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

Hello, my name is Elodie and I will be your conference operator today. At this time, I would like to welcome everyone to the Surf Air Mobility 3rd Quarter 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would liketo ask a question during this time simply press star followed by the number 1 on your telephone keypad. If you'd like to withdraw your question, press star 1 again. thank you i will now pass the call over to hudson andrews please go ahead thank you operator and good afternoon everyone welcome to surf air mobility's third quarter 2026 earnings call i am joined today by deanna white our chief executive officer liam fayed our co-founder barrett brown president of surf os joshua lowton president of serf on demand louis st seer president of airline and jason secor our chief financial officer our earnings release can be found on the sec edgar website and on our investor relations page at investors.surfair.com before we begin i want to remind everyone that during today's call we will discuss our outlook and expectations for future performance these forward-looking statements may be preceded by words such as we expect we believe or we anticipate these statements are subject to risks and uncertainties and actual results could differ materially from the views expressed today some of these risks are set forth in our earnings release and in our periodic reports filed with the SEC. We will also present both GAAP and non-GAAP financial measures. Additional disclosures regarding non-GAP measures, including a reconciliation of GAAP to non-gap, are included in our earnings release posted on our investor relations website and in our SEC filings. I'll now turn the call over to Deanna White, CEO of Surf Air Mobility. Good afternoon, everyone. Surf Air mobility is moving from an airline-centric company to a technology powered platform for air mobility. Our company is building the infrastructure to connect and optimize the broader aviation ecosystem. Our airline and charter businesses generate revenue in real operating data. SurfOS turns that data into better economic decisions. Better economics then bring more operators, brokers, and customers onto the platform. We believe the company best positioned to lead aviation's next chapter is one that already operates aircraft, understands the regulatory environment, has existing demand, and uses software to build on real operations. Surfer Mobility has all of this. When we introduced our four-phase transformation plan, we made specific commitments for each phase and the timeline to deliver them. We are now in the expansion phase, which focuses on commercializing SurfOS, scaling our tech-enabled Surf on-demand business, and expanding airline profitability. Our results for the third quarter of 2026 show continued progress on each, demonstrating our ability to execute against the plan. The third quarter of 2026 was the highest quarterly revenue and best adjusted EBITDA in Surf Air Mobility's history. Revenue was $36.5 million within our guidance range, up 25% from the third quarter 2025, and up 24% from the second quarter of 2026. Our adjusted EBITDA loss of $6.7 million was within our guidance range of $7 million to $4 million as we continue to execute on our path to profitability. We set three priorities for the second half of 20 26. For our Surf OS business, sign new customers and commercialize OperatorOS. For our surf on-demand business, grow revenue and expand margin. For our scheduled airline business, continued focused on efficiency and profitability through the use of SurfOS. We made strong progress on all three. SurfOS launched OperatorS commercially and has signed five operators, three within the quarter and two since quarter end. Surf on Demand quarterly revenue more than doubled year-over-year to a record $19 million. Our airline generated positive adjusted EBITDA of $1.2 million, reflecting the benefits of SurfOS. And we secured a four-year $19.4 million contract to serve Lanai in Hawaii through 2030. We also added two experienced leaders to the management team. Barrett Brown, formerly head of Asia at Palantir, as president of SurfOS, and Jason Secor, as chief financial officer. Each of our business leaders will now take you through their results and priorities, starting with our co-founder, Liam Fayyad, to discuss SurfOS. Thanks, Deanna. We started building SurfOS because private aviation and air mobility lacked an integrated operating system, a need that will only increase as next-generation aircraft come to market. Over the last two years, we've been developing SurfOS inside our airline and charter business. Using our teams as R&D and solving our own problems first. The impact from our software is already tangible. Lower costs, better reliability, and higher productivity across our businesses. We now have what we need to grow SurfOS quickly. The products are proven internally. It runs on scalable, modern infrastructure from Palantir, we have a robust and growing pipeline of prospective customers, and we have the right team in place today. Leading the team requires someone who has seen what success looks like many times before. When I met Barrett Brown, I knew he was the right person to take SurfOS into the next phase of growth. Barrett spent over 10 years at Palantyr, most recently as head of Asia, where he built the playbook for