NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Wheels Up Experience Inc. (together with its consolidated subsidiaries, “Wheels Up”, the “Company”, “we”, “us”, or “our”) is a leading provider of on-demand private aviation in the U.S. and one of the largest private aviation companies in the world. Wheels Up offers a complete global aviation solution with a large, modern and diverse fleet, backed by an uncompromising commitment to safety and service. Customers can access membership programs, charter, aircraft management services and whole aircraft sales, as well as unique commercial travel benefits through a strategic partnership with Delta Air Lines, Inc. (“Delta”). Wheels Up also offers freight, safety and security solutions and managed services to individuals, industry, government and civil organizations.
Wheels Up is guided by the mission to connect private flyers to aircraft, and one another, through an open platform that seamlessly enables life’s most important experiences. Powered by a global private aviation marketplace connecting its base of over 12,000 members and customers to a network of more than 1,500 safety-vetted and verified private aircraft, Wheels Up is widening the aperture of private travel for millions of consumers globally. With the Wheels Up mobile app and website, members and customers have the digital convenience to search, book and fly.
Basis of Presentation
The unaudited interim condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial reporting and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the financial information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of the Company’s management, the unaudited condensed consolidated financial statements include all adjustments necessary for the fair presentation of the Company’s balance sheet as of March 31, 2023, and its results of operations, including its comprehensive loss, stockholders' equity and its cash flows for the three months ended March 31, 2023 and 2022. All adjustments are of a normal recurring nature. The results for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for any subsequent quarter or for the fiscal year ending December 31, 2023.
These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2023.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. We consolidate Wheels Up Partners MIP LLC (“MIP LLC”) and record the profits interests held in MIP LLC that Wheels Up does not own as non-controlling interests (see Note 12). All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
Preparing the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates due to risks and uncertainties. The most significant estimates include, but are not limited to, the useful lives and residual values of purchased aircraft, the fair value of financial assets and liabilities, acquired intangible assets, goodwill, contingent consideration and other assets and liabilities, sales and use tax, the estimated life of member relationships, the
determination of the allowance for credit losses, impairment assessments, the determination of the valuation allowance for deferred tax assets and the incremental borrowing rate for leases.
Foreign Currency Translation Adjustments
Assets and liabilities of foreign subsidiaries, where the functional currency is not the United States (“U.S.”) dollar, have been translated at period-end exchange rates and profit and loss accounts have been translated using weighted-average exchange rates. Adjustments resulting from currency translation have been recorded in the equity section of the condensed consolidated balance sheets and the condensed consolidated statements of other comprehensive loss as a cumulative translation adjustment.
Adopted Accounting Pronouncements and Accounting Pronouncements Note Yet Effective
There have been no recent accounting pronouncements, changes in accounting pronouncements or recently adopted accounting guidance during the three months ended March 31, 2023 that are of significance or potential significance to us.
2. REVENUE RECOGNITION
Disaggregation of Revenue
The following table disaggregates revenue by service type and the timing of when these services are provided to the member or customer (in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
| Services transferred at a point in time: | | | | | | | |
| Flights, net of discounts and incentives | $ | 231,762 | | | $ | 236,363 | | | | | |
| Aircraft management | 61,242 | | | 58,049 | | | | | |
| Other | 31,807 | | | 7,178 | | | | | |
| | | | | | | |
| Services transferred over time: | | | | | | | |
| Memberships | 21,680 | | | 20,647 | | | | | |
| Aircraft management | 2,452 | | | 2,457 | | | | | |
| Other | 2,869 | | | 941 | | | | | |
| Total | $ | 351,812 | | | $ | 325,635 | | | | | |
Revenue in the condensed consolidated statements of operations is presented net of discounts and incentives of $1.6 million for the three months ended March 31, 2023, and $3.2 million for the three months ended March 31, 2022.
Other revenue included within services transferred at a point in time is primarily related to whole aircraft sales of $10.7 million, group charter of $6.4 million and safety and security of $5.9 million for the three months ended March 31, 2023, and whole aircraft sales of $1.1 million for the three months ended March 31, 2022.
Contract Balances
Accounts receivable, net consists of the following (in thousands):
| | | | | | | | | | | |
| | March 31,
2023 | | December 31,
2022 |
| Gross receivables from members and customers | $ | 108,890 | | | $ | 112,243 | |
| Undeposited funds | 6,404 | | | 10,122 | |
| Less: Allowance for credit losses | (7,635) | | | (9,982) | |
| Accounts receivable, net | $ | 107,659 | | | $ | 112,383 | |
Deferred revenue consists of the following (in thousands):
| | | | | | | | | | | |
| | March 31,
2023 | | December 31,
2022 |
| Flights - Prepaid Blocks | $ | 927,607 | | | $ | 1,023,985 | |
| Memberships - annual dues | 41,624 | | | 43,970 | |
| Memberships - initiation fees | 3,677 | | | 3,899 | |
| Flights - credits | 2,423 | | | 4,246 | |
| Other | 2,096 | | | 775 | |
| Deferred revenue - total | 977,427 | | | 1,076,875 | |
| | | |
| Less: Deferred revenue - current | (975,735) | | | (1,075,133) | |
| Deferred revenue - non-current | $ | 1,692 | | | $ | 1,742 | |
Changes in deferred revenue for the three months ended March 31, 2023 were as follows (in thousands):
| | | | | |
Deferred revenue as of December 31, 2022 | $ | 1,076,875 | |
| Amounts deferred during the period | 173,226 | |
| Revenue recognized from amounts included in the deferred revenue beginning balance | (219,462) | |
| Revenue from current period sales | (53,212) | |
Deferred revenue as of March 31, 2023 | $ | 977,427 | |
Revenue expected to be recognized in future periods for performance obligations that are unsatisfied, or partially unsatisfied, as of March 31, 2023 were as follows (in thousands):
| | | | | |
Remainder of 2023 | $ | 478,252 | |
| 2024 | 323,290 | |
| 2025 | 88,253 | |
| 2026 | 87,632 | |
Total | $ | 977,427 | |
Costs to Obtain a Contract
Capitalized costs related to sales commissions and referral fees were $1.6 million for the three months ended March 31, 2023, and $4.3 million for the three months ended March 31, 2022.
