Q3 2024 Surf Air Mobility Inc Earnings Call
Prilla: Good afternoon, ladies and gentlemen. Thank you for standing by. My name is Prilla and I will be your conference operator today. At this time, I would like to welcome everyone to the CERF Air Mobility Q3 2024 Earnings Conference Call.
Speaker Change: 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.
Speaker Change: These statements are subject to risks and uncertainties and our actual results could differ materially from the views expressed today.
Speaker Change: Some of these risks have been set forth in our earnings release and in our periodic reports filed with the SEC.
Speaker Change: 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.
Speaker Change: Listed on the surf and mobility Investor Relations website.
Speaker Change: And in our filings with the SEC. Please note we have provided an updated presentation that you'll find on our IR website at investors that surf air Dot com.
Deanna White: I would now like to turn the call over to surfing or abilities interim CEO D N a white deanna.
Deanna White: Thank you Sam and thank you to everyone, who has joined our call today.
Deanna White: Before we get into the details of our third quarter results.
Deanna White: It's exceeded our expectations for both revenue and adjusted EBITDA.
Deanna White: Want to take a few moments to discuss the major development of this week.
Deanna White: This morning, we announced the closing of a $50 million term loan agreement with Tom Best Partners.
Deanna White: Multibillion dollar investment management firm.
Deanna White: Our CFO Oliver Reeves will cover the particulars of this financing in a few moments.
Deanna White: The clear takeaway is it sort of fair and mobility is capitalized to execute against our transformation plans.
Deanna White: The combination of this financing and the work we're doing to reduce liabilities has enabled us to strengthen our balance sheet and have addressed our near term liquidity constraints.
Deanna White: As a result, we can now move forward at pace with our transformation plan.
Deanna White: As referenced in the Investor presentation, we posted on our website. This morning, we have a four phased transformation plan.
Deanna White: The first phase, which is now complete has been to improve our capital structure strengthen our balance sheet, what's the right management in place and realize synergies from our southern merger.
Deanna White: Since may I have been working closely with the board to promote leaders and recruit external talent for our organization.
Deanna White: We have successfully bolstered our ranks with strong operational leaders with decades of airline experience, we're already making a big difference in our organization.
Deanna White: In the wake of our merger with southern we realize opportunities to streamline our operations drive efficiencies and eliminate redundant costs.
Deanna White: As I mentioned last quarter, we are implementing new systems and workflows.
Deanna White: Coupled with real time operational and financial Kpis to accurately measure performance against aviation standards.
Deanna White: How do we optimize our footprint we are exiting unprofitable routes.
Deanna White: And now with a solidified balance sheet and adequate funding, we will resolve deferred maintenance, which will improve aircraft availability flight completion rates and profitability.
Deanna White: We have a clear strategy and a clear path in front of us.
Deanna White: Phase two of our transformation plan is optimization.
Deanna White: The first step in our optimization phase is to improve the productivity and efficiency of our airline operations to maximize profitability.
Deanna White: In the coming year, our focus will be on the bottom line.
Deanna White: We are focused on improving utilization of our two most important resources people and aircraft.
Deanna White: We are redesigning and rethinking, how we operate and how we utilize technology to make that happen.
Deanna White: As we exit unprofitable routes revenue is expected to decrease in profitability and cash flow will increase helping us finance and fuel profitable growth.
Deanna White: As part of the optimization of our airline operations, we will continue to exit unprofitable routes.
Deanna White: The reallocation of aircraft to other existing and new route overtime.
Deanna White: By doing so we can adjust the timing of purchases of new aircraft and match the timing to our route expansion phase in 2026 and 2027.
Deanna White: This month, we have taken two deliveries from Textron aviation, which we will immediately deploy.
Deanna White: We have shifted future aircraft deliveries to early 2026, given our ability to leverage redeployed aircrafts in our existing fleet to be more capital efficient.
Deanna White: The second step of our optimization phase is a recalibration of our on demand business.
We are expanding our market share in the higher margin jet category six.
Deanna White: Carrying inventory with volume purchase agreements pursuing international partnerships and leveraging the surf OS software platform.
Deanna White: These efforts will drive both revenue and profitability in the on demand business overtime.
Deanna White: The third step of our optimization phase is to drive efficiencies from using this or O S operating platform.
Deanna White: First internally across our airline operations and then with a few launch customers.
Deanna White: Recall from our call last quarter, we spoke in depth about our new agreement with talented.
Deanna White: To build and deploy a category defining operating system and an all in one suite of software tools, enabling operators to more efficiently run their businesses.
Deanna White: Components will include flight distribution airline and charter operations revenue and demand management business intelligence financial reporting and customer service.
Deanna White: We are making great strides in the development of the platform and we are already using components in our commercial and operations teams.
