Wheels Up Experience (UP) - 2021 Q4 - Annual Report

PART I Business Wheels Up is a leading U.S. private aviation provider, leveraging a technology-driven marketplace and an "asset-right" fleet strategy - Wheels Up operates as a leading provider of "on demand" private aviation in the U.S., utilizing a data and technology-driven marketplace to connect flyers with a network of safety-vetted private aircraft[22][23] Revenue Categories | Revenue Category | Description | | :--- | :--- | | Membership Revenue | Initiation and annual renewal fees from Connect, Core, and Business tiers | | Flight Revenue | Generated from both member and non-member usage, including wholesale and app users | | Aircraft Management Revenue | Monthly fees from aircraft owners, recovery of expenses, and recharging operating costs | | Other Revenue | Includes software subscriptions (UP FMS), MRO services, FBO revenue, aircraft sales brokerage, sponsorships, and special missions | Fleet Composition as of December 31, 2021 | Fleet Type | Description | Number of Aircraft | | :--- | :--- | :--- | | 1P Fleet (Owned/Leased) | Operates as a "floating fleet" to optimize positioning and reduce costs | Over 180 | | 2P Fleet (Managed) | Aircraft managed for owners, available for charter use | Approximately 150 | | 3P Fleet (Third-Party) | Network of safety-vetted and verified partner aircraft | Over 1,200 | - The company maintains a strategic relationship with Delta Air Lines, which includes co-marketing efforts, new product creation, and valuable benefits for customers of both companies. Delta is also a significant minority stockholder[29] - As of December 31, 2021, the company employed 2,171 people, including 927 pilots. None of the employees are represented by a labor union[97] Risk Factors The company faces risks including persistent net losses, intense competition, pilot shortages, fuel price volatility, and regulatory compliance challenges - The company has a history of significant net losses, incurring $197.2 million in 2021 and $85.4 million in 2020, and anticipates continued net losses for the foreseeable future due to operating and capital expenditures[113] - The business is exposed to risks from the COVID-19 pandemic, which has increased costs (e.g., Safe Passage™ program) and may impact member retention due to limitations on in-person "Wheels Down" events[121][122] - A limited supply of qualified pilots and potential for attrition pose significant risks. The company competes with major airlines for pilots and mechanics, and a shortage could increase labor costs and negatively affect operations[136][137][140] - Approximately 21.4% of flights in 2021 were fulfilled by third-party operators. The company's reliance on these operators exposes it to risks of non-performance, increased costs, and potential service disruptions[156] - The company's warrants are accounted for as liabilities, requiring remeasurement to fair value each reporting period. This can cause significant non-cash gains or losses, leading to material fluctuations in financial results[213][214] - To comply with federal law, the company's organizational documents restrict voting by non-U.S. citizens to no more than 25% of the company's voting stock[240] Properties The company leases its corporate headquarters in New York, along with various sales, operational offices, and an FBO facility across the U.S. - The company leases its corporate headquarters in New York, New York, and has various other leased offices and operational facilities in California, Colorado, Connecticut, Florida, Idaho, Illinois, Indiana, Kentucky, New Jersey, North Carolina, Ohio, and Wisconsin[244] Legal Proceedings The company is involved in ordinary course legal proceedings, with management not expecting a material adverse financial impact - The company is subject to various legal proceedings and claims in the ordinary course of business but does not expect any to have a material adverse effect on its financial condition or results of operations[246] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A common stock and warrants are listed on NYSE, with no anticipated cash dividends, and details on equity compensation plans are provided - Class A common stock and Public Warrants have been listed on the NYSE under symbols "UP" and "UP WS" since July 14, 2021, following the Business Combination[248] - The company has not paid any cash dividends on its Class A common stock and does not anticipate paying any in the foreseeable future[250] Equity Compensation Plan Information as of December 31, 2021 | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by stockholders | 25,121,745 | $7.66 | 27,346,829 | | Equity compensation plans not approved by stockholders | — | — | — | | Total | 25,121,745 | $7.66 | 27,346,829 | Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue grew 72% to $1.19 billion in 2021, but net loss widened to $197.2 million due to increased costs, with liquidity bolstered by the Business Combination Key Operating Metrics | Metric | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Active Members | 12,040 | 9,212 | 31% | | Active Users | 12,543 | 11,345 | 11% | | Live Flight Legs | 73,522 | 44,579 | 65% | Results of Operations (in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Revenue | $1,194,259 | $694,981 | | Gross Profit | $22,428 | $1,677 | | Loss from Operations | ($203,278) | ($62,966) | | Net Loss | ($197,230) | ($85,405) | Non-GAAP Financial Measures (in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Adjusted EBITDA | ($87,366) | ($52,363) | | Adjusted Contribution | $82,177 | $62,401 | | Adjusted Contribution Margin | 6.9% | 9.0% | - The 72% increase in total revenue was primarily driven by a 76% growth in flight revenue, resulting from a 65% increase in Live Flight Legs and a 7% increase in flight revenue per leg[321] - Adjusted Contribution Margin decreased by 210 basis points to 6.9% in 2021, attributed to industry-wide cost pressures, supply constraints, increased fuel costs, and wage inflation[325] - As of December 31, 2021, the company had $784.6 million in cash and cash equivalents, significantly increased by the gross proceeds of approximately $656.3 million from the Business Combination[332][337] Quantitative and Qualitative Disclosures About Market Risk Principal market risks include aircraft fuel price volatility, with a 10% increase potentially raising fuel expense by $16.6 million in 2021 - The company is subject to market risk from changes in aircraft fuel prices. Aircraft fuel expense represented 15% of total