Q3 2021 Wheels Up Experience Inc Earnings Call
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E Commerce.
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[music].
Hello, and welcome to the call.
2021 earnings call My name is Alex.
Alright, Thank you I'd like to ask a question at the end of the press.
Information you can press star one can you tell us.
If you'd like to withdraw your question press.
I will now hand over to Keith.
Ill.
I would see it.
Thank you and welcome again after the third quarter 2021 earnings Conference call earlier today, we issued a press release announcing our financial results for the period.
<unk> with its supporting cables as well as a copy of today's presentation can be found on our investor relations website and wheels up dot com slash investors.
You get pretty good slides describe Dave.
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.
Otherwise noted all income statement related financial measures will be non-GAAP.
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 Chief Executive Officer Kenny.
Thank you Keith and thanks to all of you for joining US today ahead of veterans day, the National day of Remembrance I wanted to say a special thank you to all of our veterans, who so honorably served our country. We are incredibly fortunate that many veterans in our ranks, including pilots mechanics corporate staff executive leadership.
Our board and of course, our members.
As has been the driving force since we founded wheels up we continued to disrupt private aviation. We are building a technology driven marketplace platform connecting our robust demand with fragmented supply. This is similar to how uber disrupted the traditional taxi and limousine market and how airbnb created value and vacation homes.
The unprecedented demand that the private aviation industry is experiencing today and the related stressors, it's putting on the available supply further validates our strategy and a tremendous opportunity that exists in the market.
We have plenty of positives to recognize this quarter, including a record growth with our trusted and iconic brand we are a leading demand generator in our space.
Our membership programs and other flight options like shared flights make private aviation more accessible than ever and are resonating with consumers our wheels up events and exclusive partner benefits continue to add important value to member experience and support retention.
In addition, our public listing has given us a very strong balance sheet with over $500 million of cash and essentially zero that we are very well positioned to invest in our business and build on our significant first mover advantage.
With that backdrop, let me share some highlights from this morning's earnings release.
We reported over $300 million in revenue in the third quarter setting another quarterly revenue record up 50% year over year.
Revenue for the first nine months with nearly $850 million, which is up 75% year over year. We are now over 11000 active members growing 45% year over year in the past 12 months, we have added over 3500 active members.
And our live flight legs were up over 50% year over year to 19700 in the quarter.
Now with unprecedented demand come supply challenges that are also unprecedented particularly in the light of COVID-19 supply constraints are an issue for almost all industries, including ours and have been widely reported on as consumers. We experienced this everyday from commodities to durables and luxury goods. These supply challenge.
We're significantly exacerbated during the third quarter, which impacted contribution margin and our profitability.
We pride ourselves in providing exceptional service for all of our customers, including members and non members and they deserve no less given this is the cornerstone of our business that said, while we believe we have performed better than most of this quarter. We haven't met the high expectations that we have set for ourselves and our brand.
As much as external factors have driven most of the challenges we will not rest on that as an excuse.
The good news is we believe the challenges are largely in our control fixable and being addressed today.
And with seemingly no end in sight to the continued demand for private aviation from both consumers and businesses, we are more encouraged than ever.
But it will take some time and patience to address these supply constraints and increased costs.
So let me take a few minutes to explain what we are doing today, starting with our pilots.
The biggest gating factor for us today is our ability to hire enough pilots to serve the rapid increase in demand and offset turnover. Unlike some other sectors facing labor shortages that can quickly train and deploy more workers wheels up pilots receive extensive training and must meet stringent qualification requirements. The end result.
Was that we could not fully crew our first party fleet during the third quarter.
This reduced the utility in our fleet versus a prior quarter pilot shortages were also experienced by many of the partners. We work with this resulted in less third party aircraft available to us and increased cost in obtaining that supplemental lift.
With regards to addressing the issue for our fleet.
We are increasing compensation and benefits for all of our pilots. This includes providing our pilots with the first ever broad based equity grant in our industry. One of the incredible benefits. We have is being a publicly traded company.
Equity provides a unique competitive advantage for us going forward, allowing our pilots to share in the success of the company.
Beyond compensation, we are investing in the quality of our travel management program for pilots when they are on duty as we reserve hotels ground transportation and food.
These may sound like simple things, but during and after a long day of flying they're incredibly important for quality of life are pilots represent some of the best trained most dynamic individuals in the industry.
And our frontline with our customers, we want wheels up to be their employer of choice.
Now, let me move to customer service.
We always focused on providing the best service possible to our customers.
Given heightened demand we are spending more to secure and lock up third party aircraft supply.
And recently that is increasingly included providing a significant number of cabin class upgrades to ensure that we can deliver for our customers.
While we are looking to add more pilots. We are also investing in our maintenance technicians and facilities in order to return our aircraft back to service faster.
We are doing all of this because we know that absorbing some short term margin pressure makes sense for the long term value of the company and our brand.
Our customers have a very high lifetime value and we are confident that the technology and operational improvements that we are working on will allow us to continue to unlock that value in the future.
Our core and business members spend on average over $80000 per year with us when you look at our customer cohort spending you can see how loyal customers spend more money with us year after year.
Even better our newest customers are spending more with us than prior cohorts. These are very consistent trends.
We believe the right strategy is to build loyalty for the long term. That's why we made the conscious decision not to raise our cap pricing over the summer our customers appreciate our integrity and recognize that one of the key benefits of our membership program is our cap rates.
I am pleased to report that our customers are making increasingly long term commitments to wheels up. This is reflected in the strength of our block sales, which were $172 million up 120% year over year, a record for the third quarter and the fourth quarter is positioned to be even stronger as existing members lock in current rates.
Before our recently announced cap rate pricing increase to take effect on December one.
These block sales provide us great visibility to continued robust demand and they gave us confidence to lockup future supply.
Now I want to touch on program changes. We recently implemented that you may have seen reported in the press. The biggest changes we are requiring more advanced notice ahead of travel this will give us more time to schedule and secure capacity.
In addition, we are also raising pricing and requiring larger block commitments from our members for the peak day guarantees.