As of March 31, 2023 and December 31, 2022, capitalized sales commissions and referral fees of $6.7 million and $8.7 million, respectively, were included in Other current assets and $1.1 million and $1.3 million, respectively, were included in Other non-current assets on the condensed consolidated balance sheets. Amortization expense related to capitalized sales commissions and referral fees included in sales and marketing expense in the condensed consolidated statements of operations was $3.7 million for the three months ended March 31, 2023, and $3.5 million for the three months ended March 31, 2022.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
| | | | | | | | | | | |
| March 31,
2023 | | December 31, 2022 |
| Aircraft | $ | 563,934 | | | $ | 566,338 | |
| Software development costs | 73,098 | | | 65,303 | |
| Leasehold improvements | 15,769 | | | 11,930 | |
| Computer equipment | 3,719 | | | 3,014 | |
| Buildings and improvements | 1,424 | | | 1,424 | |
| Furniture and fixtures | 3,110 | | | 3,208 | |
| Tooling | 3,998 | | | 3,835 | |
| Vehicles | 1,834 | | | 1,538 | |
| 666,886 | | | 656,590 | |
| | | |
| Less: Accumulated depreciation and amortization | (268,176) | | | (262,031) | |
| Total | $ | 398,710 | | | $ | 394,559 | |
Depreciation and amortization expense of property and equipment was $9.0 million for the three months ended March 31, 2023 and $9.5 million for the three months ended March 31, 2022.
Amortization expense related to software development costs, included as part of depreciation and amortization expense of property and equipment, was $2.8 million for the three months ended March 31, 2023, and $2.3 million for the three months ended March 31, 2022.
4. ACQUISITIONS
Alante Air Charter, LLC Acquisition
On February 3, 2022, we acquired all of the outstanding equity of Alante Air Charter, LLC (“Alante Air”) for a total purchase price of $15.5 million in cash. Alante Air added 12 Light jets to our controlled fleet and expands our presence in the Western U.S. Acquisition-related costs for Alante Air of $0.5 million were included in general and administrative expense in the condensed consolidated statements of operations for the three months ended March 31, 2022. The acquisition of Alante Air was determined to be a business combination.
We have allocated the purchase price for Alante Air to its individual assets and liabilities assumed. As of the date of acquisition, the total purchase price allocated to the Alante Air assets acquired and liabilities assumed according to their estimated fair values were as follows (in thousands):
| | | | | |
| Current assets | $ | 4,452 | |
| Goodwill | 13,069 | |
| Other assets | 22,048 | |
| Total assets acquired | 39,569 | |
| Total liabilities assumed | (24,101) | |
| Net assets acquired | $ | 15,468 | |
Current assets of Alante Air included $3.0 million of cash and $1.4 million of accounts receivable, including $15 thousand owed from Wheels Up that was eliminated in consolidation upon acquisition.
Goodwill represents the excess of the purchase price over the fair values of the acquired net tangible assets. The allocated value of goodwill primarily relates to anticipated synergies and economies of scale by combining the use of Alante Air’s aircraft and existing business processes with our other acquisitions. The acquired goodwill is deductible for tax purposes.
Air Partner plc Acquisition
On April 1, 2022, we acquired all of the outstanding equity of Air Partner plc (“Air Partner”) for a total purchase price of $108.2 million in cash. Air Partner is a United Kingdom-based international aviation services group that provides us with operations in 18 locations across four continents. Acquisition-related costs for Air Partner included in general and administrative expense in the condensed consolidated statements of operations for the three months ended March 31, 2022 were immaterial. The acquisition of Air Partner was determined to be a business combination.
As of the date of acquisition, the total purchase price allocated to the Air Partner assets acquired and liabilities assumed according to their estimated fair values were as follows (in thousands):
| | | | | |
| Current assets | $ | 49,617 | |
| Property and equipment, net | 2,012 | |
| Operating lease right-of-use assets | 2,780 | |
| Goodwill | 83,910 | |
| Intangible assets | 20,921 | |
| Restricted cash | 27,507 | |
| Other assets | 1,686 | |
| Total assets acquired | 188,433 | |
| Total liabilities assumed | (80,239) | |
| Net assets acquired | $ | 108,194 | |
Current assets of Air Partner included $18.0 million of cash and $16.6 million of accounts receivable.
The allocated value of goodwill primarily relates to anticipated synergies and economies of scale by combining the use of Air Partner’s existing business processes with our platform to expand on an international basis. The acquired goodwill is not deductible for tax purposes.
The amounts allocated to acquired intangible assets and their associated weighted-average amortization periods, which were determined based on the period the assets are expected to contribute directly or indirectly to our cash flows, consist of the following:
| | | | | | | | | | | |
| Amount
(In thousands) | | Weighted-Average Amortization Period
(Years) |
| Customer relationships | $ | 16,521 | | | 5.7 |
| Backlog | 1,458 | | | 1.5 |
| Trade name | 1,931 | | | 1.9 |
| Developed technology | 1,011 | | | 5.8 |
| Total acquired intangible assets | $ | 20,921 | | | 5.1 |
The intangible asset fair value measurements are primarily based on significant inputs that are not observable in the market which represent a Level 3 measurement (see Note 8). The valuation method used for the Air Partner intangible assets was the income approach.
Unaudited Pro Forma Summary of Operations
The accompanying unaudited pro forma summary represents the consolidated results of operations as if the 2022 acquisitions of Alante Air and Air Partner had been completed as of January 1, 2022. The unaudited pro forma financial results for 2022 reflect the results for the three months ended March 31, 2022, as well as the effects of pro forma adjustments for the transactions in 2022. The unaudited pro forma financial information includes the accounting effects of the acquisitions, including adjustments to the amortization of intangible assets and professional fees associated with the transactions. The pro forma results were based on estimates and assumptions, which we believe are reasonable but remain subject to adjustment. The unaudited pro forma summary does not necessarily reflect the actual results that would have been achieved had the companies been combined during the periods presented, nor is it necessarily indicative of future consolidated results (in thousands, except per share data).
| | | | | | | | | | | |
| | | Three Months Ended March 31, | | |
| | | 2022 | | | | |
| Net revenue | | | $ | 363,454 | | | | | |
| Net loss | | | $ | (87,689) | | | | | |
| Net loss attributable to Wheels Up Experience Inc. | | | $ | (87,313) | | | | | |
| Net loss per share | | | $ | (0.36) | | | | | |
5. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following table presents goodwill carrying value and the change in balance, by reporting unit, during the three months ended March 31, 2023 (in thousands):
| | | | | | | | | | | | | | | | | |
| WUP Legacy | | Air Partner | | Total |
Balance as of December 31, 2022(1) | $ | 270,467 | | | $ | 77,651 | | | $ | 348,118 | |
Acquisitions(2) | — | | | 350 | | | 350 | |
| Foreign currency translation adjustment | — | | | 1,765 | | | 1,765 | |
Balance as of March 31, 2023 | $ | 270,467 | | | $ | 79,766 | | | $ | 350,233 | |
(1) Net of accumulated impairment losses of $180 million, all of which was recognized on the goodwill attributable to the WUP Legacy reporting unit during the year ended December 31, 2022.
(2) Reflects the current period impact of measurement period adjustments (See Note 4).