cost of revenue in 2021. A hypothetical 10% increase in the average price per gallon would have increased fuel expense by approximately $16.6 million for the year[367] - The company repaid substantially all of its long-term debt on July 21, 2021, mitigating its exposure to interest rate risk[366] Financial Statements and Supplementary Data This section presents audited consolidated financial statements for 2019-2021, including balance sheets, income statements, cash flows, and detailed notes on accounting policies - The independent auditor, Grant Thornton LLP, identified the company's goodwill impairment assessment as a critical audit matter due to the significant management estimates and judgments required to assess the reporting unit's fair value[377][378] Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $1,981,064 | $1,359,989 | | Cash and cash equivalents | $784,574 | $312,799 | | Goodwill | $437,398 | $400,160 | | Total Liabilities | $1,244,836 | $1,066,162 | | Deferred revenue, current | $933,527 | $651,096 | | Long-term debt | $0 | $148,411 | | Total Equity | $736,228 | $293,827 | - The Business Combination on July 13, 2021, was accounted for as a reverse recapitalization, with WUP as the accounting predecessor. The transaction provided gross proceeds of approximately $656.3 million[471][474] - On January 5, 2021, the company acquired Mountain Aviation for a total purchase price of $40.2 million, consisting of $30.2 million in WUP common interests and $10.0 million in cash, plus a potential earn-out[491] - Following the Business Combination, the company repaid substantially all of its outstanding long-term debt, totaling approximately $175.5 million, on July 21, 2021[534] Controls and Procedures Management deemed disclosure controls effective as of December 31, 2021, but excluded the internal control report due to a recent business combination - Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by the report[644] - The company is excluding management's report on internal control over financial reporting for the year ended December 31, 2021, as permitted by the SEC for companies that have recently completed a significant business combination[645] PART III Directors, Executive Officers and Corporate Governance The report details executive officers and directors, including a classified board with a majority of independent members and established standing committees - The company's leadership includes Kenny Dichter as CEO and Chairman, Vinayak Hegde as President, and Eric Jacobs as CFO[651] - The Board of Directors is classified, with over 60% of its members qualifying as independent. The company has established a Lead Independent Director role to ensure a strong, independent board[678][679] - The Board has four standing committees: Audit, Compensation, Nominating and ESG, and Safety and Security, each operating under a written charter[685] Executive Compensation Executive compensation aims to attract and retain leaders through salary, bonuses, and equity, with 2021 total compensation detailed for named officers 2021 Summary Compensation Table | Name and Principal Position | Year | Salary ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Plan Compensation ($) | All Other Compensation ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Kenny Dichter
Founder & CEO | 2021 | 950,000 | — | — | 1,710,000 | 6,845,783 | 9,505,783 | | Eric Jacobs
CFO | 2021 | 480,769 | 1,935,338 | — | 432,924 | 43,899 | 2,892,930 | | Vinayak Hegde
President | 2021 | 312,692 | 5,379,070 | 4,373,729 | 346,483 | 27,094 | 10,689,068 | - CEO Kenny Dichter's 2021 "All Other Compensation" includes $1.12 million for personal aircraft use and $5.56 million from the forgiveness of a loan and accrued interest[704][705] - Non-employee directors receive compensation including an annual cash retainer of $50,000, an annual RSU award valued at $175,000, and annual flight hours valued at $71,750. Directors appointed by Delta do not receive compensation[753][755][756][752] Security Ownership of Certain Beneficial Owners and Management As of March 4, 2022, key beneficial owners include Delta Air Lines (21.3%), Fidelity (7.2%), and T. Rowe Price (5.6%) Beneficial Ownership as of March 4, 2022 | Name of Beneficial Owner | Percentage of Class A Common Stock | | :--- | :--- | | 5% Holders | | | Delta Air Lines, Inc. | 21.3% | | Entities affiliated with Fidelity | 7.2% | | Funds and accounts managed by T. Rowe Price | 5.6% | | Directors and Executive Officers | | | Kenny Dichter (CEO) | 8.2% | | All directors and executive officers as a group (18 individuals) | 13.1% | Certain Relationships and Related Transactions, and Director Independence Significant related party transactions exist, primarily with Delta Air Lines, covering commercial cooperation, SkyMiles, and board representation - The company has a strategic partnership with Delta Air Lines, a major shareholder, governed by a Commercial Cooperation Agreement (CCA), a Program Participation Agreement (PPA) for SkyMiles, and a Corporate Agreement (CA) for discounted corporate travel[793][794] - Under the Delta Investor Rights Letter, Delta is entitled to designate two members to the Board of Directors as long as it maintains certain ownership thresholds[804] - Certain directors and 5% stockholders, including entities affiliated with Fidelity and T. Rowe Price, participated in the PIPE Investment, subscribing to shares of Class A common stock at the time of the Business Combination[806] Principal Accounting Fees and Services Total accounting fees from Grant Thornton LLP were $2.4 million in 2021, following the auditor change post-Business Combination Auditor Fees (Grant Thornton LLP) | Fee Category | 2021 | 2020 | | :--- | :--- | :--- | | Audit fees | $916,900 | $754,784 | | Audit-related fees | $607,910 | $0 | | Tax fees | $874,430 | $714,378 | | All other fees | $0 | $0 | | Total | $2,399,240 | $1,469,162 | - On July 13, 2021, following the Business Combination, the audit committee dismissed Marcum LLP, the auditor for the predecessor SPAC (Aspirational), and engaged Grant Thornton LLP, the historical auditor for WUP, as the company's independent registered public accounting firm[832][836] PART IV Exhibits, Financial Statement Schedules This section lists all exhibits filed with the 10-K, including corporate documents, material contracts, and required certifications - This section provides a comprehensive list of all exhibits filed with the 10-K, including foundational corporate documents, material contracts, and required certifications[839]