Good morning, everyone. Thank you for coming to this fireside chat. I am Amit Dayal. I cover the clean tech and renewable space here at H.C. Wainwright. Today we have Surf Air Mobility with us, ticker symbol SRFM. The company provides, you know, technology services for the regional air services market. They also have a legacy regional airline operation business. I will let management go through that. I'll keep it short. We have Deanna White, CEO of the company, and Oliver Reeves, CFO of the company, with us today. You know, we like the story. They are in a turnaround mode, doing some really interesting things on the technology side, with respect to the regional air services market. I'll stop here and, you know, begin sort of the fireside chat.
Deanna, maybe you can provide an overview of the transition underway in the business, you know, going from the legacy air operations business and into the, you know, the technology side of the, you know, regional air mobility market.
Sure. Thank you for inviting us to do this chat. We're real excited about our company. In 2024, we created a four-phase transformation plan, and a lot has happened under that plan in the last 12 to 18 months. The biggest thing we went after first is improving our capital structure. We did that, improved our balance sheet and the liquidity of our stock. We're able to raise both debt and equity, offerings that we did earlier this year. We've been able to use those funds to help turn around our business. Additionally, we brought in a number of new management on our leadership team with deep aviation experience. They're firing on all cylinders, and they're really showing progress on our transformation plan. Surf Air Mobility is building an aviation platform, an air mobility platform for the Part 135 business. We have air mobility and technology products to do that.
We are, on our airline operations, one of the largest commuter airlines in the U.S. We also fly inter-island in Hawaii. That's our diamond network that we have there. We use Cessna Caravans. We have a fleet of 45 to do that. We have a partnership with Textron Aviation and an order with them also. We also have an on-demand product in which we fly people, and that product has us using 400 plus operators within the general aviation space to fulfill the flights and the trips. What's great about those relationships is they will provide a ready-made sales channel for the technology products that we're developing. We are developing a software platform for the Part 135 industry. We are doing that in partnership with Palantir Technologies. They own 10% of our company.
We are building software tools both on the commercial and operational side for all various stakeholders within the Part 135 industry. As a part of our transformation plan, we plan to monetize that and commercialize that starting in 2026. Lastly, on the technology side, we have an electrification initiative in which we are building fully electric and hybrid-electric powertrains. We can swap out a combustion engine Caravan for an electric powertrain in the future. We are pursuing an STC. We've identified a number of supply chain partners in which we're in discussions with them to help fund that project. The big thing about that project is operators like ourselves who use those aircraft that have been electrified will see not just the emissions benefit, but a large cost reduction in the operating cost to be able to fly.
Most of the technology that's happening in the aviation space is happening in small aircraft in which the Part 135 operations operate. The transformation that's going on, our goal is to reach profitable growth. The first phases are earning the right to grow, and then eventually we'll be able to return to profitable growth.
Along those lines, you're already sort of exiting this year potentially at a positive EBITDA run rate.
That's correct on our airline operations. If you listen to our earnings calls, in the second quarter, we announced the significant improvements that we've had within our operations. All of our operation metrics are improved double digits since last year, and we're performing at the levels we did pre-COVID. That business, along with the on-demand business, are both turning profitable. The second quarter was a profitable quarter for the airline operations. We have provided guidance that we will exit 2025 profitable in that business. In the quarter, that business also added an interline agreement with Japan Airlines. We already have those with United, American, Hawaii, and Alaska. Those are very lucrative because they provide passenger pathways into our final mile connection. In Hawaii is a perfect example. Customers can fly in through Hawaii and Japan and go straight onto our network to fly to the inter-islands.
That's the legacy business, Deanna. I think what is exciting, at least for us, is where you are going, you know, in the future with the SurfOS product and the Palantir relationship. Can you maybe talk a little bit about, you know, the future of those offerings and that market, and what the go-to-market strategy is, you know, for the SurfOS offering?
Sure. The Part 135 market has a lot of small, mom-and-pop businesses within it, brokers, operators that exist within the general aviation space. They don't have access to a lot of technology. It's run by spreadsheets, PDFs, and especially not AI-empowered ones. We have a partnership with Palantir Technologies to bring those types of products to that marketplace. We are currently heavy in the R&D phase. We have two customer components. There's enterprise customers, and there's also the smaller business customers. We ourselves are an enterprise customer since we fly a large operation. We have been developing that product alongside them. We have a unique perspective in the fact that we know how to run that type of operations, and we're arm in arm with the developers developing the products to do that.
We also, in our on-demand business, have been arm to arm with them developing the broker modules of that business. When you fly a flight in general aviation, there's multiple stakeholders involved with that. You could have a broker, an operator, and an aircraft owner just for one flight. Each one of those stakeholders has a different perspective about what they need. Our platform, as we recently announced on this SurfOS product, has modules for all of those stakeholders. We have a broker OS module, an operator OS module, and an owner OS module in which they can utilize those modules to get productivity and efficiency. We are already seeing that in our business. We are the test bed. We have already launched a number of these. We also have a cohort of beta users from the operators that we have relationships with on our on-demand business.