Intangible Assets
The gross carrying value, accumulated amortization and net carrying value of intangible assets consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Gross Carrying
Value | | Accumulated Amortization | | Net Carrying
Value |
| Status | $ | 80,000 | | | $ | 25,645 | | | $ | 54,355 | |
| Customer relationships | 91,121 | | | 27,349 | | | 63,772 | |
| Non-competition agreement | 210 | | | 210 | | | — | |
| Trade name | 16,161 | | | 8,636 | | | 7,525 | |
| Developed technology | 20,556 | | | 10,082 | | | 10,474 | |
| Leasehold interest - favorable | 600 | | | 85 | | | 515 | |
| Backlog | 1,458 | | | 1,024 | | | 434 | |
| Foreign currency translation adjustment | (1,219) | | | (333) | | | (886) | |
| Total | $ | 208,887 | | | $ | 72,698 | | | $ | 136,189 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Gross Carrying
Value | | Accumulated Amortization | | Net Carrying
Value |
| Status | $ | 80,000 | | | $ | 23,644 | | | $ | 56,356 | |
| Customer relationships | 91,121 | | | 24,613 | | | 66,508 | |
| Non-competition agreement | 210 | | | 210 | | | — | |
| Trade name | 16,161 | | | 8,294 | | | 7,867 | |
| Developed technology | 20,556 | | | 9,332 | | | 11,224 | |
| Leasehold interest - favorable | 600 | | | 80 | | | 520 | |
| Backlog | 1,458 | | | 880 | | | 578 | |
| Foreign currency translation adjustment | (1,662) | | | (374) | | | (1,288) | |
| Total | $ | 208,444 | | | $ | 66,679 | | | $ | 141,765 | |
Amortization expense of intangible assets was $5.9 million for the three months ended March 31, 2023, and $5.2 million for the three months ended March 31, 2022.
Intangible Liabilities
The gross carrying value, accumulated amortization and net carrying value of intangible liabilities consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Gross Carrying
Value | | Accumulated Amortization | | Net Carrying
Value |
| Intangible liabilities | $ | 20,000 | | | $ | 6,417 | | | $ | 13,583 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Gross Carrying
Value | | Accumulated Amortization | | Net Carrying
Value |
| Intangible liabilities | $ | 20,000 | | | $ | 5,917 | | | $ | 14,083 | |
Amortization of intangible liabilities, which reduces amortization expense, was $0.5 million for each of the three months ended March 31, 2023, and 2022, respectively.
Future amortization expense of intangible assets and intangible liabilities held as of March 31, 2023, were as follows (in thousands):
| | | | | | | | | | | |
| Intangible Assets | | Intangible Liabilities |
Remainder of 2023 | $ | 17,757 | | | $ | 1,500 | |
| 2024 | 22,969 | | | 2,000 | |
| 2025 | 22,555 | | | 2,000 | |
| 2026 | 21,694 | | | 2,000 | |
| 2027 | 17,193 | | | 2,000 | |
2028 and Thereafter | 34,021 | | | 4,083 | |
| Total | $ | 136,189 | | | $ | 13,583 | |
6. CASH EQUIVALENTS AND RESTRICTED CASH
Cash Equivalents
As of March 31, 2023 and December 31, 2022, cash equivalents on the condensed consolidated balance sheets were $269.0 million and $430.3 million, respectively, and generally consisted of investments in money market funds, U.S. treasury bills and time deposits.
Restricted Cash
As of March 31, 2023 and December 31, 2022, restricted cash, which is presented within Other assets on the condensed consolidated balance sheets, included $7.7 million held by financial institutions to establish standby letters of credit required by the lessors of certain corporate office space that we leased as of such dates. The standby letters of credit expire on December 31, 2033 and June 30, 2034. The balances as of March 31, 2023 and December 31, 2022 also included $28.2 million and $26.3 million, respectively, related to funds held but unavailable for immediate use due to contractual restrictions.
A reconciliation of cash and cash equivalents and restricted cash from the condensed consolidated balance sheets to the condensed consolidated statements of cash flows is as follows (in thousands):
| | | | | | | | | | | |
| March 31,
2023 | | December 31,
2022 |
| Cash and cash equivalents | $ | 363,177 | | | $ | 585,881 | |
| Restricted cash | 36,621 | | | 34,272 | |
| Total | $ | 399,798 | | | $ | 620,153 | |
7. LONG-TERM DEBT
The following table presents the components of long-term debt on our condensed consolidated balance sheets (in thousands):
| | | | | | | | | | | | | | | | | |
| Weighted Average Interest Rate | | March 31,
2023 | | December 31,
2022 |
| Equipment Notes | 12.0 | % | | $ | 263,249 | | | $ | 270,000 | |
| Total debt | | | 263,249 | | | 270,000 | |
| Less: Total unamortized deferred financing costs and debt discount | | | 15,845 | | | 16,760 | |
| Less: Current maturities of long-term debt | | | 27,006 | | | 27,006 | |
| Long-term debt | | | $ | 220,397 | | | $ | 226,234 | |
Maturities of our debt for the next five years are as follows (in thousands):
| | | | | |
| Maturities |
Remainder of 2023 | $ | 20,255 | |
| 2024 | 45,767 | |
| 2025 | 40,760 | |
| 2026 | 35,111 | |
| 2027 | 23,211 | |
2028 and Thereafter | 98,145 | |
| Total | $ | 263,249 | |
2022-1 Equipment Note Financing
On October 14, 2022, Wheels Up Partners LLC, our indirect subsidiary (“WUP LLC”), issued $270.0 million aggregate principal amount of 12% fixed rate equipment notes (collectively, the “Equipment Notes”) using an EETC (enhanced equipment trust certificate) loan structure. The Equipment Notes were issued for net proceeds (before transaction-related expense) of $259.2 million. The final expected distribution date of the Equipment Notes varies from July 15, 2025 to October 15, 2029, unless redeemed earlier by WUP LLC. The Equipment Notes bear interest at the rate of 12% per annum with annual amortization of principal amount equal to 10% per annum and balloon payments due at each maturity date. The Equipment Notes are secured by first-priority liens on 134 of the Company’s owned aircraft fleet and by liens on certain intellectual property assets of the Company and certain of its subsidiaries.
