Surf Air Mobility Inc.

Thank you for standing by my name is Kate and I will be your conference operator today at this time, I would like to welcome everyone to serve air mobility second quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise after the speaker's remarks, or there will be a question and answer session. If you would like to ask a question during this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Sam Levinson. Please go ahead.

Thank you, Operator. Welcome to Surfing Mobility's second quarter 2025 earnings call. I'm joined today by Deanna White, Chief Executive Officer and Chief Operating Officer, and Oliver Reeves, Chief Financial Officer. Our earnings release can be found on the SEC EDGAR website and on our SURF Air Mobility investor relations page at investors.surfair.com. During this 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, we anticipate, or other similar statements. These statements are subject to risks and uncertainties, and our actual results could differ materially from the views expressed today. Some of these risks have been set forth in our earnings release and in our periodic reports filed with the SEC. During today's call, we will present both GAAP and non-GAAP measures. Additional disclosures regarding non-GAAP measures, including a reconciliation of GAAP to non-GAAP measures, are included in the earnings release we issued earlier today, posted on the Surf Air Mobility Investor Relations website, and in our findings with the SEC. I will now turn the call over to Surf Air Mobility CEO, Deanna White. Deanna?

Thank you, Sam, and thank you to everyone who has joined our call today. I am extremely pleased to update our shareholders on the exceptional progress that the Surf Air Mobility team has achieved to completely transform our company. As the financial and operational results of the second quarter demonstrate, we are making phenomenal progress. These achievements for the quarter and year to date are the outcome of a deliberate and focused plan to strategically rebuild surf air mobility. The result will be a company leading the regional air mobility market, built for speed, flexibility, and software-first performance. Here are some highlights of the achievements we have made toward our transformation. Beginning with our airline operation, in the past six months, we have substantially augmented our leadership team. moved our Systems Operations Center to the Aviation Hub of Dallas, hired amazing talent throughout the organization, implemented new processes, benchmarks, and standards powered by technology, and successfully aligned our organization around focused execution. These efforts are paying off in operational, commercial, and financial ways. We substantially improved all our key operating performance metrics, including on-time departure, on-time arrival, and controllable completion factor by double-digit percentages as compared with the prior year. We achieved profitability in our airline operations for the second quarter, keeping us on track toward our goal of profitability in our airline operations for the full year. We signed an interline agreement with a fifth major carrier, Japan Airlines, which can provide significant passenger flow into our Hawaiian route network. And we renewed an essential air service contract for Kalaupapa Hawaii during the quarter and for Waimea Hawaii in July, which represent a combined $14 million total contract value spanning four years. Turning to our on-demand business, in the first half of 2025, we have recalibrated this business through a relaunch of our brand and product portfolio. We are running this business utilizing our broker OS software platform. Our hyper focus on product profitability has led to the introduction of an industry standard jet card and a shift to a larger cabin sales strategy. To improve the unit economics of our offering, we signed volume purchase agreements with two operators, each beta users of the Surf OS software platform. These efforts have resulted in improvements in flight margins and positive margins for the on-demand business in the month of June. The success of our brand and product relaunch has resulted in July being our highest sales month since the inception of this business. Lastly, our path to commercialization of the Surf OS software platform is advancing as planned. We are building Surf OS powered by Palantir to be the backbone of a smarter and more modern regional air mobility system. Palantir is more than just powering our software. They are our largest shareholder. Our software platform isn't a thesis. It's already in motion in our business and with beta users who have signed on to evaluate the system. Real-world stakeholders like ourselves are actively engaged in shaping the platform's core modules and are providing direct operational feedback. Many aspects of the platform are driving the commercial and operational performance of our air operations and on-demand businesses. SurfOS has replaced spreadsheets and PDFs with a fully integrated aviation stack powered by live flight data and real-time decision-making. Some features of BrokerOS recently launched include a sales quote lead form and mobile app which enables charter operators to accelerate boat creation and improve conversion, integrations to increase charter supply and improve