Ladies and gentlemen, welcome to the Wheels Up First Quarter 2023 Earnings Call. My name is Glen and I’ll be the operator for today’s call. [Operator Instructions] I will now hand over to your host, Keith Ferguson to begin. Keith, please go ahead.

Thank you. This morning, we announced our first quarter financial results. The earnings release with its supporting tables, as well as a copy of today’s presentation can be found on our Investor Relations website at wheelsup.com/investors. Please refer to the slide 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. With that, I’d like to turn the call over to Wheels Up’s newly appointed Executive Chairman, Ravi Thakran.

Thank you, Keith, and thanks to all of you for joining us today. It is a pleasure to be with you today. As a Board and management team, we are committed to making the choices necessary to improve this business and deliver for our customers, employees and shareholders. The Board is taking action to strengthen management’s ability to execute the strategy and achieve the goal of positive adjusted EBITDA in 2024. In my new role as Executive Chairman, I’ll be focused on working with management on the changes Todd will discuss and on hiring a strong operation driven CEO to unlock the scale and potential of this business. As we execute through this transition, I feel strongly suited to guide the strategic direction of Wheels Up. Having served on the company’s Board of Directors since 2021 and having served through my career in executive roles at L Capital and LVMH, I have focused on driving strong profitability from luxury brands with existing scale and brand strengths like Wheels Up. I’m also pleased that Todd Smith will serve as our Interim CEO who will lead the day-to-day execution at the company while we conduct the search for a full-time CEO. He’ll report to me and continue to serve as a Chief Financial Officer. Todd has been a tremendous asset to Wheels Up since joining the company last year. He has brought a significantly increased level of rigor and financial acumen to our team, and more importantly is the respected and strong leader across the organization. Prior to joining Wheels Up last year, Todd had 25 years of operational finance experience at GE, serving in a number of diverse industries, global businesses, and managing through numerous market cycles. As we continue to focus on achieving our profitability goals and improving our member programs to provide a better customer experience, Todd is absolutely the right person to guide the company through this transition period. I and the rest of the Board look forward to working closely with Todd Smith on this next chapter. Finally, I would like to thank our Founder, Kenny Dichter for his vision, leadership and hard work to make Wheels Up what it is today. The leading on-demand charter operator in the United States with a substantial revenue base and more than 12,000 loyal members and customers. These are material advantages as we embark on the next phase for the company and stakeholders. I look forward to continuing to work closely with Kenny as a passionate ambassador for Wheels Up and its mission. With that, let me turn over the call to my friend Kenny.

Thank you, Ravi, and congratulations to you and Todd on your new roles. I founded Wheels Up because I saw a clear opportunity in the industry for a new approach to private aviation, a technology enhanced membership driven model, built on a shared sense of community around the efficiencies, the convenience, and the joys of private travel. Our passionate focus on the member continues to define Wheels Up today. In less than 10 years, we’ve grown from a small startup with a handful of King Air 350i to the largest on-demand charter provider in the United States with an iconic brand more than $1.5 billion in revenue, and a loyal and engaged base of more than 12,000 members and customers. With this strong foundation for future success, it is the perfect time to hand the baton to new leadership for the next stage of the relay. I would like to thank the Board for their support and guidance. I would like to thank our shareholders for their belief in us and our vision, and I’d like to thank our nearly 3,000 Wheels Up employees around the world who share a collective drive to make the extraordinary possible every day. And of course, I’d like to thank our members, without whom none of this would’ve been possible. I am looking forward to supporting the next stage of profitable growth and the exciting times ahead for Wheels Up. With that, I’ll hand the call over to Todd.

Thanks, Kenny. It has been a true pleasure working with you. Wheels Up is here today because of your vision, marketing prowess and drive. And Ravi, I look forward to working with you as well in your new capacity. I am certain we can benefit from your commercial experience and leadership. Before I dive into the content of the call, I want to highlight that as a management team, we are committed to providing our members with exceptional service. As we continue to scale and mature, we expect to improve our service capability even further, increase our competitiveness and deliver improved profitability. We remain focused on achieving positive adjusted EBITDA in 2024 while strengthening our organization and improving the member experience. As Interim CEO, these are my focus areas and the places where we believe we can make meaningful gains to strengthen the company and set the stage for a strong and profitable future. For today’s call, we are prioritizing three topics that we think are most important for investors. Our business performance for the first quarter of 2023, our go forward plan, including significant changes to our member programs that strengthen our outlook for positive adjusted EBITDA in 2024, and changes to our management team that will support our execution. I will start with our first quarter performance and the components of total revenue. Membership revenue was up 5% year-over-year in line with expectations. Growth in membership revenue was impacted by our focused sales and marketing spending to target more profitable revenue that leverages network density in specific regions and at specific times. Flight revenue was down 2% year-over-year. A 12% year-over-year increase in flight revenue per live leg was offset by the overall decline in live flight legs. Without Air Partner, which reports on a net revenue basis,…

Thank you. [Operator Instructions] With our first question comes from Sheila Kahyaoglu from Jefferies. Sheila, your line is now open.

