Surf Air Mobility Inc. (SRFM) Earnings Call Transcript & Summary

Thank you. Good evening. My name is Dara, and I'll be your conference operator today for the Surf Air Mobility's Second Quarter 2026 Earnings Call. At this time, I'd like to welcome everyone to the earnings call. [Operator Instructions] I will now pass the call over to Hudson Andrews for opening remarks. Go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Surf Air Mobility's Second Quarter 2026 Earnings Call. I am joined today by Deanna White, our Chief Executive Officer; Shawn Pelsinger, our newly appointed Chairman of the Board; Liam Fayed, our Co-Founder; Louis Saint-Cyr, our President of Airline Operations; Joshua Lowton, our President of Surf On Demand; and Oliver Reeves, 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-GAAP measures, including a reconciliation of GAAP to non-GAAP, 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.

Good afternoon, everyone. The second quarter of 2026 was strong. Revenue came in at the high end of our guidance range at $29.5 million and our adjusted EBITDA loss was within our range at $10.5 million. In April, we announced an improvement to our full year 2026 adjusted EBITDA loss guidance of approximately 40% compared to what we had previously announced, while maintaining our revenue growth target of 20% to 30% over the prior year. To achieve this, we put specific cost controls and strategies in place across our businesses, and we believe these changes have resulted in permanent improvements. What makes me most confident about our results is the environment we deliver them in. Over the last several months, the aviation industry experienced one of the most volatile periods of fuel prices. In our case, we also managed through a month of unexpected heavy thunderstorms and flash flooding, uncommon in Hawaii, affecting our Mokulele operations. Achieving both our revenue and adjusted EBITDA targets under those conditions speaks to the durability of our operations and the technology we have built. Beyond the financial results, the second quarter produced a series of milestones. We won our first multi-year SurfOS enterprise contract. We doubled on-demand private charter revenue in the second quarter compared to the prior year period. We reduced our existing convertible note principal by 64% and lowered monthly cash amortization payments by up to 50%. We significantly expanded our partnership with Palantir, adding both engineering and business development resources to accelerate the commercialization of SurfOS. We partnered with BETA Technologies on landmark demonstration flights of electric aircraft in Hawaii, with support from Hawaiian Airlines. And we deployed our safety management system a year ahead of the FAA schedule. For the last 1.5 years, the first phases of our transformation plan focused on completing foundational work: building SurfOS, lowering our cost structure, rationalizing the route network, modernizing the fleet and restructuring our balance sheet. Though there will always be more to do, the work is now largely behind us. We believe the company is in a place for us to pursue revenue growth and profitability at the same time. This comes with a major shift in our strategic priorities as we now move into the expansion phase of our transformation plan, which runs now through 2027. Each of our leaders will take you through their second quarter results and key achievements and then explain in more detail their second half of 2026 priorities. Before that, I will turn it over to our newly appointed Chairman of the Board, Shawn Pelsinger.

Hi, all. For those who I haven't met, I'm Shawn Pelsinger. I've served on Surf Air Mobility's Board since October 2025, and last month, I was honored to be elected Chairman. Firstly, many thanks to Carl Albert for his leadership over the years and for his continued partnership as Chairman Emeritus. During my decade at Palantir, where I served as Global Head of Corporate Development, I've seen firsthand what the right software can do to accelerate an industry in transition. Air mobility is at that moment right now, and I believe Surf Air Mobility is perfectly positioned for the opportunity. Very few companies sit at the intersection of so many converging growth sectors: private aviation, AI-enabled software and electrification. As I said in my shareholder letter last week, our transformation plan was designed to get our house in order first, so we could then go after the big opportunity of creating a platform business that would capture value across the industry. The team has been successful in the first 2 phases of that plan. We've reduced debt significantly, improved profitability in our air mobility business, and secured our first multi-million dollar SurfOS software contract. Winning Wheels Up as our first enterprise software customer, worth up to $12 million over the contract term, is not a typical first deal. Early enterprise contracts are usually short-term and modest in value. Landing a multi-year, multi-million dollar contract with one of the largest, most recognized names in private aviation as our first customer tells us the product is working and the market is ready. We've barely scratched the surface. With that, I'll turn it over to Liam to talk about our SurfOS business.