accuracy of pricing and aircraft availability, and consolidated charter supply sourcing to enable personalized offerings and provide intelligent charter aircraft recommendations. Some features of Operator OS we have introduced include a flight and cruise scheduling tool developed with Palantir to help optimize flight operations, and fully integrated flight docs to help streamline our maintenance processes. We have completed a parallel test of the Operator OS flight and cruise scheduling tool in the eastern region of our network, which was reviewed by the FAA. We are in the process of rolling this tool out across our entire network. This initiative will be completed by the end of the year. The company and Palantir entered into a five-year software license agreement as an expansion and enhancement of the overall relationship between the two companies. The company will be Palantir's exclusive partner with respect to the configuration and sale of software to Part 135 operators and charter brokers. The company will have the ability to sub-license certain of its rights under the agreement to third-party clients. Lastly, the agreement contemplates the company and Palantir teaming to bid on software development projects for Part 135 operators and brokers, aircraft manufacturers, and the FAA. Our achievements demonstrate improvements across all areas of the business. We set out to transform our company, and we are winning. The culmination of all these achievements led us to outperform our financial guidance for the second quarter. Second quarter revenue of $27.4 million exceeded the company's guidance of $23.5 to $26.5 million and rose 17% sequentially versus the first quarter, with scheduled service revenue rising 20% and on-demand revenue rising 5%. The increase in scheduled service revenue is directly correlated to improvement in our controllable completion factor from 82% in the first quarter to 95% in the second quarter. On-demand revenue benefited from our increased focus on profitable bookings. Adjusted EBITDA also exceeded our expectations. Our adjusted EBITDA loss for Q2 was $9.5 million. outperforming our guidance of a loss of 10 to 13 million. The loss improved by 4.8 million sequentially as a result of the improved performance in both our scheduled service and on-demand businesses. Another significant achievement during the second quarter was raising approximately 45 million in additional capital. This infusion of capital has helped to accelerate the pace of positive change in our operations and in our organization. We are witnessing warp speed achievements delivered by a new management team enabled with new capital. Surfer Mobility is more than just an airline. We are a technology-led organization that will transform regional air mobility. Our SurferOS platform will empower the regional air mobility market to capture efficiencies and growth through network effects. We are positioned at the forefront of the fast-growing regional air mobility market. providing exclusive access to a leading software platform powered by Palantir. In 2025, we are optimizing our operations and setting ourselves up for growth. In 2026, we will expand our scheduled service network with new Tier 1 routes and aircraft from Textron Aviation. We are already hard at work on detailed launch plans for the routes we intend to unveil next year. We are scheduled for delivery of two new Cessna Grand Caravan aircraft in each of the first and second quarters of 2026, and we are pursuing future deposits on deliveries for the second half of 2026. We recently introduced three flagship products on our ServOS software platform, BrokerOS, OperatorOS, and OwnerOS. We have secured LOI agreements with six clients to purchase these products ahead of the commercial launch. These LOIs illustrate expanding interest in the SurfOS platform and a clear step toward commercial rollout in 2026. As mentioned in our first quarter earnings release, the company is actively pursuing the creation of one or more ventures or partnerships with key vendors to separately capitalize the company's electrification efforts. We continue to work with third parties in the electrification space. We have a bilateral agreement with Electra, an advanced aerospace company, building a hybrid electric ultra-short aircraft to bring their EL-9 nine-passenger aircraft to market and incorporate SURF-OS into joint systems. We participated with Electra last month at Virginia Tech during the first commercial flight demonstration of their ultra-short takeoff and landing EL-2 prototype aircraft. Surfer Mobility previously secured preferred delivery positions for 90 electric ultra-short aircraft. Surfer Mobility is positioned at the intersection of numerous growth sectors across air mobility, technology, software, electrification, and AI. We have unique and exclusive relationships with Palantir and Textron Aviation, We have years of experience flying millions of passengers millions of miles. We have a leadership team steeped in aviation technology and software experience. We are uniquely qualified to win, and we have the right team to do it. I have never been as excited about the company's opportunities as I am today. With that, let me now turn the call over to Oliver to cover our Q2 results, our capital raise, and our outlook for the balance of this year.