Thank you, and good morning, everyone. And Kenny, thank you for all that you’ve done for the industry and Todd, thank you as well. So maybe if I could ask the first question on the revenue guidance for 2023. I know you suspended it, Todd, you gave us a lot to digest. But the down 15% to 19% organically in Q2, what’s driving that step down? Is it the changes in membership? If you could talk a little bit about that.

Yes. Thanks, Sheila. I think it’s a combination of things. I think first and foremost, as we’ve been talking now for a couple of quarters, we’re trying to be really thoughtful about where we’re targeting growth. And I think as we go through these program changes, a lot of that is really the culmination of a lot of work we’ve done to think about how do we win, where we want to win and where we can best execute profitably and where do we think differently about some of the areas that we’ve pursued growth in the past – in the past that just may not be profitable. So a lot of it has to do with us being more targeted in terms of where we’re approaching and going after that growth. I would say beyond that, we certainly have to acknowledge that there is a macro impact here as well, and we are seeing a general slowdown. I think would be consistent across all of the industry in terms of a bit of the lighter demand across a number of our segments in the first half of this year. Certainly, we saw that in the first couple of months as we talked about on the fourth quarter call. And I think that’s really continued into March and early April. So, I think as we think about it, part macro, part more targeted and focused. And then I think part of the reason behind the suspension of the guidance is, we’re announcing a pretty significant change in terms of the program offering today. We’re incredibly excited about that in terms of what that does to better position Wheels Up to be successful. But at the same time, we know that as we go through this transitionary period, there’s probably a little bit more variability here than what we had typically see. So, we’re just trying to be thoughtful around letting a little bit of that play out over the coming weeks here that hopefully will help us firm up a more solid view as the year progresses.

Got it. No, that makes sense. And then maybe on the partnership you have with Delta. Can you talk about your existing partnership and how this changes it? And how well business passengers be able to access Wheels Up?

Yes. I mean it doesn’t really change the partnership. I think it enhances it. I mean we’re incredibly appreciative of the relationship we have with Delta. We get a number of benefits from them, not only in the commercial side and in support of our business and our revenue, but also just the benefit of being able to tap into their expertise, whether that be in operations and maintenance, et cetera. And Dave Holtz taking on expanded responsibilities here is a great sign for us. I mean, Dave’s got a wealth of experience from his long career at Delta. So being able to tap into that is a great example of where we can leverage them. I think this new arrangement that we announced today is just about how do we further the growth of our own corporate business and how do we team up with Delta to offer something that’s unique in the industry. Delta has a terrific business with a number of corporates in terms of commercial travel. Now we’re able to also offer those same customers the opportunity to access Wheels Up. And I think that combination is something that’s really unique in the market, gives their teams the competitive advantage and hopefully leads to more growth in the area that we’re really targeting, which is expanding our own corporate business.

Thank you.

Thank you. Our next question comes from Josiah Choy from Baird. Josiah, your line is now open.

Hey thank you for taking my question. I guess a little bit piggyback on the prior question. But you noted that the prepaid blocks were down, calling out seasonality, but looking year-over-year, it was down. So could you provide a little bit more color on that? Are we seeing a signal that consumers are pulling back?

Yes. So a couple of comments. I think if you look at the prepaid block sales of $100 million in the first quarter, that was lower on a year-over-year basis. But I think if you – if we look at it on a more normalized basis and put some context around last year, so if you look at the history of Q4 of 2021 and the first quarter of 2022, those were two of our highest block quarters ever. And I think that was very much reflective of what was going on in the macro at that point in time. Huge supply constraints. Customers were looking for opportunities to guarantee themselves access to that available supply. So we saw a really, really heavy block funding in those quarters. So if you look at the relationship on a more normalized level, so going back to first quarter of 2021, first quarter of 2020, I think you’d see a relationship there that’s much more consistent with what we saw this quarter, particularly relative to the relationship between new block inflows and the burn down of the existing deferred. So I think you have to have a little bit of that context. I think, again, we see a lot of attractiveness, customers willing to put blocks up for us. But I think what we’re really expecting now is that as we’ve announced these program changes, we can create an even more attractive offer for our customers and particularly in the areas where we think we can service them the best. And I think as we go out with these new offers, we will do so at competitive rates and competitive rule sets designed to put us in a position to win in those markets and regions where we have the most density and where we have the best opportunity to service our customers well and at a profitable level. So we’re really hopeful over the coming months as that offer makes its way and we go live and it makes its way into the market that that’s going to be very competitive and well received, and that will give us an opportunity to drive more blocks as customers come in, in the right places where we can be successful.

Got it. Thank you. That’s very helpful. And then shifting gears a little bit. I know you noted pursuing maybe some dispositions of certain noncore assets or businesses. Could you provide some color on what are those noncore businesses or what do they look like?