Thanks, Shawn. In the second quarter, SurfOS achieved a major milestone. As Shawn mentioned, we announced Wheels Up as the launch customer for enterprise BrokerOS. It is an initial 2-year term plus an option for a third, and we expect to receive up to $12 million over that period. As we saw with our own business, BrokerOS will allow Wheels Up to replace multiple legacy software systems and improve their sales team's efficiency. Wheels Up is our launch customer for our first commercial product. We still have OperatorOS and OwnerOS to commercialize this year and continue to explore more ways to apply our SurfOS technology even more broadly. We have a current active enterprise pipeline of large operators, brokerages and aircraft manufacturers that we believe could be worth tens of millions of dollars annually in revenue. The second point to emphasize from the second quarter is our expanded partnership with Palantir that we announced in June. Following the success of the Wheels Up enterprise contract, we substantially increased the size of our engineering team to move even faster. In addition, Palantir added business development and commercial go-to-market resources with deep experience in aviation, transportation and logistics, who are directly involved in our enterprise sales process. Through our exclusive agreement, their team is in every enterprise conversation. And when we're in meetings with prospective customers, we bring the support, credibility and technology to close large deals. These commercial resources are what will turn our active pipeline into more signed agreements. We deployed SurfOS features at record pace. Crew reserve optimization, fuel tracking, AI charter price recommendations and AI charter supply sourcing all went live in the second quarter. The common theme across these features is that each is designed to find permanent efficiency gains inside our own organization that strengthen the product for external customers. We also had the honor of showcasing BrokerOS at Palantir's AIPCon in June, where we highlighted the intelligence features and AIP-powered tools embedded in our software. The second quarter proved that the software is needed, the market is ready and it's evolving quickly. The next phase for SurfOS is building on the early success and turning SurfOS into a high-growth, profitable business. Here is what we are focused on for the second half of this year. First, we're working to convert our enterprise pipeline of large operators, brokerages and aircraft manufacturers. Sales cycles for enterprise clients are typically longer and we are targeting at least one additional enterprise contract before year-end. Our pipeline is seeded by relationships we already have, including operators who fly for us, manufacturers we interface with on our aircraft, and brokers already transacting on our platform. This is yet another advantage of our having an operating business alongside our software. Second, we are leveraging Palantir's go-to-market resources, which bring enterprise sales and business development expertise we could not build internally on any reasonable timeline. Third, we are onboarding SMB customers whose sales cycles are considerably shorter and will add additional recurring revenue. In addition, every operator we add expands our three-sided marketplace because their aircraft supply connects into BrokerOS for our brokers to sell. Fourth, we are commercializing our flagship product suite this year. OperatorOS and OwnerOS are both planned to launch commercially in the fourth quarter, taking us from one product in market today to 3. And fifth, we will continue deploying high ROI features faster, proving them in our own airline and charter business, before selling them externally. AI-assisted development and the speed of Palantir's platform have compressed our deployment cycle significantly. The result of these efforts will be high-margin, recurring revenue across a diversified software suite, built by an engineering team deploying features at an accelerated pace. With a healthy customer pipeline, our partnership with Palantir and the right team in place, we're excited to share more wins and updates as we commercialize SurfOS. I will now pass it to Louis, our President of Airline Operations.

Thank you, Liam. The airline performed well this quarter, even with some macro trends working against us. Fuel prices were elevated and Hawaii weather drove unplanned cancellations. Delivering the results we did under those conditions is evidence that the improvements we've made are permanent and they make us more resilient to these sorts of changes in the future. Total scheduled service revenue was $17.4 million. That's down about 20% year-over-year. This revenue decrease was deliberate as we exited routes that don't contribute to our bottom line. Mokulele Airlines' revenue was up about 7% compared to the same quarter in 2025 and up 15% over the first quarter of 2026. We flew more in Hawaii this quarter with over 10,000 departures, an increase of 3% compared to the second quarter of 2025. Hawaii is the largest inter-island network by departures and airports served and it's growing while the mainland is rightsizing. We also introduced 2 additional caravans into the fleet this quarter as part of our fleet renewal program. We are emphasizing our Hawaii operations because Hawaii will be the showcase and launchpad for electric flight. In June, BETA's ALIA aircraft began flying daily cargo demonstration routes across the islands. The infrastructure we've established and the community relationships we've fostered in Hawaii over the years are exactly what makes it the right place to bring electric aircraft into commercial service. Turning to operational performance of our entire scheduled service. We continue to run a very reliable operation. Controllable completion factor ended the quarter at 98%. Our on-time arrivals ended the quarter at 88% and on-time departures ended the quarter at 83%. That sustained performance is showing up in our customer's satisfaction. The reason our performance improved and has maintained is in part from the impact of OperatorOS. Let me put a number on that. Fuel came in approximately $0.5 million above plan this quarter. We offset this with operational savings generated directly by OperatorOS. This is not a 1-quarter benefit. Those savings are structural. They are already embedded in how we run the operation, and they carry forward. The team executed exceptionally well to deliver this, and they deserve credit for it. And finally, on safety, we completed our safety management system 1 year ahead of the FAA's mandate. Southern is 1 of only 9 Part 135 commuter operators in the country with an operational SMS. I'll turn it over to Josh, President of Surf On Demand.