These program changes will allow us to prioritize our current resources and support our existing customers, while continuing to sell programs that we can confidently deliver to our new customers.
The most valuable brands in the world are built by doing the right thing for their customers over the long term and not taking shortcuts in the near term.
Let me now turn to highlight several of our recent management additions the.
The supply demand imbalance that we're currently experiencing rift.
It reflects the industry's inability to scale with analog and inefficient processes what.
What is happening today it makes it even more clear that we need to change the way things get done.
That's how we're going to unlock supply and enhance margins in the future.
In order to be truly disruptive you need to start with a disruptive management team to that end, we are augmenting our experienced private aviation industry leadership with world class expertise in tech and digital marketplaces.
<unk> joined our company as Chief marketplace office or six months ago. During this time I have been extremely impressed by his rigor and business insights that he has brought to the organization.
This is the type of leadership, we need is the pace of business continues to accelerate.
That's why we recently announced he was promoted to president he has important operational and technology expertise from his years, disrupting and innovating industries at Amazon and Airbnb.
He's going to bring us to the forefront of technology driven innovation in automation that is going to significantly improve our access to supply he will share some details of our technology roadmap in a few minutes.
Our new Chief product Officer Gene Makena has also worked closely with Vinayak in the past gene as building products and tools to streamline our back end processes enhance our user experience and automate our operations.
Our new SVP of pricing and revenue management, Julien Zhang joined US from T. Mobile one of the biggest disruptors in the wireless space, where she was in charge of pricing and supply chain.
There's a lot of opportunity to innovate on pricing and incentivize off peak flying to smooth demand compression and expand the market.
<unk>, who joined US only a month ago as our Chief Technology Officer headed storage Division at EMC, Dell and also spend meaningful time as an executive at Microsoft and Amazon Web services. He will lead our technology transformation on the operation side, we have elevated Greg foreign broke who is this.
Oh, a mountain aviation to head our first party operations.
<unk>, who is president of TMC. When we acquired them is now head of our second party operations, which includes aircraft management ops their extensive experience having led some of the largest third party operators in the country will help us immensely moving forward I'd.
I'd like to close with a quick update on a couple of other recent initiatives our partnership with American Express offering their members exclusive flight benefits commenced on July one and is off to a strong start we are seeing new flight activity membership purchases block purchases as well as an uptick in our mobile app downloads.
The partnership is exceeding our expectations.
Our App for business initiative is also gaining traction with a strong pipeline. We are seeing success cross selling to delta as large base of corporate customers. Our partnership with Delta gives businesses the flexibility to fly both commercial and private.
We offer business has access to a diverse range of aircraft to fit their varying needs.
Before I turn the call over to Vinayak I want to reiterate how thankful I am for our loyal customers for their patience understanding and continuing to put their trust in US I would also like to take a moment to recognize our hardworking team, particularly our pilots for their great work in support of our customers.
And <unk>.
Thank you and I'm delighted to speak with all of you a good day also thank you Kenny and the Windsor book for having the confidence.
So it's truly an honor.
I wanted to.
And the next.
The most critical things so for disruptive strategy.
The industry's hooks technologies dealing with market needs.
Like Amazon Airbnb, and Uber have been caught us.
Is it simply you living space.
Meaningful customers.
This color and book it also means creating an easy way for operators.
Listening to NPR availability and increased utilization of the fleet.
What's incredible is the industry. Despite all its complexity to largely depends on analog and manual processes to operate today.
When you just spent two.
Todays strong demand environment.
The industry's inability to scale expensive assets, maybe underutilized, who empty repositioning links AD hoc maintenance schedule and having that patient communications is they're taking a suboptimal experience both for customers and operators.
Important to understand the logistics support industry are very complicated.
We will then harmful customers within a week of their problem.
If I can pose them to the airports like commercial airlines that's kicking in.
So more than six months and had ones I'll, let's kick things have to be developed and optimized.
Are you close to the processing time of flight.
You have to manage different aircraft types and sizes.
Now you have can you put some program changes, we announced to preserve the integrity of the service we deliver.
Every customer well the legacy autoimmune to inch up.
I would like to take a moment and provide some color on what that really means.
<unk>.
The biggest challenge today. So what we are doing is focusing on capacity one of our existing customers.
We can't Hawaii, the bus service possible.
Once new members from number plus on access to C&I marketplace. However.
Specific full aircraft capital restrictions for 90 days after joining I wanted to be clear, we Candace we're ready.
And deliberate leasing data and analytics.
The focus on consistently delivering the highest level for our members.
Both near term and widening.
We will continue to monitor market conditions, and our own supply capabilities and adjust our offerings accordingly, including the potential to allocate specific membership offerings. The reality is our growth has exceeded even our most optimistic expectations and the broader industry still logging function on our cake analogs.
Systems, Let me now turn to our technology initiatives.
A lot more supply in the near future specifically, how we can optimize this marketplace. We're building a cluster platform with supply and demand efficiently providing liquidity to operate those.
Election price and convenience to our customers.
Using data and machine learning to optimize <unk>.
Maintenance includes schedules minimizing empty repositioning.
Employee utilization across a profit minded industry. These expensive underutilized assets automating and bringing scale to this marketplace and allow us to drive down costs improve efficiencies and provide world class customer experiences.
We're going to do that similarly to what Amazon did during its early stages of growth.
We're rolling out several new initiatives misconduct and when I talk about through such initiatives today.
First we're deploying a new operational management system, even its end to end customer experience from search to booking to the flight itself.
This will enable us to monitor defects communication delays, neither inconsistency, letting customer data, etc, but providing visibility in priority to our member services organization you can back out into each ship has successfully executed as we continuously improve our processes.
Really starting to leverage this tool to improve our customer experience. For example, you can now identify flights there wouldn't be one passenger listed and alert the member to supply the full passenger manifest.
To avoid the news.
Youre deploying the first Washington for customer data platform, which will provide a full view of horse side, which we have provided to each customer likely see some communications can sleep apnea and benefits provided.