launching new markets. His rare combination of technical and commercial expertise makes him an ideal leader for building and deploying software quickly and growing our customer base. In his first month as president of SurfOS, Barrett has sharpened our go-to-market strategy and put us in an even stronger position for commercial expansion. I'm very glad to introduce you to him today. Barrett, over to you. Thank you, Liam. I joined SurfAir Mobility because SurfOS has what I look for in a software business at this stage. The product's work and real operations have already made a measurable difference in our own business, and we have a strong pipeline of customers with a real need for our solutions. It's my job now to take the work Liam and his team have started and scale it into a growing business. Here are the highlights from the third quarter of 2026. We launched OperatorOS commercially in September and have now signed a total of five operators to date. SurfOS will earn a percentage of revenue on every trip these operators manage through the software. We received FAA authorization for Operator OS as our airline system of record. This replaces paper with electronic signatures, records, and manuals, giving us more real-time data and better insight as we fully digitize our airline. We deployed the initial phase of Enterprise Broker OS with wheels up and expanded the implementation period to include additional scope. This is our first enterprise customer under a contract worth up to $12 million over the term. We grew BrokerOS adoption with Powered by Surf on Demand bringing new users onto the platform. Our Palantir partnership has become a force multiplier for our software business and has strengthened SurfOS in two important ways. The flexibility of Palantirs' infrastructure platform can support small charter operators to large enterprises while keeping each customer's data secure and under their control. In addition, Palantiri's engineering and go-to-market teams allow us to develop faster, onboard customers more efficiently, and shape larger enterprise contracts. We have four SurfOS priorities for the fourth quarter and into 2027. First, onboard our OperatorOS customers and sign more contracts from our operator network. Second, close enterprise software deals with large operators, brokerages, and or aircraft manufacturers. We believe our pipeline is worth tens of millions of dollars in annual revenue, and we are in active negotiations with several industry leaders. Third, release additional AI-enabled modules for Operator OS and Broker OS, and continue to accelerate our pace of development with Palantir. And fourth, extend SurfOS beyond our initial products. With a strong technology foundation in place, we will identify and deploy new use cases across the industry. We are still in the very early stages of commercialization, and my focus is turning our early traction into a durable software business. I will now pass it over to Joshua Loughton, our president of Surf on Demand. Thanks, Barrett. Surf on demand delivered the best quarter in its history. Revenue was 19 million, up 121% from the third quarter of 2025, and up 57% from the second quarter this year. This was our highest revenue quarter and our highest year-over-year revenue growth ever. Compared to last year, growth has accelerated every quarter, more than doubling the first nine months of 2026. Every on-demand trip we book sends more business to operators, and every operator relationship we strengthen through the platform gives our brokers and therefore our charter customers more aircraft inventory. As the platform grows both supply and demand benefit and our third quarter results reflect that. Revenue growth came from both increases in flight volume and price per trip in the third quarter. More demand resulted in our number of departures reaching a record high, over 1,400, which is up 86% year over year and up 20% compared to the second quarter this year. And we're growing share of wallet, with average revenue per departure increasing 17% year-over-year and 29% compared the second quarter. Our customers are flying larger aircraft and longer trips. As a result, we flew to nearly 30 international destinations this quarter. We said our priority for the second half of 2026 was to pair this revenue growth with margin improvement. That's exactly what we did. By increasing gross margin over four percentage points compared to the same period in the previous year, and increasing gross margin over 10 percentage points compared the second quarter of this year. Three key levers drove the improvement, and we expect each one to continue. First is aircraft supply we now have seven preferred operating partners these agreements go beyond standard wholesale pricing and they give us preferential aircraft rates better booking and cancellation terms and exclusive access to select aircraft that further differentiates our charter business and gives our customers better value and a better experience in return our partners get consistent demand second is the powered by surf on demand program which continues to grow and contribute to revenue and positive margin and third is the mix shift towards larger aircraft and longer trips that increases revenue per flight and expands margins our software underpins our record-breaking quarter with broker os our team is working more efficiently through streamlined