The Equipment Notes were sold pursuant to a Note Purchase Agreement, dated as of October 14, 2022 (the “Note Purchase Agreement”), and issued under separate Trust Indentures and Mortgages, dated as of October 14, 2022 (each, an “Indenture” and collectively, the “Indentures”). The Note Purchase Agreement and the Indentures and related guarantees contain certain covenants, including a liquidity covenant that requires the Company to maintain minimum liquidity of $125 million, a covenant that limits the maximum loan to appraised value ratio of all aircraft financed, subject to certain cure rights of the Company, and restrictive covenants that provide limitations under certain circumstances on, among other things: (i) certain acquisitions, mergers or disposals of its assets; (ii) making certain investments or entering into certain transactions with affiliates; (iii) prepaying, redeeming or repurchasing the Equipment Notes, subject to certain exceptions; and (iv) paying dividends and making certain other specified restricted payments. Each Indenture contains customary events of default for Equipment Notes of this type, including cross-default provisions among the Equipment Notes. WUP LLC’s obligations under the Equipment Notes are guaranteed by the Company and certain of its subsidiaries. WUP LLC is also obligated to cause additional subsidiaries and affiliates of WUP LLC to become guarantors under certain circumstances. The Equipment Notes issued with respect to each aircraft are cross-collateralized by the other aircraft for which Equipment Notes were
issued under the Indentures. The maturity of the Equipment Notes may be accelerated upon the occurrence of certain events of default under the Note Purchase Agreement and each Indenture and the related guarantees. As of March 31, 2023, we were in compliance with the covenants under the Note Purchase Agreement and each Indenture and the related guarantees.
As of March 31, 2023, the carrying value of the aircraft that are subject to first-priority liens under the Equipment Notes was $323.4 million.
Interest and principal payments on the Equipment Notes are payable quarterly on each January 15, April 15, July 15 and October 15, which began on January 15, 2023. Amortization expense for debt discounts and deferred financing costs of $0.9 million was recorded in interest expense in the condensed consolidated statement of operations for the three months ended March 31, 2023.
8. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, an exit price, in an orderly transaction between unaffiliated willing market participants on the measurement date under current market conditions. Assets and liabilities recorded at fair value are measured and classified in accordance with a three-tier fair value hierarchy based on the observability of the inputs available and activity in the markets used to measure fair value. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
| | | | | |
| Level 1 - | Quoted prices, unadjusted, in active markets for identical assets or liabilities that can be accessed at the measurement date. |
| |
| Level 2 - | Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. |
| |
| Level 3 - | Unobservable inputs developed using our own estimates and assumptions, which reflect those that market participants would use in pricing the asset or liability. |
Financial instruments that are measured at fair value on a recurring basis and their corresponding placement in the fair value hierarchy consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Level 1 | | Level 2 | | Level 3 | | Fair Value |
| Assets: | | | | | | | |
| Money market funds | $ | 268,940 | | | $ | — | | | $ | — | | | 268,940 | |
| | | | | | | |
| Total assets | $ | 268,940 | | | $ | — | | | $ | — | | | $ | 268,940 | |
| | | | | | | |
| Liabilities: | | | | | | | |
| Warrant liability - Public Warrants | $ | 400 | | | $ | — | | | $ | — | | | $ | 400 | |
| Warrant liability - Private Warrants | — | | | 226 | | | — | | | 226 | |
| Equipment Notes | — | | | — | | | 263,249 | | | 263,249 | |
| Total liabilities | $ | 400 | | | $ | 226 | | | $ | 263,249 | | | $ | 263,875 | |
| | | | | | | |
| December 31, 2022 |
| Level 1 | | Level 2 | | Level 3 | | Fair Value |
| Assets: | | | | | | | |
| Money market funds | $ | 230,626 | | | $ | — | | | $ | — | | | $ | 230,626 | |
| Treasury bills | 199,700 | | | — | | | — | | | 199,700 | |
| Total assets | $ | 430,326 | | | $ | — | | | $ | — | | | $ | 430,326 | |
| | | | | | | |
| Liabilities: | | | | | | | |
| Warrant liability - Public Warrants | $ | 479 | | | $ | — | | | $ | — | | | $ | 479 | |
| Warrant liability - Private Warrants | — | | | 272 | | | — | | | 272 | |
| Equipment Notes | — | | | 270,000 | | | — | | | 270,000 | |
| Total liabilities | $ | 479 | | | $ | 270,272 | | | $ | — | | | $ | 270,751 | |
The carrying amount of cash equivalents approximates fair value and is classified within Level 1, because we determined the fair value through quoted market prices.
The estimated fair value of the Equipment Notes is categorized as a Level 3 valuation. We considered the relatively short time period between the issuance of the Equipment Notes and the measurement date of March 31, 2023, as well as the estimated fair value of aircraft subject to first priority liens under the Equipment Notes to determine the fair value of the Equipment Notes as of March 31, 2023.
The warrants were accounted for as a liability in accordance with Accounting Standards Codification 815-40 (see Note 11). The warrant liability was measured at fair value upon assumption and on a recurring basis, with changes in fair value presented in the condensed consolidated statements of operations. As of March 31, 2023 and December 31, 2022, we used Level 1 inputs for the Public Warrants (as defined below) and Level 2 inputs for the Private Warrants (as defined below). We valued the Private Warrants by applying the valuation technique of a Monte Carlo simulation model to reflect the redemption conditions. The Private Warrants are substantially similar to the Public Warrants, but are not directly traded or quoted on an active trading market.
The following table presents the changes in the fair value of the warrant liability (in thousands):
| | | | | | | | | | | | | | | | | |
| Public Warrants | | Private Warrants | | Total Warrant Liability |
Fair value as of December 31, 2022 | $ | 479 | | | $ | 272 | | | $ | 751 | |
| Change in fair value of warrant liability | (80) | | | (45) | | | (125) | |
Fair value as of March 31, 2023 | $ | 399 | | | $ | 227 | | | $ | 626 | |
9. LEASES
Leases primarily pertain to certain controlled aircraft, corporate headquarters and operational facilities, including aircraft hangars, which are all accounted for as operating leases. We sublease an aircraft hangar at Cincinnati/Northern Kentucky International Airport from Delta. Certain of these operating leases have renewal options to further extend for additional time periods at our discretion.
Our leases do not contain residual value guarantees, covenants or other associated restrictions. We have certain variable lease agreements with aircraft owners that contain payment terms based on an hourly lease rate multiplied by the number of flight hours during a month. Variable lease payments are not included in the right-of-use asset and lease liability balances but rather are expensed as incurred.
The components of net lease cost were as follows (in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
| Operating lease costs | $ | 11,694 | | | $ | 9,102 | | | | | |
| Short-term lease costs | 2,486 | | | 5,293 | | | | | |
| Variable lease costs | 5,833 | | | 4,362 | | | | | |
| Total lease costs | $ | 20,013 | | | $ | 18,757 | | | | | |
Lease costs related to leased aircraft and operational facilities are included in cost of revenue in the consolidated statements of operations. Lease costs related to leased corporate headquarters and other office space including expenses for non-lease components are included in general and administrative expense in the consolidated statements of operations.
Sublease income is presented in general and administrative expenses in the consolidated statements of operations. Sublease income was not material for either of the three month periods ended March 31, 2023 and 2022.