He was meaningful insights into customer behavior.
Investor on the new opportunities and act on them quickly for example.
Corporate customers propensity to churn and then potential lifetime value along somewhat I Couldnt management and operational teams, we think the right action at the customer level.
Oh technology initiatives will run on cloud services you May have heard me talk about the importance of a service oriented architecture. This is a technology platform with all the pumps since effectively apps are modules that all lumped into one of them.
This will improve the digital workflows and allow us to scale better.
The ability to adopt and make changes very quickly.
<unk> is an important hallmark successful marketplace.
Now when I referred to upload services, we should understand about India, almost as a component of that the prevalence of fleet management system, which we now call up SMS.
Mostly responsible for crew scheduling maintenance income keeping hill invoicing et cetera.
Essentially the ERP for Neocart.
Last quarter I mentioned that we successfully migrated over multiple aviation peak.
Yes.
Continuing to enhancements and other features before doing the only telco.
I'll, let certificates. In addition, third party operators Muse avionics, but also testing these new enhancements.
Next.
Wanted to update you on our primary goal.
And what we call the global aircrafts search engine.
As we look for a high fidelity view of aircraft locations, COO availability maintenance scheduling and that needs to be and random.
Honest to goodness now.
There's one other building blocks.
System.
By the middle of next year.
Slide across the integration Opex system by having all the information and intelligence.
<unk> improved our ability to schedule and unlock more capacity.
We'll do that by deploying advanced algorithms to optimize the scheduling second rather than human beings opinions today.
It should provide a faster and more efficient recovery option in the event of an unscheduled maintenance who it is.
Anonymous differentiator and critical photo of success, including improving profitability.
Let me now switch Alcoa wheels up at the cool user interface for our customers.
What do you see today is the first generation of the winds up.
We're very happy with the great reviews, the Apis and the team so far and over 50% of our bookings are done through the app to date, but clearly because it largely must do can deliver a world class experience for our members and customers, including continuing to improve the user interface foremost, we wanted to make it easier to use and more relevant with better personalization.
Specifically customers will see improved search and booking capabilities end to end self service for managing the reservations and Carlo <unk>.
<unk> notifications of updates or changes to establish on the flight catering and ground transportation promotional calendar partner deals notices of upcoming events Act.
Access to member benefits community in flight sharing I wanted to double click on the monitor personalization and merchandising youre going to do within the App.
Displayed on the App will be personalized for each customer based on their specific preferences and needs.
But it gives us more flexibility.
To gain efficiencies to give you. An example, we may have a customer with look through or either chucky airports in tahoe at two P. M on Friday and another customer we get such right now can be chunky at one P. M on the theme to our COO.
Can you just system will be able to in real time.
The opportunity also had benefit so not just sourcing customer towards a slightly later departure of Kentucky. So we can utilize a single aircraft flights.
Allow us to broad utility.
Nancy and what is a win win for everyone.
The new App will debate on the service oriented architecture, and as I mentioned before.
Will enable future announcements can be delivered much faster than we have in the past.
We're looking closely with our partner and Delta Airlines.
Different complexities than commercial aviation.
Benefiting from the operational resources and capabilities.
Example, we are leveraging that expertise and customer care maintenance and operations, whose canoeing and adapting to our marketplace.
It is also worth noting that we are.
In our quest to create a much larger marketplace optionality to provide more services part of our high value customers leveraging opportunities to expand into logical adjacencies and forge new partnerships we have.
Trusted relationships with our members and this gives us a unique ability to diversify our offerings that would be on private deviation leveraging the strength scale and flexibility of our marketplace platform. That's why it's important to lay the groundwork to build a truly scalable platform.
Let me conclude by saying we are an incredible foundation as a leading demand.
Private aviation today I see a lot of similarities if other market places have been involved with at the earliest stages of their lifecycle all of them and lots of automation to start with continuous focus on technology, we were able to turn the corner and show the something that business model.
I'm excited by the opportunities in terms to improve efficiency and utility and generate significant margins in the future.
Just need to execute and I can tell you the exceptional management team in place today is up for the challenge and you can see significant improvements in the near future.
Shouldn't have come if I didnt see a very real opportunity to generate significant shareholder value.
Let me turn it over to Eric Eric.
Thank you Vinayak as Kevin noted, we are very pleased with our strong revenue growth this year with third quarter revenue up 55% year over year to $302 million.
This reflects the unprecedented demand we are experiencing as well as the success of our membership program and our broad based delivery capabilities.
Let me start by providing more details about our revenue, which is broken down across four main categories.
Membership flight aircraft management and other.
Membership revenue grew 35% year over year in the quarter.
We believe membership revenue is highly visible and largely recurring.
Given our 80% retention rate for core and business members generally.
Approximately 90% of those core business members that purchased block.
In the third quarter, we added 860 net new members with active members growing 45% year over year we.
We were very pleased to have crossed 11000 member threshold, finishing the quarter with 11375 active members.
Our corn business offerings with their guaranteed availability and cap rates across all asset classes continue to resonate with the market, particularly as market pricing increased.
That was a key driver of growth in the quarter.
Along with the initial success of our Amex partnership that Kenny commented on earlier.
Kenny of and I touched on the recent changes to our programs.
We will essentially be managing near term membership growth.
On our expected ability to deliver.
We believe this will be temporary however, as we execute on our plan to increase our delivery capabilities.
Turning to flight revenue.
Flight revenue was up 3% sequentially this quarter.
And up 56% year over year, we think the best way to model flight revenue.
Multiply lifeflight lags by revenue per lead lag.
Lifeflight legs were up 8% sequentially from the second quarter and up 52% year over year.
We continue to see strong leisure demand in the beginning to the pickup in business and international travel.
We also believe there are significant demand from connect and non members, which we simply could not address during the quarter given the supply constraints.
Flight revenue per Lifeflight lag, because almost $11100 for the quarter up 2% year over year and down 5% sequentially, reflecting a higher mix of shorter haul trips on smaller aircraft.
This is normal seasonality for the third quarter.