sourcing and communication with both operators and customers the software has also enabled the launch of new revenue lines including our wholesale travel agent and cargo programs each new program uses SurferWest with shared insights and efficiencies across each one. I will now hand over to Louis Sincere, our President of Airline. Thanks, Josh. Last quarter, we told you the airline would be the bright spot for profitability this year. The airline is more profitable and more reliable than ever. Adjusted EBITDA for our airline has improved every quarter this year, and we expect it to improve further in the fourth quarter despite industry-wide fuel price increases. The airline's profitability is tied to SurfOS. Our software has given our teams better visibility and lets them make decisions faster and earlier. Year-to-date, here are the benefits to the airline. Direct operating cost per block hour is down 6%. Fuel burn per block power is down 9%. Pilot cost per block hour is down 9% and labor productivity is up 15%. Our airline also gives us the scale and the data to develop Surf OS in a live operation and what we've done digitizing our airline makes the software credible when we showcase Surf OS to external software customers. Hawaii continues to be a major focus for us. Our wide network is one of the clearest proof points anywhere in the world for advanced air mobility. Mokulili's revenue increased 9% from the same quarter last year and 3% from this second quarter this year. We now serve nine airports and 12 routes across the islands, and that includes our relaunch service between Kona and Maui. We also want a four-year essential air service contract to serve Lanai. It's worth $19.4 million in subsidies through August 2030, and that's double the term of the previous award. I also want to talk about reliability because this quarter put it to the test. Two hurricanes hit Hawaii during the third quarter. Even so, the operation held up exceptionally well. Our system-wide controllable completion factor rose two percentage points to 98%. On-time arrivals were up four percentage points to 87%, and on-time departures were up four percentage points to 80%. I'm proud of our teams for the work that they've done. Which brings me to electric flight. This quarter, we completed our demonstration program with Beta Technologies, with support from Hawaiian Airlines. Beta's Alia aircraft flew 64 flights across four islands on the same routes we fly every day. We also took two steps with the FAA. We became the first part 135 passenger operator to join the FIA Center for Advanced Aviation Technologies Consortium, and we joined the FAS Smart Airspace Program. Looking ahead to the fourth quarter and into 2027, we have two priorities for the airline. First, keep growing profitability across our Hawaii and mainland networks. And second, finish our digitization initiatives with SurfOS. With that, I'll turn it over to Jason, our CFO, to talk through our financials. Thank you, Louie. I'm pleased to be with you for my first earnings call as Chief Financial Officer of Surf Air Mobility. By way of introduction, I've spent my career in aviation finance, most recently as CFO of Matternet, and before that in finance roles at AAR, one of the world's largest independent MRO providers and Republic Airways. For the third quarter of 2026, consolidated revenue was $36.5 million, within our guidance range of $35.5 million to $37.5 billion. Revenue increased 25% from the third quarter of 2025 and 24% from the second quarter this year. It was the highest quarterly revenue in the company's history. Surf-on-demand revenue of $19 million exceeded scheduled service revenue of $17.5 trillion, an important milestone that we believe shows our platform strategies gaining traction. Scheduled service revenue declined 15% year-over-year, primarily reflecting our exit from certain EAS routes, partially offset by productivity improvements. Adjusted EBITDA loss was $6.7 million, within our guidance range of $7 million to $4 million, and a 36% improvement from the second quarter of 2026. Net loss was $20.4 million compared to $27.2 million in the third quarter of 2025, a 25% improvement driven by a lower operating loss and lower fair value charges and interest expense. Two drivers stood out in our adjusted EBITDA improvement. First is our airline operations expanding their positive adjusted EBITA margins. And second is a significant growth in profitable revenue from our surf on-demand business. On the balance sheet, the second $14 million tranche of our asset-backed loan funded in August, completing the $21.6 million facility, and we ended the quarter with $10.7 million in cash. Turning to guidance, for the fourth quarter, we expect a revenue of $36.4 million to $46.4 billion and an adjusted EBITDA loss of $5.4 to $2.4. For the full year of 2026, we are reaffirming our guidance of revenue of $128 million to 138 million, and are modifying our adjusted EBITTA loss to $35 million to $32 million due to higher fuel prices and extended implementation periods for SurfOS. Looking ahead, our priority is to maximize long-term shareholder value through disciplined capital allocation, investing in our most profitable and fastest-growing businesses. Today, that means continued investment in SurfOS, where we see the greatest long- term margin potential, and Surf on Demand, where revenue more than doubled