Oliver? Thank you, Diana. In my remarks today, I will discuss the results of the second quarter and discuss our outlook for the third quarter and four-year. But first, let me touch upon the successful capital raises we achieved during the second quarter, which have strengthened our balance sheet and enhanced our ability to execute our strategy. During the second quarter, the company raised $44.7 million in equity capital through a combination of registered direct offerings, private placements, and draws under our share subscription facility. In March, we announced a $5 million registered direct offering of common stock. That transaction closed on April 1st, the first day of the second quarter. During the month of May, we sold $2 million of common stock in private placements, including a private placement to one of our co-founders, who purchased $1 million over the company's shares. In June, we closed a second successful registered direct offering of common stock with gross proceeds of $27 million, and across the quarter, we drew $10.7 million from our share subscription facility. The strong financial results we are reporting demonstrates the return on investments for all of the capital invested in our operations since November when we closed on our $50 million term loan with Comvest. In July, $29.9 million of principal of a convertible note inclusive of then accrued interest was converted into 5.9 million shares of the company's common stock, significantly delivering our balance sheet. The company will benefit from annualized interest savings of a minimum of $2.9 million, assuming the floor interest rate of 9.75% per year. As a result of the capital raises and conversions, the company's common shares outstanding as of August 8, 2025 is approximately 43 million shares. As discussed in our earnings release, revenue and adjusted EBITDA for the quarter exceeded our guidance. Second quarter revenue of $27.4 million exceeded our guidance range of $23.5 to $26.5 million and rose 17% sequentially over the first quarter. More specifically, Scheduled service revenue increased 20% in Q2 versus Q1, driven by improvements in our controllable completion factor from 82% to 95%. This improvement in our controllable completion factor reflects the investments we have made to address our prior operational challenges, as well as our investments in leadership talent at all levels of our organization. On-demand revenue rose 5% in Q2 versus Q1, driven by an increase in the number of charter flights and the positive impact of our broker OS software on our on-demand business. Our adjusted EBITDA loss of $9.5 million in the second quarter exceeded our guidance of a loss of $10 million to $13 million. As compared with the first quarter, adjusted EBITDA improved by $4.8 million, driven by profitability in the airline operations. We posted significant improvements across our key operating metrics and airline operations. And in on-demand, we generated positive margins for the month of June. Now let me turn to a discussion of our outlook for the third quarter and full year. For the third quarter, we expect revenue to remain in line with the strong results of the second quarter and within a range of $27 to $28.5 million. we expect our adjusted EBITDA loss to remain in line with the improved results achieved in Q2 and within a range of $8.5 to $10 million. For the full year, we are reaffirming our guidance. To reiterate, we expect to achieve revenue in excess of $100 million and airline operations profitability defined as positive adjusted EBITDA. With that, let me turn the call back to Diana for some brief closing thoughts before we go to Q&A. Diana?

Thank you, Oliver. We are extremely pleased with the progress achieved by the Surfer Mobility team thus far this year. We are clearly at an inflection point in the trajectory of the company. We have a vastly improved capital structure. We have hired exceptional talent. We are laser focused on profitability, having exited unprofitable routes, invested in our fleet, raised operating performance across all metrics, and recalibrated our on-demand business. We have deployed new state-of-the-art software tools powered by Palantir. We are maximizing efficiencies using real-time performance data and driving smarter operations. We have created a culture of focus, rigor, and pride. We are transforming our airline company into a technology-enabled platform that will power the regional air mobility market. We are still in early innings, but have the right coaches, players, and skills to win. We are excited about the future, and we look forward to keeping you apprised of our progress. Thank you for your interest in Surfer Mobility. Operator, let's go to Q&A.

At this time, I would like to remind everyone, in order to ask a question, please press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Amit Dayal with HVWinRite. Your line is open.

Thank you. Good afternoon, everyone. Congrats on all the progress. Good to see those results coming through. With respect to the source OS product, guys, Can you talk a little bit more about sort of the go-to-market strategy? I know you are still in sort of early beta with customers, but how do you plan to sort of ramp this, and how much more work is left in terms of completing, you know, the software and the systems that you're bringing to the market?

Thanks, Ahmed, for the question. Oliver, the chief financial officer, can help answer that.

Hey, Amit, how are you doing? To answer your question, Amit, we are currently focusing on product development during the beta phase of the program. And we're really working with participants to make sure that we're finding real use cases for the product to make sure, again, that we're identifying real pain points for operators and brokers. Once we've finished that, we'll move to the monetization strategies in order to determine the pricing for SurfOS, which is something that we really want to spend some time on. We understand that our software leads to improved margins for our customers, and therefore it will most likely take some form of a take rate against deficiencies gained. Once we fully develop these parameters, we will provide a more detailed overview of the economics and the revenue ramp. But I leave you with the thought that we believe that this market is large and the opportunity is equally large. And it's predicated on the fact that we believe that regional air mobility will grow into a $75 billion to $115 billion market globally by 2035, with the US alone accounting for $15 billion to $22 billion.

Thank you for that, Oliver. And then adjacent to that, you know, I think that effort is tied to some of your efforts around electrification, et cetera. Any update on sort of how the certification process on that front is moving forward? And are you still on track to potentially bring some of those aircrafts to the market or complete certification maybe by 27, 28?

So soon Shahani has joined us. He is leading our technology initiatives. He's a co-founder and strategic committee. head on our board, so I'll turn it over to Susan.

Thank you, Diana. Hi, Amit. Thank you for the question. To answer your question, we are still on track for a 2027, late 2027 kind of timeframe for our electrification initiative. I think we also stated, you know, we're working with a number of potential strategic partners within the value chain within electrification, and

expect to announce you know as we have this is some of those solidified um some further um you know developments on accelerate up out to market okay and then just last one from me guys you know you're already showing improvements on various metrics with the airline operations how much more room for improvement is are you still sort of in the early stages of showing profitability you know, for this business, or are you sort of in the middle innings in terms of, you know, achieving optimization, et cetera, in terms of relative to sort of your targets?