Prepaid blocks, which provide visibility into our future flight revenue grew $172 million in the quarter up 120% year over year.
We expect fourth quarter block sales to be very strong as well and outpaced third quarter block sale.
That said please note that the fourth quarter of 2020 was a particularly strong quarter for blocks out due.
Due to the resumption of the federal excise tax on flight at the beginning of 2021.
This pulled forward blocked demand into the fourth quarter of 2020.
As I mentioned earlier core business members, who buy prepay block.
Typically renew at around 90%.
Now approximately 60% of our core business members have a block.
Up from roughly 50% a year ago.
Members, who are buying blocks today are generally able to lock in current cap rates for the duration of their prepaid blocks.
Second this are first we are implementing a cap rate increase of 8% to 13% on the cabin classes that are most constrained turboprop and light jet.
New and existing members are able to purchase at the old rates and program terms.
The end of November.
Historically, we've raised rates and change program turns as of January one of each year. So this year has changed in the month earlier than normal.
Switching to aircraft management, our aircraft management revenue grew 51% year over year in the quarter due to a higher mix of pass through revenue, reflecting higher owner usage of aircrafts.
We are managing approximately 160 aircrafts as of the end of the third quarter, which is down slightly from the prior quarter.
As we mentioned during our second quarter call.
We are continuing to call legacy management contracts that are not commercially advantageous to us.
There are about 20 of those contracts remaining to be worked through.
On a positive note managed charter hours hours at our members fly on a managed tails.
Approximately 40% year to date.
Even on that slightly smaller fleet.
We believe that aircraft owners are recognizing how our strong demand generation helps them to monetize their underutilized aircrafts.
We are encouraged by a healthy sales pipeline for new managed aircrafts.
We're also actively working on our new product initiatives that further highlight the value proposition for aircraft owners.
Once we work through the reduction of sales I've mentioned, we expect that total aircraft under management will resume growth in 2022.
Charter friendly manage aircraft are an increasingly important source of supply for us as it allows us to flex up our capacity at pre negotiated rates.
Our other revenue is a small percentage of our total revenue represents revenue earned from software fixed based operations or FPL maintenance aircraft sales and special missions, including defense.
Now, let me address cost of revenue and margins.
Our strategy is to optimize utility and efficiency across all three.
Essence, he is the right plane in the right place at the right time to minimize repositioning legs and improve profitability.
To manage the third party asset light tail is closest to our customer we will try to utilize the better position aircrafts.
We're going to have enabled us through the process improvements technology and automation initiatives F&I prescribed.
As well as through improved operational and maintenance capabilities. That's how we expect to drive significant margins in the future.
In the second quarter of this year, we are much better able to balance our service commitments with our cost and our contribution margin improved steadily each month during the quarter.
However that trend reversed in the third quarter as higher demand and industry labor supply and cost pressures compounded.
That led to significant margin declines in August and September which were well beyond expectations.
As a result, adjusted contribution margin fell to six 3% in the third quarter down from 10, 7% in the second quarter.
We are now selling contribution and contribution margin on an adjusted basis to exclude equity based compensation and excludes certain other items that are not indicative of our ongoing operating performance.
Prior to us issuing a unique broad based equity grants for our pilots the amount of equity based compensation included in cost of revenue was not significant.
We believe that the adjusted contribution calculation conforms more closely to our adjusted EBITDA calculation.
We in the aviation industry at large are not immune to the cost pressures and supply constraints and packaging most companies across the global economy.
Labor and part availability and costs commodity prices shipping fuel and travel costs have all gone up <unk> tightened across the board.
The largest impact in the quarter was pilot availability driven by increased competition for experience pilots.
Additionally, maintenance parts and labor constraints resulted in longer returned to service times combined these factors led to a significant sequential reduction in our onsite utility as we Couldnt fly all the aircraft we had available on certain days.
As a result, we were forced to rely more on our <unk> and <unk>.
At the same time, some third party operators with capacity in the spot market took advantage of a limited supply and raise their wholesale pricing upwards of 20% or more.
Related to that we experienced a significant increase in expensive cabin class upgrades as light jets were particularly supply constraint.
Again, we absorbed those costs and upgrades as we focused on delivering for our customers.
Now, let me quantify the impact of these pressures on our margins.
And then I will speak to how we build up is addressing each going forward.
First the lower one Pete on fleet utility in the third quarter, despite higher demand versus the second quarter impacted our adjusted contribution margin by over 200 basis points.
Second the increase in the on fleet cost per hour, driven by higher input maintenance and labor costs.
Created an additional roughly 150 basis points headwind.
And third higher cost for three P supply and complementary cabin class upgrades drove the balance of the margin decline.
So let me now walk you through what we're doing to improve adjusted contribution margins going forward.
First we will improve our water utility.
We are ramping up our pilot recruiting and retention efforts, we believe our investment in compensation, including a recent equity grants health and wellness and quality of life initiatives will create a compelling offering as we look to add and trained over 150 pilots over the coming quarters.
In addition, we're expanding our in house maintenance capabilities, because we plan to add over 100 aircraft technicians.
We also expect to increase our mobile service unit capacity by 50%.
And then two other process changes to get our aircraft back into service sooner.
Second we are raising pricing.
The caf pricing and program changes affect in December for Us will allow us to better prices in this market environment and more efficiently match demand with supply and.
The more immediate impact will be on existing pay as you grow members and new members and blocks added after December 1st.
Third we are working to secure more <unk> capacity.
By significantly increasing our usage of long term guarantee great programs or <unk>.
We have a unique advantage from the predictability of our customer cohort spending trends and prepaid block sales to lock up supply earlier at better rates than the spot market.
<unk> accounted for 40% of our third party flying in the quarter.
And we expect that will continue to increase.
Four we expect an increased contribution from our two piece food.
We are launching several new initiatives, including <unk> for our managed fleet.
Further incentivize and grow the number of owners that charter their aircraft in our marketplace.
And fifth we are focusing on developing our technology.
Where are we looking to hire over 50 software engineers we.