year over year. Alongside that, we are focused on continuing to narrow our adjusted EBITDA loss, improving free cash flow conversion and funding growth from a stronger balance sheet. With that, I'll hand it back to Deanna. Thank you, Jason. When we introduced our transformation plan, we told investors what we would deliver and when, and we continue to successfully deliver against that plan. This quarter, we posted the highest revenue and our best adjusted EBITDA result as a public company. Operator OS is now a commercial product with five signed operators. Our surf on-demand revenue more than doubled, and our airline business is generating positive adjusted EBITDA. We also strengthened our team with leaders who have scaled businesses like ours before. Each quarter moves us further along our path to profitability, and our third quarter results are further evidence of that progress. For the rest of the year, our focus remains the same. commercialize surf os grow revenue and improve profitability thank you for your continued interest in surf air mobility operator you may now open the line for questions we will now begin the question and answer session for analysts with a second q a session for retail questions to follow for this session we ask that analysts please limit themselves to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If your question is not answered, you are muted locally. Please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question is from the line of Brian Kingslinger with Aliens Global Partners. Please go ahead. Great. Thanks so much. Nice to see all the progress. Can you highlight if there's any revenue right now coming from the SurfOS product in the third quarter? And then with the five operators added, how do you see these contracts structured? Are they paying a platform fee and transactions? And how we should think about them ramping over the next few quarters in terms of revenue contribution? Thanks, Brian, for your question. I really appreciate that. I'm going to turn it over to Brian to, I'm sorry, Brian to Barrett Brown to provide the answer. Hi, thanks for the question. So the initial revenue from SERPOS was not material in the quarter. We launched OperatorOS commercially in September and wheels up in its initial deployment phase. To your point about basically how does Operator OS make money, we'll earn a percentage of revenue on every trip an operator manages and distributes through the platform, and so our revenue grows as the customer's businesses grow. This is just for the core feature set, and beyond this, we will continue to develop and sell more advanced modules as well. So it's all transactions. There's no platform fee, for example. So, no, I mean, it depends on how you look at it. It's the same thing, right? So, yes, there is a platform fee, and it's based on the transaction volume, right. Okay. And then can you speak to, Averit, the pipeline, both in terms of some of these small operators as well as enterprises, if you could help size and where are you in negotiations? Are they advanced? Are they going to take quite a while? Maybe talk about the next leg of progress after the first five. Sure. So for the operator OS customers, especially the smaller ones, but even medium-sized ones, the cycle is much quicker, right? And we have this existing network of operators that's part of our moat, so to speak, right. And so they all need this. It's the most amazing product markets that I've ever seen. It takes like a couple of meetings essentially, right, So for the operators, for Operator OS, it's very quick. We'll give guidance in due course on the scale and the number that we're going to get on the platform over a time period, but it's faster. Enterprise software is always a much longer deal cycle, but they started long before I got here. So we are in advanced discussions with the key players in the industry and shepherding them towards close. Great. Last question I have is on the gross margin. What is the target as this ramps for the overall business? And is it only a function of surplus ramping? Is it stronger revenue from the airline? Just kind of take us through how you get to your target in the next four to five quarters and what that might look like. Hey, Brian, this is Jason, C-Core CFO, and thanks for the question. And are you specifically SurfOS, or are you asking about the entire business? Well, I'm talking about the whole business. We were about 8%. Trying to think about how, you know, before you joined, I thought we were thinking about somewhere in the 20s next year, and I'm curious how you get there. You know, what are the puts and takes to get you to something like a 20% plus gross margin? Yeah. Well, we've not provided guidance yet for 2027, but I can provide a little bit of context in terms of how we can get there. Barrett just shared a little about SurfOS. I mean, that's a business that's going to have software-like gross margins, so you can think about high double-digit margins, right? So, that by itself will obviously increase the overall level, right. You then look at the other two businesses we've now guided. We've not guided two, except we've stated that, right, the airline business is positive for this quarter, right And as well as Josh's business, right, has also improved. So we've not guided yet towards gross margins, Brian. We'll provide that a little bit later, but for 