Surf Air Mobility Third Quarter 2026 Earnings Call - SURF AIR MOBILITY INC

Explicit Guidance:

• Q4 2026 Revenue: Expected range of $36.4 million to $46.4 million.
• Q4 2026 Adjusted EBITDA: Expected loss range of $2.4 million to $5.4 million.
• Full Year 2026 Revenue: Reaffirmed guidance of $128 million to $138 million.
• Full Year 2026 Adjusted EBITDA: Modified (lowered) loss guidance to $32 million to $35 million due to higher fuel prices and extended software implementation timelines.
• FY2027 Outlook: No specific financial guidance provided for 2027; management expects 2027 to be the first year of "meaningful revenue" from SurfOS, with full-year guidance to be announced "in due course."
• Margins: No explicit gross margin targets or ranges provided for 2027 or beyond, though Jason Secor notes software margins will be "high double-digit."

Business-Segment Outlook:

• SurfOS (Software): Priority is commercial expansion; 2027 expected to see adoption "skyrocket" with revenue growth accelerating as 5 signed operators are onboarded. Pipeline for enterprise deals valued at "tens of millions of dollars" in annual revenue, with active negotiations with industry leaders. Anticipated expansion into new use cases (maintenance, predictive planning, AOG recovery) and new verticals including drones and next-generation aircraft.
• Surf on Demand: Priority to grow revenue and expand margins. Expected to continue driving revenue growth and margin improvement through increased flight volume (departures up 86% YoY) and mix shift to larger aircraft/longer trips.
• Airline: Priority to expand profitability across Hawaii and mainland networks while finishing digitization initiatives with SurfOS. Expected to maintain improved adjusted EBITDA margins despite fuel price headwinds.
• Contract Awards: Secured a four-year, $19.4 million Essential Air Service (EAS) contract to serve Lanai, Hawaii, extending through August 2030 (double the previous term).
• Revenue Mix: Surf on Demand revenue ($19M) has exceeded scheduled service revenue ($17.5M), signaling traction in the platform strategy.

Market and Competitive Outlook:

• Supply Dynamics: Seven preferred operating partners secured, providing preferential rates and exclusive aircraft access, which differentiates inventory and supports margin expansion.
• Pricing/Volume: Revenue growth driven by both volume (record 1,400+ departures) and pricing (average revenue per departure up 17% YoY).
• Competitive Advantage: Leverages existing operational data to validate software credibility for external customers; Palantir partnership acts as a "force multiplier" for scaling engineering and go-to-market.
• Market Expansion: Active pursuit of both small/mid-sized operators (quick sales cycle) and large enterprises (multi-year, multi-million dollar contracts) to build a full marketplace ecosystem.

Macro / Industry Outlook:

• Fuel Costs: Fuel prices increased ~37% YoY, but operational efficiency measures limited the actual fuel cost increase to ~9% YoY. Management notes higher fuel costs contributed to the downward revision of FY2026 EBITDA guidance.
• Regulatory/Infrastructure: FAA authorization received for OperatorOS as an airline system of record; participation in FAA Center for Advanced Aviation Technologies Consortium and Smart Airspace Program to facilitate next-gen aircraft integration.
• Climate/Operations: System demonstrated resilience against two hurricanes in Q3 with a controllable completion factor of 98% and on-time performance improvements.
• Next-Gen Aircraft: Completed successful demonstration flights with Beta Technologies' Alia electric aircraft across four islands, validating potential for Advanced Air Mobility (AAM) routes.

Strategic Initiatives:

• Product Launches: Commercial launch of OperatorOS (September 2026); initial deployment of Enterprise Broker OS with Wheels Up ($12M+ contract); expansion of "Powered by Surf on Demand."
• Leadership Changes: Appointed Barrett Brown (ex-Palantir) as President of SurfOS and Jason Secor as CFO to drive scaling and financial discipline.
• Technology Stack: Utilizing Palantir's infrastructure to support scalable deployment for small operators to large enterprises; developing additional AI-enabled modules for OperatorOS and BrokerOS.
• Geographic Expansion: Continued expansion in Hawaii serving 9 airports and 12 routes; relaunch of Kona-Maui service.
• Capital Allocation: Continued investment in high-margin SurfOS and high-growth Surf on Demand; focus on narrowing EBITDA loss and improving free cash flow conversion.
• Debt Management: Completed $21.6 million asset-backed loan facility in Q3 to strengthen balance sheet.

Risks and Headwinds to Outlook:

• EBITDA Variance: FY2026 EBITDA loss guidance was lowered due to higher-than-expected fuel prices and longer-than-anticipated enterprise software implementation periods.
• Implementation Delays: Enterprise software contracts face scope creep and complex integration requirements ("uncovering more things to do") that can delay revenue recognition compared to smaller operator sales.
• Macro Volatility: Exposure to fuel price fluctuations remains a headwind despite efficiency gains.
• Guidance Uncertainty: Specific financial guidance for 2027 is not yet provided; management cites the need for further visibility before setting breakeven targets.

Management Tone on the Future:

• Confidence: High confidence in the transformation plan, citing record Q3 revenue and EBITDA results as evidence of execution capability.
• Progress Narrative: Emphasis on moving from "airline-centric" to "technology-powered platform"; viewing early traction as a precursor to "durable software business."
• Tone on Guidance: Cautiously optimistic regarding 2027; frames the year as the beginning of "meaningful" software revenue, though specific targets are withheld pending further development.
• Strategic Focus: Clear prioritization of commercializing SurfOS and scaling Surf on Demand as the primary drivers of long-term shareholder value.

Miscellaneous:

• Revenue Recognition Model: SurfOS revenue model is transaction-based (percentage of revenue on every trip managed), with no separate platform fee, meaning revenue scales directly with customer volume.
• Q&A Context: Management declined to provide specific gross margin targets for the full business in the short term, deferring detailed 2027 metrics to future guidance cycles.