We believe these investments will generate increased efficiencies across the organization, particularly in our flight operations customer service and sales and marketing areas.
Launch of the global aircraft search engine has been detailed should be a big step to optimize scheduling and improved profitability.
While we will provide our 2022 guidance when we report fourth quarter earnings we do expect supply constraints to persist in the near term.
So as we execute on the strategies I, just outlined and others adjusted contribution margins will likely be in the low to mid single digits for the next several quarters.
That said, we still continue to believe we can significantly increase margins in the long term as we execute on our plan.
Switching to Opex, we continue to gain some leverage on our sales and marketing expense as a percentage of revenue.
At the same time, we are planning to increase our spending on technology, including capitalized software to execute on our technology initiatives.
General and administrative expenses are higher this quarter due to public company costs, but should continue to come down over time as a percentage of revenue.
Our challenges with our adjusted contribution margin resulted in our adjusted EBITDA decreasing $15 $9 million in the quarter compared to last year.
Turning to capital expenditures Capex was $16 $3 million a year to date more than half of that being capitalized software.
Free cash flow defined as cash flow from operations less total capital expenditures, including capitalized software was a negative $39 million for the quarter.
At quarter end wheels up had a strong balance sheet with cash and cash equivalents of $535 million and essentially no debt.
With regards to 2021 guidance given the strength in our revenue in the first nine months of the year. We now expect 2021 revenue to be in a range of 1.15 to 114 billion.
We now expect adjusted EBITDA to be in a range of negative $80 million to negative $90 million for the year that.
That is largely due to the lower than expected adjusted contribution margin, we discussed and the cost of the investments that vinayak outlined.
We expect reported GAAP net loss of between $200 million to $210 million for 2021.
Reflected in this range are several noncash amount.
$20 million charge related to the earn out shares and a $35 million expense related to stock based compensation, which includes accelerated vesting.
The range also reflects the $12 million year to date noncash gain on the fair value of our warrants.
Most of these noncash amounts relate to our transaction with aspirational and the public listing of our shares.
We expect Capex spending will be at the higher end of our 25% to $35 billion range in order to support the stronger demand, we will likely acquire some aircraft this quarter.
It's worth noting that we also serve as an aircraft broker.
Our goal would be to sell at least some of the aircraft we acquire to new owners, who will allow us to manage lease back those aircrafts.
Also our increased technology related investments will lead to an increase in capitalized software.
From an income tax perspective, we anticipate that we will generate net operating losses for income tax purposes in the near term that may be carried forward indefinitely.
In closing I want to reiterate our corn business member retention and lifetime value are very important to the long term value of the company.
That is why we are incurring incremental costs to ensure our customers get the best possible experience in this environment.
We're focused on execution to deliver on the promise of our technology enabled marketplace platform and believe we can significantly increase margins in the long term as a result.
With that thank you all for joining let me turn the call back to the operator, so we can take your questions.
Thank you we will now proceed to Q&A and lifestyles.
So I'll ask a question decompression now one telephone keypad if.
If you would like to withdraw your question decompress.
Please ensure you're on mute.
A question.
But each night, we will be limiting questions to one question one follow up question.
Thank you.
Our first question for today comes from Sheila <unk>.
<unk> from Jefferies. Your line is now.
Hey, good morning, guys that thank you very much.
Nice quarter on the revenue side.
Alright, great.
Adjusted EBITDA guidance.
Being a lowering to add Barry know clay in terms of the different components lowering it but maybe can you talk about the timing of that improvement.
And then labor I think you mentioned that the 150 basis points it might take a while.
Focus on.
And competition, there and some of the supply chain shortages, so kind of how do you expect.
That the improvement Q4, because I think Q4 is about a 15% EBITDA loss.
Sure. Thanks for the question so in terms of.
Essentially where we're going from an adjusted EBITDA perspective, we will get in 2022 guidance next quarter, but as I said in my prepared remarks, essentially EBITDA is going to be down.
<unk>.
St Jude.
I'm, sorry contribution margins could be down to the low to mid single digits. In the next couple of quarters. So as you think about how that flows through from an EBITDA perspective.
Essentially going forward.
First half of next year that we'll see that trend until some of these things kick in.
Also said last quarter.
I think $20 million to $25 million of pilot.
And technology. So that's also impacting Q4 into the beginning of next year as well.
This is Kevin thanks for the question.
Taking a long view of the customer here and ultimately I believe that this market has plenty of pricing power and elasticity in it but our membership program membership has its privileges and we wanted to take care of that customer through this transitory period, where we're seeing spikes in pricing. So again, playing the long.
I am on November.
And I think Eric Eric laid it out nicely.
Nicely.
Yeah.
No I hear you on that Ken and I think that's a fair.
The point you are announcing a price increase of 4% taking effect on December <unk>. So kind of is that enough or do you see more and how do you think your competitors are changing their price.
Yeah, well, we've already seen our competitors.
Pricing.
More drastically than we are.
We're moving pricing, 8% to 13%, where we need to move it which isn't arms entry level. The King Air the light Jets, we're leaving our cap rates on the mid and Superman because we have some room there, but the net net is we want to always provide value Olympics can somebody argue that Amazon prime can double that rate.
On what they charge their customer for that great value and great service.
Answer is yes, it probably was a couple of percentage points.
But nothing material, we could move our pricing even higher but we've made a conscious decision to keep that value.
Our member.
We focus on the member Eric Yes.
So Sheila in my remarks, I talked about how the pay as you go members and people that buy blocks out there December 1st machine.
Higher pricing pretty much immediately.
Over half of our members have a lot today and I also said during my remarks that we expect very strong fourth quarter block sales as existing members taking advantage of this four month period, where they can buy blocks of Delek range. So it's going to take a longer period of time and again I'm going to have an eye.
Trauma bullet point here I'm talking about Amazon and Apple.
Lived at Amazon and Airbnb through.
Sort of peak surge demand.
Drawn there on mute.
Thanks Kenny.
I think when it comes to pricing. Your question was also on competitors, we do monitor competitive pricing very closely.