2027. But hopefully I've addressed your question there. Okay, thanks. Your next question is from Dave Storms with Stonegate Capital Partners. Please go ahead. Hey, good afternoon. This is Maximus asking questions for Dave. I wanted to start off, if you guys could walk us through how the higher fuel costs and longer implementations factor into the updated EBITDA outlook, and how you're thinking about those pressures heading into 2027. Thank you. Hey, Dave, I'll take the fuel question, right? Fuel is up this quarter. We've seen an increase year over year of about 37% if you look at price per gallon. With that said, we've seen – we've been able to utilize lower burn in our operation, so ultimately we've only seen about a 9 percent increase year-over-year in fuel. And just a follow-up, what would you describe – You also asked – Correct. Yeah, the second part of my question. Thank you. Repeat the second question, Dave. Can you repeat the second part, Dave? Yeah. I guess, what would you – how would you describe the mix of the updated EBITDA outlook, when also with implementations as well and the higher fuel cost? For Q4? We've only provided guidance for Q4. Correct. Yeah. So, we've not provided – yeah, we're not providing guidance for 2027. reaffirmed our revenue guidance for for the full year we slightly lowered our ebit of guidance for uh the full full year as well as we mentioned due to two things right the higher fuel costs as well the delay from that and surf os implementation okay thank you and just one more question what specifically has been taken longer with the surface implementations and if these are mainly customer specific integration issues or any other challenges that you guys that you guys can touch on. So it's, this is Barrett again. It's just like every enterprise buffer implementation at any scale, you think, you know, everybody thinks they know what they want. And then once you get in there and uncover everything, you find more things to do. And it's a great problem to have. I think we are learning that we will expect that every time, frankly, in my experience. And when the customer has more scope and more things they want you to do, you wanna do it. That's fair. Thank you so much for taking my question. Your next question is from Austin Moeller with Panacord Unity. Please go ahead. Hi, good afternoon. So just my first question here, can you detail some of the recent productivity improvements that have been achieved with SurfOS within the airline operations unit? Hi, this is Louie. Thanks for the question. We've been basically kind of on this path all year to transform the airline. We basically improved our reserve utilization with pilots. We've got better visibility on all our contracts and our fuel utilization. We have our flight management software is really where we integrate everything with maintenance and with our daily operations and so that visibility what it does is really allows us to see day of flight. And, you know, and forward 48 hours 72 hours into the operation and really make the critical decisions to make sure that we're on time. And by being on time, you time, you know, we avoid a lot of costs associated, you know, with an airline that's just not performing. And so we've got a lot of benefits that way. And we're also basically from a maintenance planning perspective, and on the maintenance side, where we basically are doing a better job forecasting our return to service aircraft, that also improves our reliability. So when you start packaging everything together, we've really seen some, you know, some nice momentum throughout the year. okay and if we think about broker os um should we think about the contract size being similar to the wheels up agreement which was 12 million over three years with the operators or do you think most of the contracts would be more single-digit millions over a multi-year period so i think the there's there's two paths here right because we've got you've got smaller operators that are going to be using limited set of features and priced accordingly right and then you have the actual full enterprise agreements that can extend to the size of any full enterprise implementation right and so the idea is to go after go down both paths simultaneously and so for you asked about broker os in particular um you know it can be relative to the size of the operation, right? And then full enterprise would be additional use cases beyond broker OS as well. I would assume you'd want to prioritize the full enterprise, though, just given the larger contract dollars and probably the associated margin uplift. Well, are you asking if I like money? Yes. But remember, the thing is, it's a platform here, right? And so you need the supply side, you need the full marketplace, right? And so we need to be doing both in parallel to build up both sides of the market. Awesome. I'll pass it back there. Thank you. We have reached the end of the analyst Q&A session. I will now turn the call back to Deanna White for the retail questions. Please go ahead. Yes, thank you. We got a number of questions from our state media application. Really appreciate all our retail investors, their interest in our company and their continued support. We look at these and take the top questions. And so the first one is going to be for Barrett. It's with five operatorized contracts signed and wheels up deployment underway, when