Supplemental cash flow information related to leases were as follows (in thousands):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| Cash paid for amounts included in the measurement of operating lease liabilities: | | | |
| Operating cash flows paid for operating leases | $ | 10,102 | | | $ | 9,119 | |
| Right-of-use assets obtained in exchange for operating lease obligations | $ | 5,420 | | | $ | 37,180 | |
Supplemental balance sheet information related to leases are as follows:
| | | | | | | | | | | |
| March 31,
2023 | | December 31,
2022 |
| Weighted-average remaining lease term (in years): | | | |
| Operating leases | 6.1 | | 5.9 |
| Weighted-average discount rate: | | | |
| Operating leases | 9.1 | % | | 9.0 | % |
Maturities of lease liabilities, as of March 31, 2023, were as follows (in thousands):
| | | | | |
| Year ending December 31, | Operating Leases |
| 2023 (remaining) | $ | 27,104 | |
| 2024 | 33,849 | |
| 2025 | 19,937 | |
| 2026 | 12,293 | |
| 2027 | 8,168 | |
2028 and Thereafter | 43,054 | |
| Total lease payments | 144,405 | |
| Less: Imputed interest | (37,723) | |
| Total lease obligations | $ | 106,682 | |
10. STOCKHOLDERS’ EQUITY AND EQUITY-BASED COMPENSATION
Pursuant to the Wheels Up Experience Inc. certificate of incorporation, we are authorized to issue 2,500,000,000 shares of Class A common stock, par value of $0.0001 per share, and 25,000,000 shares of preferred stock, par value $0.0001 per share. Holders of Class A common stock are entitled to one vote per share.
As of March 31, 2023, we have nine equity-based compensation plans that were approved by the board of directors of WUP prior to the Business Combination (as defined below), which collectively constitute the “WUP Management Incentive Plan”, and the Wheels Up Partners Holdings LLC Option Plan, which is the “WUP Option Plan.” Following the consummation of the Business Combination (as defined below), no new grants can be made under the WUP Management Incentive Plan or WUP Option Plan.
In connection with the Business Combination (as defined below), the board of directors (the “Board”) and stockholders of Wheels Up adopted the Wheels Up Experience Inc. 2021 Long-Term Incentive Plan (the “2021 LTIP”), for employees, consultants and other qualified persons.
On June 30, 2022, the Board adopted the Wheels Up Experience Inc. 2022 Inducement Grant Plan (the “2022 Inducement Plan”) to be used for a one-time employment inducement grant for our Chief Financial Officer, Todd Smith, pursuant to New York Stock Exchange Rule 303A.08. The maximum number of awards that could be granted under the 2022 Inducement Plan were 2,051,282 shares of Class A common stock, which were all granted in the form of restricted stock units to Mr. Smith on July 1, 2022. Restricted stock unit awards granted under the 2022 Inducement Grant Plan contain generally the same terms as other restricted stock unit awards granted under the 2021 LTIP during the fiscal year ended December 31, 2022.
WUP Management Incentive Plan
WUP Profits Interests
As of March 31, 2023, an aggregate of 31.3 million WUP profits interests have been authorized and issued under the WUP Management Incentive Plan. Vested WUP profits interests are eligible to be exchanged into shares
of Class A common stock. Amounts of WUP profits interests reported in the tables below represent the maximum number of WUP profits interests outstanding or that could be realized upon vesting and immediately exchanged for the maximum number of shares of Class A common stock. The actual number of shares of Class A common stock received upon exchange of such WUP profits interests will depend on the trading price per share of Class A common stock at the time of such exchange.
The following table summarizes the WUP profits interests activity under the WUP management incentive plan as of March 31, 2023:
| | | | | | | | | | | |
| | Number of WUP
Profits Interests | | Weighted-Average Grant
Date Fair Value |
| | (in thousands) | | |
Outstanding WUP profits interests as of January 1, 2023 | 28,813 | | | $ | 0.42 | |
| Granted | — | | | — | |
| Exchanged | — | | | — | |
| Expired/forfeited | — | | | — | |
Outstanding WUP profits interests as of March 31, 2023 | 28,813 | | | $ | 0.42 | |
The weighted-average remaining contractual term as of March 31, 2023, for WUP profits interests outstanding was approximately 8.3 years.
The following table summarizes the status of non-vested WUP profits interests as of March 31, 2023:
| | | | | | | | | | | |
| | Number of WUP
Profits Interests | | Weighted-Average Grant
Date Fair Value |
| | (in thousands) | | |
Non-vested WUP profits interests as of January 1, 2023 | 1,697 | | | $ | 0.42 | |
| Granted | — | | | — | |
| Vested | (1,430) | | | 0.45 | |
| Forfeited | — | | | — | |
Non-vested WUP profits interests as of March 31, 2023 | 267 | | | $ | 0.24 | |
The total unrecognized compensation cost related to non-vested WUP profits interests was nominal as of March 31, 2023 and is expected to be recognized over a weighted-average period of 0.4 years. The total fair value for WUP profits interests that vested was approximately $0.6 million for the three months ended March 31, 2023.
WUP Option Plan
As of March 31, 2023, the number of WUP stock options authorized and issued in aggregate under the WUP Option Plan was 17.5 million. Each outstanding stock option is exercisable for one share of Class A common stock.
The following table summarizes the activity under the WUP Option Plan as of March 31, 2023:
| | | | | | | | | | | | | | | | | |
| Number of WUP
Stock Options | | Weighted-
Average Exercise
Price | | Weighted-Average Grant
Date Fair Value |
| (in thousands) | | | | |
Outstanding WUP stock options as of January 1, 2023 | 12,984 | | | $ | 7.51 | | | $ | 1.20 | |
| Granted | — | | | — | | | — | |
| Exercised | — | | | — | | | — | |
| Forfeited | (86) | | | 7.27 | | | 0.73 | |
| Expired | — | | | — | | | — | |
Outstanding WUP stock options as of March 31, 2023 | 12,898 | | | $ | 7.51 | | | $ | 1.20 | |
Exercisable WUP stock options as of March 31, 2023 | 11,974 | | | $ | 7.46 | | | $ | 1.13 | |
The aggregate intrinsic value as of March 31, 2023, for WUP stock options that were outstanding and exercisable was nil, respectively.
The weighted-average remaining contractual term as of March 31, 2023, for WUP stock options that were outstanding and exercisable was approximately 6.4 years and 6.3 years, respectively.
The following table summarizes the status of non-vested WUP stock options as of March 31, 2023:
| | | | | | | | | | | |
| | Number of WUP Stock Options | | Weighted-Average Grant
Date Fair Value |
| | (in thousands) | | |
Non-vested WUP stock options as of January 1, 2023 | 1,044 | | | $ | 2.00 | |
| Granted | — | | | — | |
| Vested | (115) | | | 1.13 | |
| Expired | — | | | — | |
| Forfeited | (6) | | | 1.60 | |
Non-vested WUP stock options as of March 31, 2023 | 923 | | | $ | 2.11 | |
The total unrecognized compensation cost related to non-vested WUP stock options was $0.7 million as of March 31, 2023 and is expected to be recognized over a weighted-average period of 0.4 years. The total fair value for WUP stock options that vested was $0.1 million for the three months ended March 31, 2023.