Deanna White: As the largest commuter airline in the U S by scheduled departures carefirst uniquely positioned to develop test and deploy the solution.
Deanna White: Once completed it will open up the regional Air mobility segment to US, which is estimated by mckinsey to be between 75 billion and 115 billion by 2035.
Deanna White: This represents an enormous opportunity to fully leverage what we are building for ourselves to generate revenue from other part 135 operators.
Deanna White: The operators, we are paying today to fly charters for US can also become customers of our software in the future.
As we look beyond 2025, we have expansion and acceleration phases.
Deanna White: We will launch new tier one routes broadly deploy servo as two additional third party operators and introduce new electrification technologies.
Ultimately this will enable us to further leverage our air mobility platform to accelerate the adoption of new aviation technologies.
Deanna White: Let me take a moment to highlight a few of the key accomplishments we achieved in the third quarter.
Deanna White: And what you should expect us to achieve during the fourth quarter.
Deanna White: During the third quarter, we have.
Deanna White: Exceeded our guidance for both revenue and adjusted EBITDA.
Deanna White: Announced our plan to form a new venture surface technologies, LLC and entered an agreement with Palin here to power our operating system for the advanced Air mobility industry.
Deanna White: And we realized synergies from our southern Airways merger.
Deanna White: In the fourth quarter, we have raised 50 million in new financing to fund our transformation plan and path to profitability.
Deanna White: Taking the first two deliveries of our 116 Cessna Grand Caravan aircraft order with Textron aviation.
Deanna White: And continue to make significant progress on expanding our served OS software platform.
Deanna White: Let me now summarize what you have heard me discuss.
We are here today, and a key inflection point for software mobility.
Deanna White: We have strengthened our balance sheet improved our capital structure and address our near term liquidity constraints.
Deanna White: We have made great strides in realizing the synergies from our southern Airways merger.
Deanna White: We have deployed surf O S internally to drive efficiency and further improve operations and will broadly offer the software to third party operators in the future.
Deanna White: And we will leverage our exclusive relationship with Textron Aviation and third party partners to develop and deploy electrification technology and accelerate the adoption of other new available technologies.
Sir Fair is now poised to deliver shareholder value in both the coming months as well as the coming years.
We are incredibly excited to embark on this journey and we invite you to join us.
Deanna White: With that let me now turn the call over to Oliver to discuss the financing and our third quarter results in a little more detail Oliver.
Thank you Dan and good afternoon, everyone.
Oliver Reeves: I'm pleased to be here with you today to discuss the results of the third quarter and more importantly, the positive development that was announced today.
Oliver Reeves: Let me begin with a brief synopsis of the third quarter results.
Oliver Reeves: Revenue for the third quarter $28 4 million was relatively unchanged versus the prior year period on a pro forma basis.
Oliver Reeves: It exceeded the high end of the Companys guidance range of $25 million to $28 million.
Oliver Reeves: Scheduled service revenue increased by 2% primarily driven by the addition of subsidized revenue from William Scott could you and <unk>, partially offset by a lower completion factor.
Oliver Reeves: In line with what we discussed in our last earnings call. Our third quarter completion factor was negatively impacted by unplanned maintenance, resulting in lowest scheduled service revenue.
Oliver Reeves: On demand service revenue decreased by 13%, which represents the impact of management's focus on profitability rather than near term market penetration.
Oliver Reeves: Adjusted EBITDA loss of $8 9 million for the third quarter 2024 was unchanged from the same period of the prior year on a pro forma basis outperforming our expectations with an adjusted EBITDA loss of $10 million to $13 million.
Oliver Reeves: This outperformance was driven by improved operating margins from the on demand business realized M&A synergies lower compensation cost lower professional expenses during the quarter.
Oliver Reeves: Before I discuss the terms of the financing and the structure improvements of our balance sheet, Let me first touch upon fourth quarter guidance.
Oliver Reeves: We expect fourth.
Oliver Reeves: Fourth quarter revenue in the range of $25 million to $28 million.
Adjusted EBITDA loss in the range of $5 million to $8 million.
Oliver Reeves: Recall that adjusted EBITDA excludes the expected impact of stock based compensation changes in the fair value of financial instruments and other nonrecurring items.
Oliver Reeves: Assuming that we achieve these results are regional airline operations will not reach profitability for the full year as previously expected.
Oliver Reeves: However, the transformation plan implemented by management mobility operations team should result in regional operations, reaching sustained profitability for fiscal year 2025 and beyond.
Speaker Change: Turning to liquidity, let me spend a few minutes discussing the $50 million timeline, we announced this morning.
Speaker Change: As I stated in our press release, we have fundamentally restructured our balance sheet addressed our near term liquidity constraints lowered our cost of capital minimize potential dilution under our shelf subscription facility and reposition Seth and mobility for profitable growth.
Cannot overstate the significance of these developments.