does management expect these agreements to begin generating meaningful revenue? Additionally, can management provide any expectations for surf os revenue growth in 2027 as commercial isolation continues right so as we you know we will announce the full year 2027 guidance in due course uh and at that time we can provide more detail on the expected revenue growth of surf os broadly um we're in the early stages of commercialization as i said on the in the call um we have but we have a very healthy pipeline of both smbs and enterprise prospects and we expect 2027 to be our first year of meaningful revenue as adoption of our core products uh hopefully skyrocket certainly grows um as i said uh touched on before operator us is earning a percentage of revenue on the trips uh every trip that an operator manages um letting meaning that the revenue begins as soon as each operator is onboarded and starts running trips through it um so onboarding our five signed operators is our top priority for the fourth court my top priority for the fourth quarter and then as we said before it wheels up the initial phase of enterprise broker os is deployed under a contract worth over a little more a little more than 12 million over its turn thank you barrett the next question is more on surface strategy i'm going to give it to liam our co-founder is is there a chance surf os can expand to bigger airlines cargo airlines and near future to drones i am seeing a lot of potential for this kind of application for this product thanks diana yeah we we absolutely see opportunities beyond our current products you know extending surf os to new use cases across the industry is one of sort of core to surf os initiatives i think what we're seeing is as we deploy the core features across operators, flight management system. There's more to sell within the airline. You can start going into maintenance and predictive planning, AOG recovery. There are several others as we sell the products just inside a small operation. But also, as we're building the operating system for an airline, I think there's many other industries that need an operating system. It's built on top of Palantir, which is an infrastructure we can build at a really fast pace. And I think that it really creates an interesting product market fit within air mobility, within current air operators, with new next-gen aircraft, drones. I think there's a lot of the problems that we're solving of flying airplanes is common across in other industries. So I definitely, as we've developed the product pipeline, I think there's many other verticals where this software is relevant. So it's an exciting time on the product front. Thanks, Liam. The next question will be for Jason, our new CFO. What is management doing to increase the value of existing shareholders' investments while balancing the need for additional capital, debt reduction, and future business expansion? Thanks, Deanna. We're directing our capital to our most profitable and fastest-growing businesses. As I mentioned, SurfOS has the greatest long-term potential, and Surf on Demand, where revenue has more than doubled year over year. We're also strengthening our balance sheet. In the third quarter, we completed our $21.6 million asset-backed loan. Of course, we're continuing to narrow our adjusted EBITDA loss, which was the best in our history as a public company this quarter. Thank you, Jason. Next question, Jason, is also for you. What specific milestones must Surfer Mobility achieve over the next 12 months to reach sustainable profitability? and when does management realistically expect the company to become cash flow positive? Thanks again, Deanna. As you mentioned in your opening remarks, we've built a four-phase transformation plan to clear paths to profitability, and we're now in what we call the expansion phase. We're not giving a date for adjusted EBITDA or cash flow breakeven today, but here's what to watch out for in the next 12 months as we execute on the phase. First, commercializing SurfOS. I think that's been a theme of my comments today. over the next year we'll onboard our operator os customers sign more smb operators and close more multi-million dollar enterprise deals second we're going to continue scaling surf on demand revenue grew again 121 percent this quarter while margins expanded gross margin improved more than four points year over year and more than 10 points from the second quarter and then third and finally we're gonna continue to expand airline profitability the airline is already uh is is already adjusted EBITDA positive. It has improved every quarter this year and we expect it to improve again this next quarter. So putting this all together, our adjusted EBITD loss has narrowed each quarter this year by 36% from the second quarter to the third. And our fourth quarter guidance of $5.4 million to $2.4 million loss implies it narrows again. Cash flow breakeven will follow adjusted EBIT of breakevens since we're continuing to invest in SURF OS. We have enough visibility to give a specific target, we'll share it. Thanks, Jason. And that ends our retail question, say media section of this Arnie's call. I appreciate everyone who has joined us and taken the time and for your interest and your investment in Surf Air Mobility, our company. Thank you very much. This concludes today's call, thank you for attending and you may now disconnect.