We do believe that the opportunity for us with respect to pricing is in the smaller Kevin sizes as you mentioned.
I think it's a big opportunity for us that is why we are building a team around ixia hired.
Julien Zhang from T mobile with expertise in both subscription and pricing.
So that allows us to figure out like how to appraise it not just at the cap level, but an individual trip levels that enables us to match.
Maximize profitability in the long run, while making sure we're increasing customer lifetime value.
For US is just to warn for most advertising to automated pricing, even though there is a cap. So that we can actually manage the rising at a particular.
Sure no. Thank you guys for that color.
Yeah.
Thank you Sheila.
Our next question comes from.
From Macquarie Research.
Your line is now open.
Thank you and good morning, everybody.
Eric what types of claims are you going to buy in the fourth quarter, how many you're buying and how are you going to finance the acquisition.
Okay.
So.
We're going to buy.
Our plants this quarter, mostly on.
On the smaller side, we're not out there buying mobiles and Gulfstream and such so.
So that's the type of thing.
Can be a significant amount I mean, our guidance that we have for EBITDA.
Sorry for Capex is.
Okay.
The same thing true.
What we are doing as we are investing in <unk> for both our third.
Third party fleet and our second party data so that allows us to lock up longer term aircraft there.
Parties once again in very asset light.
Okay.
And then.
How temporary is this initiative to manage membership sort of background and is there a point where you would.
Contemplate maybe closing off the new members until the supply of island life catch up like metrics group.
Yeah. This is kenny thanks for the question.
But we've gone to protect our current membership.
We put a moratorium we're taking new members in.
But there is a 90 day delay and when you can book unless you bought $200000 down for non peak access port $400000 down.
For full access.
It is critical that we manage through this transitory period again 90 days is where we kind of confirmed the front end and the back end of the business upon operation.
Took a look at what forecast the demand looks like.
That's the answer for now but.
Incredibly bullish and look we're spilling demands.
Tens of millions of dollars of demand that we can take it and then this is just one way that we're tempering it.
Our current members, but more importantly, keeping the business open for new business. When we believe we can service it and the way we service our current.
Yeah.
Okay. Thank you Ken.
Okay.
Thank you answer.
Our next question.
Comes from Gary <unk> from Barrington Research, Barry, allowing is now open.
Hey, good morning, everyone.
This may be a little bit of a long question, but could you maybe just.
<unk> al.
What these price changes are for the various levels of membership you connect core business just.
So we have that clear as to where we're going here with what youre doing to raise prices.
I would say on the membership pricing we've left that in place as it is so the price to join the program.
And as it moves I'm going to hand, it over to Eric to give you a little bit of color. We're actually Eric GORR Vinayak you can one of you can take this in terms of the.
The pricing on the King Air, where it's moving and where the light jet is moving and maybe just reiterate.
We are on mid Superman large.
So I'll take it.
So in terms of the B turboprop the King Air essentially we're raising the cap rate at 8%.
In fact in December 1st Federal wind, yet that's going to be raised at 13%.
Again, we're talking about the cap rates, you can price each individual and trends.
That can be up to the cap rate or at the cap rate.
Then for the midsize jets were only raising at a 100 $100 of interest at 1%.
And then we're leaving the Superman and large cabin cap rates.
And I think one of the big value. This is Kenny is our one way pricing. That's why people are joining its why our retention rates are.
Or what they are we have we're delivering tremendous value for our customers and again.
As I said before on the top of the call we can take.
More pricing the market is giving us the ability in our member is giving us more ability.
We will pay us.
And we are sticking with that.
Program changes, Eric do you want to cover a couple of those were Vinayak do you want to add some color here.
But like I said from a personal perspective about 21 years for me in this business.
From a Tam perspective, and a demand perspective.
All of the public.
Numbers that are out there for everybody to look at our historic.
At historic levels.
Just on the program changes essentially what we're doing is.
Having the callouts to be a little longer and that what that allows us to do is to have more time and to be able to match supply and demand very strong.
It'll changes.
And we used a lot of data and analytics to evaluate that and that will help us sort of.
Profitability and one thing more in front of us the technology hiring is not easy and we're dealing with.
But in a plus team on the field benign maybe you could give some color on how technology plays in here because again the way that we're set up first party second party and third party.
Building a marketplace with the demand that we're forecasting out in 2022 and 'twenty three and then just what the industry is telling us.
Technology is going to play a big role and the unlock.
On supply demand and efficiency so.
Yeah.
Yes, Thanks Kenny.
Yes.
In terms of technology of pricing since the question was on pricing.
As we said like we are going to bear systems very similar to how I am.
So I'm not going to be able to do that and we do competitive price monitoring so we can understand.
Rising by competent or just on a more real time basis. So we can take that into account.
In terms of other program changes.
Also the three components one is the <unk> one is the price deck.
<unk>.
Eric talked about.
So minimums like what is the minimum block that we have on a put a cabin class basis. So that also actually helps us with the margin.
In terms of technology on the.
On the buyer side as you do the new App, we're going to have features which will enable us to kind of understand more real time, what other types out there that day.
We can figure out how to nudge people to kind of take the trip as I mentioned in my speech.
Written reports that we can actually use the same claim by nudging people, who take a flight earlier by an hour later by an hour perspective, we can improve utilization and a very big way and when it comes to <unk>.
Technology on the buyer side as you know.
Fms system.
Within global aircraft, such as Tianjin <unk>.
Able us to find the right product right place. So the Fms is also used by many third party operators our Fms.
And as we know that someone needs a flight from let's say Las Vegas, Seattle is that isn't already a plan going from Las Vegas to let's say a unquote British Columbia, we can identify that plane and put people on that flight.
Because if we were to come as an empty landed where we can make model and so this kind of global aircraft plus capability, he's going to want to make.
More of a return or yield maximization for the for the operator, but also give us more supply. So we're very excited about that.
Thank you.
Yeah.
Thank you alright, our.
Our next question comes from Aaron.
Aaron Kessler from Raymond James Your line is now open.