Speaker Change: Turning now to the specifics of <unk>.
Speaker Change: $50 million term loan is comprised of one a $44 $5 million tranche, which was fully funded this morning to be used for general corporate purposes.
Speaker Change: A $5 5 million delayed draw to be used for interest payments over the past 18 months.
The loan matures in 48 months and carries a rate of sofa plus 5% per annum.
Speaker Change: The loan was provided by Columbus partners, a multibillion dollar investment management firm.
Alongside the funding management has been keenly focused on other ways to strengthen our balance sheet, such as successfully extending the maturities of our other secured debt at the end of 2028.
Speaker Change: In addition, we are addressing up to $17 million of past liabilities and expect to achieve a reduction of over 50% of these balances.
Speaker Change: Finally, this new term loan effectively reduces our reliance on the previous funding facility with Gen capital and as a result, it minimizes the impact of equity dilution and directly addresses the potential shadow behind.
In summary, our previous lack of liquidity was a major impediment to our ability to transform the company.
Speaker Change: Our new management team cannot execute a well planned strategy to rightsize, our operations implement significant improvements and drive efficiencies.
Speaker Change: Deferred maintenance improve aircraft availability drive up completion factors and optimize routes. It is truly a new day et cetera.
Speaker Change: Before we turn the call back to the operator to take your questions I want to leave you with a few key points, we have a strong management team a clear strategy formative scale unique and exclusive agreements with both <unk> and Textron aviation on the platform from which to grow.
<unk> ability as an aviation company that is generating over $100 million in annual revenues by flying hundreds of thousand paying customers each year.
Speaker Change: We are poised to improve profitability as well as launch unique technologies and services with fantastic partners in the coming years.
Speaker Change: We are exceptionally excited about the future and we hope that you are too with that let me turn the call back to the operator, so that our team can take your questions operator.
Speaker Change: Thank you we will now begin the question and answer session. If you have dialed in and would like to ask a question. Please press star one on your telephone keypad to raise your hand and trying to queue. If you would like to withdraw your question simply press Star one again.
Speaker Change: Your first question comes from line of Alex Potter with Piper Sandler. Please go ahead.
Speaker Change: Hi, This is Ben Johnson on for Alex Potter.
Speaker Change: I guess my question is more so around the STC for the electrified caravan.
Speaker Change: Can you can you fill us in on what happens in that process since <unk> and then I know you guys expect to the process as we've done in 2027, and if everything goes to plan.
Speaker Change: I guess, what's the potential for any further delays and then are there any specific milestones that we could maybe look to in the near to medium future that can just signal to us that everything is going everything's on track.
Speaker Change: Hi, Alex This is finished Johnny.
Speaker Change: I can take that one.
Speaker Change: So we are still on track for the 2007 timeframe, we've been discussing on the FTC.
Speaker Change: Are still working with Txdot.
Speaker Change: Partner on the electric.
Electric and hybrid caravan.
Speaker Change: One of the things we mentioned in our release is we are also in active discussions with a number of key partners in the supply chain to consider a separate capitalization of electrification business to reduce the cost and we intend to report on that more next quarter.
Okay. Thank you.
Speaker Change: Okay.
Speaker Change: And your next question comes from the lineup Austin Muller with Canaccord. Please go ahead.
Speaker Change: Hi, good morning, or good afternoon.
Speaker Change: Do you view any risk to the central Air service funding with the New administration budget or do you think it's sufficiently bipartisan that's not really an issue.
Speaker Change: This is the NOI.
I think it is sufficiently funded and it is not an issue with the new change its demonstration it's been around since the seventies that program and so it is a.
Speaker Change: A program that has started many years time I don't think Theres any issue we.
Speaker Change: We did have in may the <unk>.
Speaker Change: Hey, a reauthorization act, which.
Speaker Change: The amount of funds for that program.
Speaker Change: Congress passed the bipartisan.
Level. So I don't think that there is any issue or any jeopardy or a change in administration.
Speaker Change: Okay.
Speaker Change: Just on the flight services business, what do you view as the optimal passenger load factors across your fleet to be breakeven on most or all of your routes and I understand you're eliminating unprofitable routes.
Speaker Change: So when you talk about breakeven, we think more like in the 70% range.
Obviously, we would want to achieve.
Speaker Change: One of the factors that are much greater than that with our profitable routes that for a breakeven route we modeled 70%.
Speaker Change: Okay, Great that's very helpful I'll pass it back.
Speaker Change: And I'm showing no further questions at this time I would like to turn it back to Oliver <unk>, Chief Financial Officer for closing remarks.
Thank you to everyone who joined our call.
Oliver Reeves: We look forward to updating you next quarter.
Speaker Change: Thank you again.
Thank you and this concludes today's conference call. Thank you all for joining you may now disconnect.
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