Yes. I mean just given where we are in the process, I won’t give any specifics about exactly what those are, as I’m sure you can understand. I mean, obviously, we’re working through that with – in the appropriate way. But I would say this is really a continuation of some of the things that we’ve been talking about for now for a few quarters, right? How do we make sure that we’re prioritized and focused that we’re targeting the parts of our business that allow us to be the most successful and moving away from some things that are not as core or strategic to us. And I think we see this as kind of a natural complement to continuing that journey. The new program change is really a big step forward for us in terms of focusing on the areas where we want to concentrate and be successful. And we’ll move through an orderly process on those strategic – nonstrategic dispositions over the course of the coming months. But again, all about us being focused and targeted in terms of where we are going to position the efforts of the company, position the resources, et cetera. And again, that obviously those dispositions are helpful from us from a number of areas, not only in terms of the focus, but also proceeds and things of that nature.

Got it. Thank you very much. That’s all for me. Thank you for your time.

Thank you.

Thank you. [Operator Instructions] We have our next question comes from Marvin Fong from BTIG. Marvin, your line is now open.

Good morning. Thanks for taking my questions. So my first question, I guess, I just want to better understand what you’re saying, you’re making these changes that you’re going to realize the operational efficiencies. And I think you indicated in the release that you expect to pass on some of the savings and lower prices and cap rates for flyers. Can you just kind of help us understand that balance, how much cost savings you expect to kind of pass on through pricing as opposed to let fall to the bottom line? I would think since we’re building on a path to EBITDA breakeven. I just wanted to understand why not maximize the flow through to the bottom line? Or do you feel that your current pricing in the market does need to come down a little?

Yes. Thanks, Marvin. I mean, look, I think I would start by just saying, hey, we’ve been working on this for a number of months, right? So this has been a thoughtful piece of analysis that we’ve methodically worked through to understand how best to position ourselves for success. You heard me talk about the last quarter of the kind of the six-week special we ran on King Air’s that were focused on the East Coast only. We’re currently out in the market doing something similar to Light Jets now. Those test cases have really helped us validate in many ways, this theory that if we target the right segments with the right density, we can unlock real meaningful efficiency that gives us a much more profitable case in terms of the delivery model, but also is highly attractive to flyers, who are in those regions. And I think this is really a continuation of that work. So if you think about our model today, we’re effectively one size fits all in terms of a nationwide guarantee program. And I think that’s very difficult to operationally execute successfully, particularly in some of the lower density regions. So as we do the analysis and think about how we reposition our fleet, how we target a programmatic offering within those more dense corridors, we think that we see a number of benefits there, right? I think in many ways, if you think about the portion of our revenue today that wouldn’t be covered, it’s about 20% or so that would be in those regions that no longer would be covered on a programmatic basis. That is typically our lowest spend members on average and generally unprofitable routes for us. So we need an alternate delivery model. So as we move away from…

That’s terrific. Thanks for all that detail. I really appreciate it. And I guess my follow-up question, just wanted to better understand the active member count. I think the press release alluded that a lot of it – the core membership was up year-over-year. But just maybe at a higher level, can you kind of talk about the retention rates. And it sounds like we’re seeing the pressure coming from like the Connect customer. Should we continue, sort of that customer base to continue to see churn over the next few quarters as you implement these changes?

Yes. I mean what I’d broadly say is our retention levels have remained strong. So I think for our existing members, our existing customers, – they’ve continued to stay with us at high levels, consistent around what we’ve had in the past. Core retention level is about 80%, 90% for those who have blocks, that’s remained relatively constant. I think we have seen some of the macro impact on the new membership levels. And I think, again, some of that’s reflective of there being a more reasonable demand supply balance in the market. So in the past where – unless you were part of a program and put up big blocks to guarantee availability, it may have been very difficult to get access to aircraft. Now there’s a bit more availability in the market. And I think there’s – we have to acknowledge there’s been some impact on those new membership levels. I think a lot of that also informs some of the changes we announced today. So how do we get out into the market with the most competitive offer possible and make sure that it’s focused in the areas where we want to win. And I think that, obviously, there will be a little bit of churn during this transitionary period. I mean, that was part of the – that variability is part of the reason that we’ve decided to pull back on the guidance for the time being. But again, I think as this gets implemented over the next few weeks, we’re really excited about what it positions us to do. And if that means that we’re a little smaller in terms of transitioning to a higher degree of profitability, then we’re fine with that because we think that’s the right answer for our business and our shareholders.

Great. Really appreciate that. And I just want to say good luck to Kenny, Ravi, Todd, as you all kind of move on to these evolving roles. So good luck.

Thanks very much.

Thank you. [Operator Instructions] We have no further questions on the line.

Thanks very much, everyone. We appreciate you joining us today and certainly reach out with any additional questions. We look forward to being in touch.

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