Great. Thanks, guys just a couple of questions maybe from an M&A opportunity with I assume a lot of our competitors are facing a lot of the same supply constraints in the industry do you view this as maybe an opportunity to acquire some of the smaller players in the market and kind of roll up the pace a little bit more.
Maybe just back on the pricing quickly if we think about kind of the weighted average increase in pricing based on your kind of mixed today kind of what does that work out too. Thank you.
I'll take the first piece I'll have Eric take the second.
I don't even think it's weighted.
A little bit for the second.
The first one lift and our timing on the public offering we rang the bell on July 14, what does that do.
We put $656 million worth of fresh cash on the balance sheet and we have a public currency. So when you think about the VEB.
The opportunity to do.
M&A.
We have all of the ammunition I think Erik pointed out that we had essentially zero debt, we paid off our our founding that on the King Air. So we had a tremendous deal capacity.
It is a fragmented industry again, we're 3% of the third.
$30 billion Tam that exists today, so plenty of fragmented folks here that are small medium and even.
Large out there for us to look at it partner and again, when you're talking to an entrepreneur and I get to talk to them all the diamond space, having currency New York stock exchange stock.
Plus capital on the balance sheet at.
All of the ingredients to us.
To do just what you asked but just look at every M&A opportunity out there.
Focused on asset light.
Are folks that don't have access to airplanes control the scheduling and and we can take that.
And look at how that can enhance our fleet overnight on number two when we think about the.
Just the overall pricing amid into Superman, we haven't yet we're on a daily basis, we have the cap, sometimes well, we got plenty of room on the mid the super mid and large.
<unk> without changing our cap rates and Eric I don't know if that answers your question and full there, but there is more margin to be had with the mid super mid large because again, if we want to move up closer to our cap rates in those categories, but you can take a margin without taking pricing yeah. So erinn, it's hard to give you an exact number.
Because there are some time that it's going to take for some of the skincare, but think about it is by a 40% of our members our members which is the most of our jump off point.
Vast majority of our members.
Well, Steve and increase effective <unk>, one for a little bit more than 75% of their planes.
And that <unk>.
Increase is up 4% blended increase in thats the cap rate, so it's going to be a percentage of that perhaps in that 4%.
Handing off when they fly the rasp aren't going to see an increase until theyre blocks expire. So think about that remaining 60% is going to come in more towards the back half of the year and the end of next year.
Got it great. Thank you.
Okay.
Thank you Aaron.
Our next question comes from Marvin Fong from <unk>. Your line is now open.
Great. Thank you for taking my questions. This morning.
Most have been asked and answered actually but.
Perhaps you could give us your view on when you think your pilot shortage.
Might come into balance and you'd be able to.
Get all the pilots that you want to or we thinking by the end of the year or will this persist into.
Into 'twenty three.
And then just a question on membership I mean do you expect.
The program changes that you've implemented to depress membership.
Maybe these people move on to the mainline flying or do you expect your membership trends to kind of hold and people to accept the changes you've made.
Yes, I'm going to take just the first piece and I'm going to hand, it to vinayak, but just on the pilots.
We gave our first just talk to all of our control we pilots.
And really we did a celebration brand.
For all of our pilots and folks on an equity Orange juice were the first company again, it's one of the advantages of being a public firms to be able to issue equity and have our pilots are riding along with us on the success of the company.
I think in this time with this demand we're going to have to get more competitive on the pilot front, we're prepared to be there I think a lot of it is lifestyle and were in motion on putting some great lifestyle programs together here.
Some new benefits as it relates to how we how.
Now the biology.
Where they stay in all of the special thing that pilots need, especially when they are working as hard as they are.
Out there we just think again like M&A question before we're really uniquely positioned to beef up our pilot ranks. We have a couple of hundreds are requisitions that we're going to attack over the next 30 60, 90 days and we expect in 'twenty two to be not only imbalanced, but in great position to have our first <unk>.
Marty.
Craft brew to the way that we want to have it group and again at the end of the day, the second party, but we're going to enhance our relationship would be.
170 or in a program, maybe 50 or 60 airplanes that are.
At a really really charter friendly we're going to enhance our relationship with those folks and on those plans, where we can gain more scheduling control and then again the third party.
What we really want to focus and that's really why Vinayak I want you to answer this technology is the big unlock here.
Airbnb and Uber and how important suppliers bear in again, but this is your area. How did you pick up the back half of that question.
Thank you Kenny.
On the back half of the question with respect to membership.
When we did this by changes we did it very thoughtfully, we looked at company Appraisers, we looked at our membership cohorts.
The broader industry.
It's relatively benign.
What is happening in the industry as people.
Other competitors that also figuring out their memberships.
And also a program changes thoughtfully, while making sure we are delivering outstanding service, but he didn't have two big types of membership of core membership and connected membership what is really happening is more and more customers.
Out of seeing a better product market fit that.
With our core memberships so.
While there may be changes to membership patents with respect to core and connect youre going to see more and more people use our core membership setting our retention rates, especially when there are blocks already very high so the way, we think about it as kind of the total value of our entire membership base.
Not just the number of members.
We are trying to optimize the total value of our entire membership base.
And we believe more and more people are liking the membership program.
So we may see some momentum with respect to.
With respect to.
With respect to connect with his quote but overall, we are happy with the with the <unk>.
Growth in membership and retention, our retention numbers quarter over quarter business customers.
Currently high and we believe that will continue to see that.
As we think through the market in the short to medium term.
I'm going to have.
Your bullet for Q.
We have one more just on that from Erik Yes, I think so I think there was just sort of some questions regarding highlights timing so look.
As we said in our remarks, it's going to have we're trying to hire 100 plus pilots in the next couple of quarters here, we've got to get them trained training slots are a.
The thing that we have to consider as well as the third party is going to take longer.
That's why our.
Contribution margin.
We will be impacted for the next couple of quarters.
Another question, how does that membership Ben but whether it would be depressed, but can still for the next two months, where we're out there we're selling memberships obviously when there is something a.