2021 LTIP
As of March 31, 2023, an aggregate of 27.3 million shares were authorized for issuance under the 2021 LTIP.
Restricted Stock Units (“RSUs”)
The following table summarizes the activity under the 2021 LTIP related to RSUs as of March 31, 2023:
| | | | | | | | | | | |
| Number of RSUs(1) | | Weighted-Average Grant
Date Fair Value |
| (in thousands) | | |
Non-vested RSUs as of January 1, 2023 | 16,162 | | | $ | 3.46 | |
Granted(2) | 15,136 | | | 0.63 | |
| Vested | (2,142) | | | 3.92 | |
| Forfeited | (1,334) | | | 3.75 | |
Non-vested RSUs as of March 31, 2023 | 27,822 | | | $ | 1.87 | |
(1) RSU awards granted under the 2022 Inducement Grant Plan contain generally the same terms as other RSU awards granted under the 2021 LTIP during the fiscal year ended December 31, 2022. The number of RSUs and weighted-average grant date fair value include 2,051,282 RSUs granted under the 2022 Inducement Grant Plan in July 2022, of which 683,760 RSUs had vested as of January 1, 2023 and the remaining 1,367,522 RSUs are scheduled to vest in equal installments on December 30, 2023 and December 30, 2024, subject to continued service through each such vesting date.
(2) RSU awards granted during the three months ended of March 31, 2023 are liability classified because such awards are contingent on receipt of approval by the Company’s stockholders of the Amended and Restated Wheels Up Experience Inc. 2021 Long-Term Incentive Plan (the "Amended and Restated 2021 LTIP”) at the Company’s 2023 annual meeting of stockholders (the “2023 Annual Meeting”). If the Company’s stockholders do not approve the Amended and Restated 2021 LTIP at the 2023 Annual Meeting, the Compensation Committee of the Board will settle such awards in cash upon vesting based on the fair market value per share of Class A common stock on the applicable vesting date.
The total unrecognized compensation cost related to non-vested RSUs was $42.7 million as of March 31, 2023 and is expected to be recognized over a weighted-average period of 1.4 years. The total fair value for RSUs that vested was approximated $8.4 million for the three months ended March 31, 2023.
Performance-Based Restricted Stock Units (“PSUs”)
Under the terms of the non-vested PSUs granted to certain employees, upon the achievement of certain pre-determined performance objectives, each PSU may settle into shares of our Class A common stock. The PSUs will vest, if at all, upon the actual achievement of the related performance objective, subject to specified change of control exceptions.
The following table summarizes the activity under the 2021 LTIP related to PSUs as of March 31, 2023:
| | | | | | | | | | | |
| Number of PSUs | | Weighted-Average Grant
Date Fair Value |
| (in thousands) | | |
Non-vested PSUs as of January 1, 2023 | 957 | | | $ | 2.17 | |
Granted(1) | 1,262 | | | 0.63 | |
| Vested | (133) | | | 2.50 | |
| Forfeited | — | | | — | |
Non-vested PSUs as of March 31, 2023(2) | 2,086 | | | $ | 1.22 | |
(1) PSU awards granted during the three months ended March 31, 2023 are liability classified because such awards are contingent on receipt of approval by the Company’s stockholders of the Amended and Restated 2021 LTIP at the 2023 Annual Meeting. If the Company’s stockholders do not approve the Amended and Restated 2021 LTIP at the 2023 Annual Meeting, the Compensation Committee of the Board will settle such awards in cash upon vesting based on the fair market value per share of Class A common stock on the applicable vesting date.
(2) Non-vested PSUs reflected in the table above include approximately 0.6 million of the PSUs reflected in this table may settle into shares of our Class A common stock equal to 0-120% of the PSUs and 1.3 million PSUs that may settle into shares of Class A common stock equal to 0-200% of the PSUs, in each case based on the level of performance.
Compensation expense associated with PSUs is recognized over the vesting period of the awards that are ultimately expected to vest when the achievement of the related performance objectives becomes probable. Total unrecognized compensation cost related to non-vested PSUs was $2.5 million as of March 31, 2023. As of
March 31, 2023, the achievement of the performance objectives associated with unvested awards was deemed not probable of being achieved and, accordingly, no compensation cost has been recognized. Compensation cost recognized during the three months ended March 31, 2023 associated with PSUs which vested during the period was $0.1 million.
RSUs Subject to Market-Based Vesting Conditions (“Market-Based RSUs”)
Under the terms of the non-vested Market-Based RSUs granted to certain employees each Market-Based RSU may settle into shares of our Class A common stock. The Market-Based RSUs will vest, if at all, based on the closing trading price per share of our Class A common stock over any 30 consecutive trading day-period that occurs prior to the end date specified in the underlying award agreement, subject to continued service through each such vesting date.
The grant-date fair value of outstanding Market-Based RSUs, using a Monte Carlo simulation model, was $0.3 million. The derived service period for such Market-Based RSUs began on June 8, 2022 with a weighted average period of 3.8 years. Based on the Class A common stock trading price, the market conditions for the outstanding Market-Based RSUs were not met, and no shares vested as of March 31, 2023. The total unrecognized compensation cost related to such Market-Based RSUs was $0.2 million as of March 31, 2023 and is expected to be recognized over 3.0 years.
Wheels Up Stock Options
The following table summarizes the activity under the 2021 LTIP related to Wheels Up stock options as of March 31, 2023:
| | | | | | | | | | | | | | | | | |
| Number of Wheels Up
Stock Options | | Weighted-
Average Exercise
Price | | Weighted-Average Grant
Date Fair Value |
| (in thousands) | | | | |
Outstanding Wheels Up stock options as of January 1, 2023 | 768 | | | $ | 10.00 | | | $ | 4.75 | |
| Granted | — | | | — | | | — | |
| Exercised | — | | | — | | | — | |
| Forfeited | — | | | — | | | — | |
| Expired | — | | | — | | | — | |
Outstanding Wheels Up stock options as of March 31, 2023 | 768 | | | $ | 10.00 | | | $ | 4.75 | |
Exercisable Wheels Up stock options as of March 31, 2023 | 768 | | | $ | 10.00 | | | $ | 4.75 | |
The aggregate intrinsic value as of March 31, 2023, for Wheels Up stock options that were outstanding and exercisable was nil.
The weighted-average remaining contractual term as of March 31, 2023, for Wheels Up stock options that were outstanding and exercisable was approximately 4.6 years, respectively. All Wheels Up stock options vested in prior periods.
Equity-Based Compensation Expense
Compensation expense for WUP profits interests recognized in the condensed consolidated statements of operations was $0.1 million and $0.7 million for the three months ended March 31, 2023 and March 31, 2022, respectively.