Thanks, Louis. Surf On Demand private charter delivered another exceptional quarter, achieving record revenue and record flight volume. We nearly doubled our private charter revenue through the first half of 2026 compared to the same period last year. In the second quarter alone, we generated $12.1 million in revenue, with departures increasing approximately 67% compared to the second quarter of 2025. Revenue per departure also increased approximately 25% compared to the second quarter of 2025, reflecting our continued expansion beyond a primarily turboprop-focused provider into a full-spectrum private charter solution, with larger aircraft becoming a greater mix of revenue. A few highlights. Our new revenue lines, cargo, wholesale, and Powered by Surf On Demand contributed approximately 14% of revenue in the first half of 2026, all of which are gross margin positive. The revenue we've added this year, particularly in the second quarter, is profitable and growing quickly. There is still some drag on our overall gross margins, and it's important to note that this comes from legacy commitments. This cohort of suboptimal margin products and memberships continues to decrease every quarter, and we're confident it does not represent a long-term margin issue. Our independent broker program, Powered by Surf On Demand, continues to gain momentum and remains a key driver of our growth. We've attracted more than 500 applications from around the world since launch and continue to onboard high-quality charter professionals each month who are committed to building long-term business on the platform. Since launch, the program has generated more than $2.5 million in revenue and is gross margin positive, showing that we can scale the platform profitably. Several of our top-performing independent brokers have each generated hundreds of thousands of dollars in revenue this year, demonstrating how BrokerOS enables experienced charter professionals to build meaningful business with us. As Surf On Demand scales, we're strengthening our supply partnerships so that margin expands in parallel with growth. We've added another preferred wholesale partner in the second quarter, which is already at 100% utilization. We have demonstrated that we can grow rapidly. Our next phase is converting that growth into sustainable profitability. And we have 5 primary levers that give us the confidence in that path. First, we're improving margin by better leveraging working capital. With more capital now available, we can secure aircraft inventory in advance at negotiated wholesale rates, rather than sourcing trips on the open market. This produces a direct margin improvement on every flight. We've proven that we can maximize our preferred wholesale partner inventory, and our additional working capital will allow us to pursue this more. Second, BrokerOS is making us more efficient. Real-time pricing, sourcing and distribution tools help our brokers quote faster and serve more customers. The software helped us drive revenue growth in the first half of this year, and in the second half, it will help us improve margins. Third, we're increasing average revenue per flight through continued mix shift towards larger aircraft categories and longer flights. Customers are choosing Surf On Demand for more of their private aviation needs, which raises revenue per flight whilst we leverage the same platform and infrastructure. Revenue per departure has increased each quarter and we expect that trend to continue. Fourth, we're adding independent charter brokers to the platform. Every experienced broker we add grows more revenue with minimal incremental overhead, and the program is already gross margin positive. And fifth, we're expanding platform participation more broadly by partnering with additional operators and brokers. More operators mean more supply for our brokers to sell, and more brokers mean more demand for our operators to fill. Together, these 5 factors deliver revenue growth and margin expansion at the same time, a combination this business is now positioned to achieve after the recalibrations we've made as part of the transformation plan. I will now hand it over to Oliver to walk through our second quarter financials.