A little bit of.
Bye for 90 days, but we'll reassess that at the beginning of the year and see how we're doing in terms of some of the supplier market.
Now if we can accelerate something there.
Good news is we're one of the only major that is open for business and people are looking for programmatic lift into 2020 do gap. The doors are open and we're around walking welcoming them and like I said with the caveat that over the next two three months.
Going to govern.
When they can fly in the short term.
Yeah.
Just wondering if they wanted to do that.
New members when they come in.
You'll have access to especially the core members will have access to core to <unk> flights in top flight and do we have flights that they have 90 day, though are not in place.
Yeah.
Perfect. Thanks, everyone I appreciate it.
Thank you Milton our next question comes from Michael Bellisario from Baird.
Your line is now open.
Thanks, Good morning, everyone.
Just on that same new member topic can you tell how many new private suppliers are signing up with you versus someone or some business switching from a competitor.
Yes.
Yes, I think that we're seeing.
But we laid out when we marketed this deal in a public way.
Going up and our partnership with American Express the early returns, they're Super strong amazing amount of downloading, our app and getting familiar with wheels up and I want to double click on our partnership with Delta, what we're doing with Delta and cross selling business with.
But their business sellers.
Our business unit up for business.
Just I wanted to say a tremendous interest in our space and again, we're seeing the.
That Tam really open up here and again the evidence for me would be how successful. The early returns are at American Express and really over the last year with delta interest level and conversion from folks that werent programmatic private buyers. Prior so I think it's the beginnings.
A real open up.
Unlock.
Got it that's helpful. And then just on the revenue side given estimate of how much revenue you had to forgo in the quarter and then how that may be progressed throughout the quarter and so far in October and November just trying to understand how much demand is being met in terms of dollars.
When we look at it it's not an exact science, but we know who is searching and we know who has governors on their membership setting what the bookings are I believe that there is tens of millions of dollars does that spill and again that may be a conservative estimate.
On what we're looking at here and I think about the industry as a whole I think there is hundreds of millions of dollars.
Industry wide, that's being spilled it will be serviced by the way we talk about Travis calendar can guarantee.
When they figured out an Uber the American par was part 23 hours and 30 minutes a day the business jet in North America. The rest of the World. It's part 23 hours and 40 minutes a day. So there's plenty of unlock these planes are not why I like the Boeing and the Airbus is technology more new pilot starts coming into our space.
There is tremendous airframe capacity without having to pull from the Oems at this point in time.
Yeah.
Thank you.
Thank you Michael a final question for today comes from Brian <unk> from Morgan Stanley Brian. Your line is now open.
Great. Thanks for taking my questions just wanted to sort of confirm our.
A follow up around the user growth in member growth.
A lot of great data on elasticity overtime on your users just talk to us about how youre thinking about new user growth. The next nine months or so as you sort of navigating through this challenging time and then when you made the comment about low single digit contribution margins what is the underlying user growth assumption to get to.
Of that low single digit number.
I'll start out and thanks for the question. One is again just want to highlight on the call that were 3% up to $30 billion space today, and there is plenty of room for us to grow in the traditional sense I think when I think about opening up that Tam I think about the sharing I think about the by the sea if you look.
At the pricing and we can give.
Give to our members on a New York Nantucket Route where you go to Laguardia it could be six or $700 a seat that round trip. If you look at it divided by eight king.
King are you may be paying 100 and $200 more each way. So you got two or three assets versus commercial which is very appealing.
From a time and space and that really opens up the Tam for that 15% to 20 million people, but put afforded a less than $1000 per lag and we think there's a tremendous amount of that out there I'm going to hand, it over to Vinayak and then Eric will.
We will finalize things up with where the margins are but I just want to say that for the whole call. Thank you to everybody that kicked in a question here, we have an unbelievable opportunity with that 3%. We're spilling demands and if we can really focus maniacal focus Amazon like focused on the member and take care of that number that number is going to take care.
And the growth is going to take care of itself. So vinayak, maybe you can fill and last question here a couple of generic I'll have you bring it home.
So thank you Kenny.
On the membership growth I don't think we're going to disclose the growth numbers.
Right now, but we have a clear target in place.
And our plan to actually get there.
Two things with respect to membership growth what we are seeing is.
The ship growth as you see through the numbers is continuing to grow. The second thing is the cohorts are actually spending more than they spent before so we see really on the membership growth.
Yeah actually booking flights earlier in terms of from the time, they become a member to actually booking a flight.
The last thing I wanted to say I mean, we are doing this with Fatima slack.
Sales and marketing by that right now we do believe that we can promise or predict onshore demand when needed.
And then maybe get the magazine.
Do lead Gen marketing as well and we have not aggressively done that because of the demand we have.
We feel confident about the membership growth that we can get.
Additionally, our partnership with <unk>.
Companies like American Express a huge tie us to new membership growth.
And Eric can comment about like when we talk about 2022 will give more color with respect to that.
Yeah.
Thanks.
Youre right.
Sorry, we're not going to give specific guidance for our user growth.
We will highlight the things I said in my prior remarks that essentially are.
Our core business memberships are resonating stronger than kinect.
Because of the guaranteed rates and the program rules and so we're seeing upticks from connect core when people are.
Sure.
And at a rate that's double than we've traditionally seen.
User growth with the fact that we're not allowing.
Folks to five in the next 90 days is going to decrease it's really focused on the membership growth is what we're focused on.
So I'll leave it at that and I'll just double click on that I think if you were an independent environment that didn't have the demand surge that we are seeing today you'd have a lot more ala carte.
Available but.
Right now what we set out eight years ago is membership program the value of that membership today, but certain guarantees.
I think we're at the end of the call, but the last the last question.
Just a last question, yes, I'll hand back to Kenny for any closing remarks.
Alright, I'm going to I'm going to go quick and I know people have a lot to do today. Thanks.
Thanks for joining us today, and taking the time to better understand our vision for our business and our long term strategy.
I've been now in this business for 21 years.
I am as bullish about our space.
Vincent.