Compensation expense for WUP restricted interests recognized in the condensed consolidated statements of operations was nil and $0.2 million for the three months ended March 31, 2023 and March 31, 2022, respectively.
Compensation expense for WUP stock options under the WUP Option Plan and Wheels Up stock options under the 2021 LTIP recognized in the condensed consolidated statements of operations was $0.5 million and $3.1 million for the three months ended March 31, 2023 and March 31, 2022, respectively.
Compensation expense for RSUs, PSUs, and Market-Based RSUs recognized in the condensed consolidated statements of operations was $5.7 million and $9.0 million for the three months ended March 31, 2023 and March 31, 2022, respectively.
The following table summarizes equity-based compensation expense recognized by condensed consolidated statement of operations line item (in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
| Cost of revenue | $ | 1,179 | | | $ | 4,432 | | | | | |
| Technology and development | 484 | | | 641 | | | | | |
| Sales and marketing | 700 | | | 2,701 | | | | | |
| General and administrative | 9,175 | | | 14,780 | | | | | |
| Total equity-based compensation expense | $ | 11,538 | | | $ | 22,554 | | | | | |
Earnout Shares
On July 13, 2021 (the “Closing Date”), we consummated the transactions contained in the Agreement and Plan of Merger with Aspirational Consumer Lifestyle Corp. (“Aspirational”), a blank check company, dated as of February 1, 2021, as amended on May 6, 2021 (the “Business Combination”). As part of the Business Combination, existing holders of WUP equity, including certain holders of WUP profits interests and restricted interests, but excluding holders of WUP stock options, have the right to receive up to an aggregate of 9 million additional shares of our Class A common stock in three equal tranches, which are issuable upon the achievement of share price thresholds of $12.50, $15.00 and $17.50 for any 20 trading days within a period of 30 consecutive trading days within five years of the Closing Date, respectively (the “Earnout Shares”). Earnout Shares are not attributable to any equity compensation plan.
Earnout Shares that are attributable to WUP profits interests and restricted interests require continued employment as of the date on which each of the Earnout Share market conditions are met. There have been no forfeitures of Earnout Shares as of March 31, 2023.
The grant-date fair value of the Earnout Shares attributable to the holders of WUP profits interests and restricted interests, using a Monte Carlo simulation model, was $57.9 million. The derived service period began on the Closing Date and is a weighted-average period of 1.7 years.
Based on the Class A common stock trading price, the market conditions were not met, and no Earnout Shares vested as of March 31, 2023. Compensation expense for Earnout Shares recognized in the condensed consolidated statements of operations was $1.4 million and $9.5 million for the three months ended March 31, 2023 and March 31, 2022, respectively.
Treasury Stock
As of March 31, 2023 and December 31, 2022, we had 2,644,415 shares of treasury stock. Treasury stock has historically consisted of shares of Class A common stock withheld to settle employee taxes due upon the vesting of RSUs and WUP restricted interests, none of which occurred during the three months ended March 31, 2023.
11. WARRANTS
Prior to the Business Combination, Aspirational issued 7,991,544 public warrants (“Public Warrants”) and 4,529,950 private warrants (“Private Warrants”). On the Closing Date, Wheels Up assumed the warrants. Each
whole warrant entitles the holder to purchase one share of Class A common stock at a price of $11.50 per share. The Public Warrants and Private Warrants became exercisable on September 25, 2021, which was 12 months from the closing of the Aspirational initial public offering, and expire on July 13, 2026 or earlier upon redemption or liquidation.
In connection with the Business Combination, we filed a Registration Statement on Form S-1 that was declared effective by the SEC on August 24, 2021, as amended by Post-Effective Amendment No. 1 thereto that was declared effective by the SEC on March 21, 2022, as further amended by Post-Effective Amendment No. 2 to Form S-1 on Form S-3 filed with the SEC on July 20, 2022, and as further amended by Post-Effective Amendment No. 3 to Form S-1 on Form S-3 that was declared effective by the SEC on August 10, 2022 (collectively, the “Selling Stockholder Registration Statement”). The Selling Stockholder Registration Statement relates to the issuance of an aggregate of 12,521,494 shares of Class A common stock underlying the Public Warrants and Private Warrants. As of March 31, 2023, there have not been any warrants exercised and 12,521,494 remain outstanding.
12. NON-CONTROLLING INTERESTS
MIP LLC is a single purpose entity formed for the purpose of administering and effectuating the award of WUP profits interests to employees, consultants and other qualified persons. Wheels Up is the sole managing member of MIP LLC and, as a result, consolidates the financial results of MIP LLC. We record non-controlling interests representing the ownership interest in MIP LLC held by other members of MIP LLC. In connection with the Business Combination, the Seventh Amended and Restated LLC Agreement of WUP was adopted, allowing members of MIP LLC, subject to certain restrictions, to exchange their vested WUP profits interests for cash or a corresponding number of shares of Class A common stock, at the option of Wheels Up, based on the value of such WUP profits interests relative to their applicable participation threshold.
The decision of whether to exchange WUP profits interests for cash or Class A common stock is made solely at the discretion of Wheels Up. Accordingly, the WUP profits interests held by MIP LLC are treated as permanent equity and changes in the ownership interest of MIP LLC are accounted for as equity transactions. Future exchanges of WUP profits interests, if settled in Class A common stock at the discretion of Wheels Up, will reduce the amount recorded as non-controlling interests and increase additional paid-in-capital on the condensed consolidated balance sheets.
The calculation of non-controlling interests was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31,
2023 | | December 31,
2022 |
Number of WUP common units held by Wheels Up(1) | 251,613,698 | | | 100.0 | % | | 249,338,569 | | | 100.0 | % |
Number of vested WUP profits interests attributable to non-controlling interests(2) | — | % | | — | % | | — | | | — | % |
| Total WUP common units and vested WUP profits interests outstanding | 251,613,698 | | | 100.0 | % | | 249,338,569 | | | 100.0 | % |
(1) WUP common units represent an equivalent ownership of Class A common stock outstanding.
(2) Based on the closing price of Class A common stock on the last trading day of the period covered by this Quarterly Report, there would be no WUP common units issuable upon conversion of vested and unvested WUP profits interests outstanding as of March 31, 2023.
Weighted-average ownership percentages are used to allocate net loss to Wheels Up and the non-controlling interest holders. The non-controlling interests weighted-average ownership percentage was 0.0% and 0.4% for the three months ended March 31, 2023 and March 31, 2022, respectively.
13. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
We are party to various legal actions arising in the normal course of business. While we do not expect that the ultimate resolution of any of these pending actions will have a material effect on our consolidated results of operations, financial position, or cash flows, litigation is subject to inherent uncertainties. As such, there can be no assurance that any pending legal action, which we believe to be immaterial as of March 31, 2023, does not become material in the future.