Thank you, Josh. For the second quarter of 2026, consolidated revenue was $29.5 million, at the high end of our guidance range of $27 million to $30 million, up 8% compared to the second quarter of 2025 and up 15% compared to the first quarter of 2026. Consolidated adjusted EBITDA loss was $10.5 million, within our guidance range. Recently, we announced 2 financing transactions designed to strengthen our balance sheet and reduce future dilution. First, we refinanced our existing senior secured convertible note. The refinancing resulted in a bifurcation of the note's principal into 2 new instruments: a new $17 million convertible note due 2027 and a new $30 million non-convertible senior secured term note due 2028. As a result of this action, the company successfully reduced its existing convertible note principal by 64% and lowered monthly cash amortization payments by up to 50%. In addition, the new $30 million term note is nonconvertible and does not amortize or accrue interest until January 2027. Concurrently, we also entered into a new $21.6 million asset-backed loan secured against new and existing aircraft. Use of proceeds includes funding the incremental working capital needed to both expand existing wholesale supply relationships and secure additional wholesale supply agreements to improve our private charter margins as Josh explained earlier. Please note that the asset-backed loan funds in 2 tranches. We expect a second funding of $14 million to occur this month, further strengthening our liquidity position. In summary, over the last year, we have reduced our total debt levels 50% while pushing out our maturity walls. Going forward, the combination of operating improvements and lower amortizations positions us to approach our go-forward capital needs from a position of strength. Finally, we are reaffirming our full-year 2026 guidance: revenue of $128 million to $138 million, which represents 20% to 30% growth over 2025 and an adjusted EBITDA loss of $30 million to $25 million, which represents a 40% improvement from our previously released guidance. For the third quarter, we expect revenue of between $35.5 million and $37.5 million, and adjusted EBITDA loss of between $7 million and $4 million. And consistent with what we have said previously, we expect adjusted EBITDA loss to narrow further in the fourth quarter. Importantly, as we exit a heavy maintenance and CapEx cycle, we expect our free cash flow conversion to improve sequentially and over time converge towards adjusted EBITDA. To highlight another point, for the second half of this year, we expect our airline to be a bright spot from a profitability perspective. This is a direct result of the investments we have made, the technology we have deployed, and it reflects the cost actions Louis previously discussed. With that, I will hand it back to Deanna.

Thank you, Oliver. This quarter, in a genuinely difficult macro environment, we finished building the foundation for the next phases of our transformation plan. We achieved our guidance through cost control and technology efficiencies. We signed our first enterprise software customer. We deepened the partnership with Palantir. We supported the launch of BETA's electric aircraft in Hawaii and we ended the quarter with a strong balance sheet. When we announced in April we could improve our adjusted EBITDA guidance by 40% while maintaining our revenue growth this year, we meant it, and this quarter was a start of proving it to you. From here, our focus is on revenue growth and profitability. Thank you to everyone for your continued interest in Surf Air Mobility. Operator, let's please open it up for questions.

[Operator Instructions] Your first question comes from the line of Mike Latimore from Northland Capital Markets.

Congrats on the charter growth and this large enterprise deal. Sounds great. I guess on the charter business, in the past, we talked about a number of brokers you want to onboard by year-end. Has that number changed, still the same? And then how important is that broker onboarding versus other factors here to driving charter growth like the wholesale relationships?

Thanks, Mike, for the question. Josh, our Head of On Demand, I'll let you answer that question.

Yes, absolutely. Thank you for your question. We definitely intend to continue to scale our Powered by Surf On Demand program. As I sort of mentioned, we've had overwhelming interest from brokers around the world in wanting to join the program. And obviously, we want to balance quality and make sure that we're bringing on brokers that have a good knowledge and understanding of the business and can really help us grow it. So we do fully intend to continue to scale and bring on board brokers and continue to see growth in the program. The second part of your question around wholesale relationships and supply relationships. These remain incredibly important because we need to make sure that our brokers have excellent supply at their fingertips so that that can be passed on to our customers so we continue to grow. So expanding wholesale relationships with operators is equally as important to us in this in the second half of this year.

Got it. And then you mentioned a goal of having another, I think enterprise win, software win, by end of the year. Would that be also kind of the BrokerOS version of that or something else?

Thanks, Mike, for that question. I'll kick it to Liam who's in charge of the SurfOS project.

Mike, thanks for the question. So we're in several active discussions across all the different products right now. We're across OperatorOS, OEM, as well as larger-scale brokers. So there's -- we're in -- we have quite a healthy pipeline. I think the announcement of Wheels Up was a really positive one. And we had a pretty healthy pipeline before that, and we continue to develop that pipeline. So I think it's not -- we're in multiple discussions across all the different products, which is really exciting.

Yes, yes. Okay, great. And then just last on OpEx. Is the second quarter OpEx a good run rate for third quarter? Or you expect to grow it a little bit with the Palantir expansion?

Mike, thanks. Oliver, do you want to take that question?

Sure. No, it's a pretty good run rate. I think that we have said that we're coming out of some major push on the investment side for the development of SurfOS, for example, and that should leverage. So notwithstanding the fact that we have 3 products, as Liam mentioned, we don't expect the cost to go up commensurately with the number of products. So I think it's a good base adjusted for certain things like that, you should be on the right track for operating expenses.

Your next question comes from Brian Kinstlinger with Alliance Global Partners.

My first one is for Liam probably related to the Wheels Up deal. When does the contract start? Does anything need to be accomplished before you get the program launched? And how long does it take for product installation? And the second part of that is, how has the pipeline changed and evolved since you announced that deal? How are you seeing incremental interest now that you have an anchor first customer?