So, Ahmed, I would call us in the middle innings. We've stabilized the operations, our maintenance planning, our flight planning, to now be able to produce consistent results. optimizing the number of the facets of the business, including the rollout of our operator OS application, our flight scheduling and crew scheduling application. It's not fully launched across our entire network. That will all be done by the end of the year. And so there is still more upside to the business and the profitability from those endeavors.

Thank you, Deanna. That's all I have.

Your next question comes from the line of Austin Muller with Canacro Genuity. Your line is open.

Hi, good afternoon, Deanna, Oliver, and Sudeen. Just my first question here, what percentage of revenues in the quarter were connected to essential air service, and how much was the jet card a factor in the revenue growth for on-demand service?

So Austin, just taking the first question about the EAS, it's about 46%, but essentially we think about it as being half of our scheduled service that's connected to EAS. And on the undermined, you're asking about the jet card. The jet card is something that we have sold. I understand that we, you know, in terms of the redemption, those are towards larger aircraft, and we're waiting for these to be redeemed over time. So they contributed little to the increase in on-demand that we have seen so far.

Okay. And then on SURFOS, I know you had said you expect to progress from beta to commercial launch in 2026. Could we think about that as more of a first half or second half item, And then do you expect to charge customers a subscription fee to access it, or will there be a percentage fee for like each airline seat booking?

So again, often as I was saying, I think that it will be rolled out sequentially. I think that you'll start seeing potential rollouts in the first half of the year, and it will build as we scale the number of customers. We intend to be successful with the rollout, so we want to make sure that there's proper implementation for the partners that we start with so that we gain some good momentum there. And then as it relates to the type of revenue, as I said earlier, we're in the beta phase at the moment, making sure that we have a product that is tailored to the operators and the brokers that are using it, solving real-world problems. Once that's accomplished, we're going to look at these monetization strategies I think that we already understand the value that we create, which are essentially efficiencies and increases in profitability. So it's likely that we will look at something that is a take rate against the efficiency that we create. But as you know, there are other forms of monetization that this can take, and we're not at this stage going to discount any of those. These are conversations that are ongoing with the operators and brokers in the beta program. And as we sort of conclude that phase, we will have a much better idea. And obviously we'll update the market once that strategy is locked.

Okay, great. Thank you for the caller. I'll pass it back there.

Your next question comes from the line of David Sarnes with StoneGate Capital Partners. Your line is open.

Good evening. I appreciate you taking my questions. Just kind of wanted to start with maybe asking for a little more color on the Palantir agreement. That feels like a pretty big deal to me. But wanted to see if you had any further thoughts on, you know, kind of what this, what kind of opportunities this opens up for you all going forward.

I'll turn that question over to Susan.

Great. Hi, Dave. So, yeah, we're very excited about the Palantir Agreement, and it's an expansion of our relationship with Palantir. And there are a couple of key components here. It names us as Palantir's exclusive partner with respect to the configuration and sale of software to Part 135 operators and brokers. It also provides for us to have the right to sub-license some of our rights to our client third parties. And it also contemplates Palantir and us teaming up in the future and teaming agreements to bid on larger software development projects for kind of larger players in the space, manufacturers, government, et cetera.

That's very helpful. Thank you. And then just one more. It sounds like the Controllable Completion Act was a real driver for the growth scene this quarter. Is there anything more you can tell us about that? Maybe internal targets on where you'd like that to be at and stay? Any key drivers to keep them this high? Just anything we should think about there from an operations standpoint.

Sure. Our completion factor is running around 95, 96 right now, and it is consistently performing that way, and we have stabilized that, which is great.

We've done that by hiring a new leadership team, more focus on benchmarks and processes and procedures to achieve that. We also invested a lot in the earlier part of this year on maintenance and our aircraft that really helps us, It allows us to have our aircraft up and flying every day.

We intend to keep that stable going forward and all of those consistently running.

But I do believe that there's upside for us to be able to optimize how we do that. And when you optimize that, you can drive more profitability from that.

That's perfect. I'll take the rest offline. Thank you.

I will turn the call back over to Deanna White, CEO, for closing remarks.

Thank you, everybody. Really appreciate all your interest in our company and hope to be continually providing you great news on the trajectory of our transformation plan that we have going on here at Surf Air Mobility and update you in the future on our software and technology initiatives.

Ladies and gentlemen, that concludes today's call. Thank you for joining Humano-Disconnect.