Sales and Use Tax Liability
We regularly provide services to members in various states within the continental U.S., which may create sales and use tax nexus via temporary presence, potentially requiring the payment of these taxes. We determined that there is uncertainty as to what constitutes nexus in respective states for a state to levy taxes, fees and surcharges relating to our activity. As of March 31, 2023 and December 31, 2022, we estimate the potential exposure to such tax liability was $10.5 million and $10.4 million, respectively, the expense for which was included in accrued expenses on the condensed consolidated balance sheets and cost of revenue in the condensed consolidated statements of operations as of and for the applicable periods presented.
14. RELATED PARTIES
We engage in transactions with certain stockholders who are also members, ambassadors or customers. Such transactions primarily relate to their membership in the Wheels Up program, flights and flight-related services.
We incurred expenses of $0.6 million and $0.3 million for the three months ended March 31, 2023 and 2022, respectively, from transactions related to a commercial cooperation agreement with our stockholder Delta. As of March 31, 2023 and December 31, 2022, $2.9 million and $2.4 million, respectively, were included in Accrued expenses on the condensed consolidated balance sheets related to transactions associated with the commercial cooperation agreement.
Other transactions with related parties during the three months ended March 31, 2023 and 2022 were immaterial individually and in the aggregate for financial reporting purposes.
15. RESTRUCTURING AND RELATED CHARGES
On March 1, 2023, we announced a restructuring plan (the “Restructuring Plan”) as part of our previously announced focus on implementing cost reductions and improving the efficiency of our operations, which consisted of a reduction in headcount (excluding pilots, maintenance and operations-support personnel). We estimated that we would incur approximately $14 million in total pre-tax charges in connection with the Restructuring Plan, primarily related to severance payments, employee benefits and equity-based compensation.
As of March 31, 2023, we have incurred $17.7 million of charges associated with the Restructuring Plan related to severance payments, employee benefits and equity-based compensation, which represents substantially all cash and non-cash charges expected under the Restructuring Plan. During the three months ended December 31, 2022, we recorded $7.2 million of expenses related to actions taken in the fourth quarter of 2022 and in connection with the Restructuring Plan. During the three months ended March 31, 2023, $10.5 million of expenses related to the Restructuring Plan were recorded in the Company’s condensed consolidated statement of net income, as follows (in thousands):
| | | | | |
| Cost of revenue | $ | 755 | |
| Technology and development | 2,299 | |
| Sales and marketing | 5,379 | |
| General and administrative | 2,058 | |
| Total restructuring expenses | $ | 10,491 | |
Approximately $2.7 million of charges associated with the Restructuring Plan remained unpaid and were included within Accrued expenses in the Company’s condensed consolidated balance sheet as of March 31, 2023 and are expected to be paid during the second quarter of fiscal 2023.
16. INCOME TAXES
We are subject to U.S. federal, state and local income taxes with respect to our allocable share of any taxable income or loss from WUP, as well as any standalone income or loss Wheels Up generates. WUP is treated as a partnership for U.S. federal and most applicable state and local income tax purposes and generally does not pay income taxes in most jurisdictions. Instead, any taxable income or loss generated by WUP is passed through to and included in the taxable income or loss of its members, including Wheels Up. We are also subject to income taxes in the various foreign jurisdictions in which we operate.
We recorded income tax expense of $0.2 million for the three months ended March 31, 2023, and $0 for the three months ended March 31, 2022. The effective tax rate was (0.2) % for the three months ended March 31, 2023, and 0% for the three months ended March 31, 2022. Our effective tax rate for the three months ended March 31, 2023 differs from the federal statutory rate of 21% primarily due to a full valuation allowance against the majority of our net deferred tax assets where it is more likely than not that the deferred tax assets will not be realized and geographical mix of our earnings.
We currently expect the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested. Accordingly, the Company has not provided for the tax effect, if any, of limited outside basis differences of its foreign subsidiaries. If these foreign earnings are repatriated to the U.S., or if the Company determines that such earnings are repatriated to the U.S., or if the Company determines that such earnings will be remitted in a future period, additional tax provisions may be required.
We evaluate the realizability of our deferred tax assets on a quarterly basis and establish valuation allowances when it is more likely than not that all or a portion of the deferred tax assets may not be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, and tax-planning strategies. As of March 31, 2023, we concluded, based on the weight of all available positive and negative evidence, that it is more likely than not that the majority of U.S. deferred tax assets will not be realized. Accordingly, a valuation allowance has been established on the majority of our net deferred tax assets in the U.S.
Additionally, the Company is subject to the income tax effects associated with the Global Intangible Low-Taxed Income (“GILTI”) provisions and treats the tax effects of GILTI as a current period expense in the period incurred.
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act (“IRA Act”), which is effective January 1, 2023 and contains provisions implementing a 15% minimum corporate income tax and a 1% excise tax on stock repurchases. While we are continuing to evaluate the impact of the IRA Act, at this time, we do not believe it will have a material impact on our consolidated financial statements.
17. NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share data):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
| Numerator: | | | | | | | |
| Net loss attributable to Wheels Up Experience Inc. - basic and diluted | $ | (100,866) | | | $ | (88,653) | | | | | |
| Denominator: | | | | | | | |
| Weighted-average shares of Class A common stock outstanding - basic and diluted | 253,345,272 | | | 244,609,635 | | | | | |
| Basic and diluted net loss per share of Class A common stock | $ | (0.40) | | | $ | (0.36) | | | | | |
There were no dividends declared or paid during each of the three months ended March 31, 2023 or 2022.
Basic and diluted net loss per share were computed using the two-class method. Shares of unvested restricted stock are considered participating securities, because these awards contain a non-forfeitable right to participate equally in any dividends prior to forfeiture of the restricted stock, if any, irrespective of whether the awards ultimately vest. All issued and outstanding shares of restricted stock are included in the weighted-average shares of Class A common stock outstanding.
WUP profits interests held by other members of MIP LLC are not subject to the net loss per share calculation until such time the vested WUP profits interests are actually exchanged for shares of Class A common stock.
The following securities were not included in the computation of diluted shares outstanding, because the effect would be anti-dilutive, and issuance of such shares is contingent upon the satisfaction of certain conditions which were not satisfied by the end of the period:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
| Warrants | 12,521,494 | | | 12,521,494 | | | | | |
| Earnout Shares | 9,000,000 | | | 9,000,000 | | | | | |
RSUs(1) | 27,852,662 | | | 15,633,060 | | | | | |
| Stock options | 13,665,147 | | | 16,193,621 | | | | | |
| Total anti-dilutive securities | 63,039,303 | | | 53,348,175 | | | | | |
(1) Includes RSUs, PSUs and CEO Market-Based RSUs outstanding as of March 31, 2023.