really a Monday to Thursday deal. So I think that, that balancing is also going to help us going forward. And as we know, it's back to business as it relates to travel. So I think that's a favorable sort of bullet there.

Okay. Great. And then, on the adjusted contribution margins, I appreciate all the detail you provided about this year. Since 2024 sort of the make or break year in terms of reaching EBITDA profitability. And I think you guys are maintaining the mid-teens target, if you're exiting 2023 in the high-singles, could you just kind of provide us a little more detail about how you're going to get from that high-single to the mid-teens in 2024?

Yeah. I think a lot of that has to do with, as we described the path to profitability and the three pillars within that, which are cost pricing and program changes. And then the third bucket is that operational execution and efficiency. I think that third bucket is really what's going to underpin that acceleration into 2024 and beyond, right? I mean, we've invested a lot in technology to improve our -- our scheduling capability and the efficiency. We're doing a lot of work now in terms of the planned opening of our consolidated MOC in the middle of this year that may be even more significantly as we work through the consolidation of our certificates that we're currently working closely with the FAA on. We think that, that gives us an incredible opportunity to reduce some duplicative infrastructure, but more importantly, operate in a much more efficient way, in terms of scheduling optimization and flexibility. And I think if we do that combined with some of the plans we have regarding shaping that demand, increasing our concentration percentage of on-demand charter et cetera, we're set up to really realize that growth and improvement in margin as we go into 2024 and beyond.

Perfect. And then just maybe one housekeeping question. I think you mentioned an up-tick in bad debt expense. I mean how significant was that in, would you -- are you sort of embedding more -- an up-tick in bad debt expense that goes on in your full year guidance?

Yeah. The bad debt charge that we incurred in the fourth quarter was largely related to some historical cleanup. As we went back to the books and doing our reviews and working on kind of the year-end position, we took a look at some of the outstanding AR we had -- and we cleaned up some historical aged items that we just felt was appropriate to put behind us. We don't think that in any way is reflective of kind of an ongoing condition or any deterioration at all. I mean, we're fortunate to have a very strong and affluent customer base, and that's not an area that we have any concern on.

Okay. Perfect. Thanks a lot. That's all for me.

Thank you. [Operator Instructions] We currently have no further questions via the telephone lines. So I'll hand back over to Keith Ferguson and the team for any closing remarks.

Charlie, thank you. And I just want to thank everybody for joining us today. Thanks again.

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