On our on-demand business, we have a network of 400 operators that provide the lift for our on-demand product. All of those operators are a ready-made sales channel for this product. A number of those are testing with us. We've already got LOIs, and we plan to, in 2026, turn that business into not a cost center, but a profit center. We intend to monetize that and go commercial with that in 2026. It's a big, exciting thing. It's bringing technology to an industry that has lacked the attention to that type of technology, both on the commercial and the operator side, with various modules that will be fit to the purpose of the stakeholder.
We can expect a margin profile change in the next few years. We can expect a revenue growth change. Maybe, can you share some perspective on how the business may look like a few years from now if all of these steps that you're taking come to fruition?
On the margin side, we're obviously earning the right to grow. We're improving that legacy, our legacy airline business and our legacy on-demand business to be profitable. We're not just turning those profits. Eventually, once we earn the right to grow, we intend to grow those businesses. You will see top-line growth in both our legacy businesses, and improvement in the margins once we're using all the various modules that we're developing from a technology perspective. We plan to launch tier one routes. We did a study with McKinsey where we've identified a number of the markets that have high demand where you can take people out of cars into the air. What's interesting about our segment of the business is that there are already 5,000 public use airports that are underutilized. 90% of folks today drive right by them.
Being able to use that infrastructure to pull people out of cars into the air, and then eventually, once it's electrified, do it at much better unit economics is definitely a plus for our business. You hear a lot in the news about the urban air mobility business. They have the challenge of the infrastructure that doesn't exist. We have that advantage that we're utilizing an infrastructure that already exists to do that business.
Understood. Can you talk about the recent steps you have taken to strengthen the balance sheet, and how that is sort of, you know, supporting all these initiatives?
Sure. I'll turn that over to Oliver, our CFO.
Amit, good to see you. This has been a hot topic today. Let's start at the very beginning. I'm going to take you back to last November, which I think is an important place to start. We took a pretty transformational term loan. It's a $50 million term loan with Comvest. The reason that we took that term loan is because Deanna realized, and I think we realized, that we needed to make a very substantial investment into our operations to address the operational issues that we had. We had to do it quickly, and we had to do it at scale in order to get the type of optimizations that you're seeing today. The results that you are seeing in the second quarter are the return on investments for the investments that we made with that $50 million term loan from Comvest.
Subsequently, you're talking about, you know, flight completion that has gone in the first quarter from 82% to 95%. The incremental profitability in that additional dollar of revenue that you get obviously flows through, and that explains the reduction in cash burn that you are seeing in our business. I think that, you know, as we think about that and about, you know, how you tie your capital structure and you tie our capital raisings to operations, you start to see some real tie-ins. We were very deliberate in how we took that first term loan and what we did with it. That really is the first catalyst for our business, Amit. As you look forward, we have said publicly, we have reiterated again in the second quarter, airline operations will be profitable for fiscal year 2025.
I can't even think to look back to what things looked like in 2024. We'll just move forward with that. That is a yardstick and a measurement that we are holding ourselves accountable to. I think that as we look forward, you can see that continuing. I think with regards to the equity that we raised, Amit, this quarter, we were about as active as you can be. We raised $45 million worth of equity to strengthen our balance sheet and invest in the pretty transformative opportunities that Deanna has identified. Also in minor things, you know, we talk about this on-demand business. Our on-demand business is a wonderful business in and of itself.
We provide, we have an expertise in the 50 to 500 mile routes where these are sort of the aircraft that are going to dominate regional air mobility on the routes that are going to dominate regional air mobility. We have a very significant business there. It is one of the reasons that Palantir Technologies would want to work for us, for example, because we have that distribution channel. It can be a very profitable business in and of itself. One of the things that we've used our capital for, for example, just talking about strategic initiatives on the on-demand side, is by purchasing capacity from those third-party operators that we utilize on a daily basis. That is obviously much more profitable for us when we sell those off.
What you can expect to see on the on-demand side is a business that is both strategic and profitable in the future. We're also supporting the commercial rollout, which I think Deanna White talked about, in 2026 of SurfOS. For us, we know internally what it is capable of, but we think it is going to be a very attractive product to the smaller operators that represent the Part 135 market. I think Deanna White said it best. If they had taken their data to Palantir Technologies, for example, I don't think Palantir Technologies would have known what to do with them, and I don't think they would have known what to do with the output. The fact that we can serve as an aggregator to pass that data and productize it for all segments, because Deanna White said it best, right? It's modular.
We're addressing owners, we're addressing operators, we're addressing brokers, we're addressing all of those segments in the Part 135 space. It is a sea change in terms of data utilization and optimization for what is a very fragmented market. I would say not very advanced technologically market either. That for us is the second catalyst that you're going to see in our stock. It is the successful commercial rollout in 2026 of SurfOS. In terms of something else that happened after the quarter end, you saw we talked about that levering of the balance sheet in 2026. You've also seen a delevering of the balance sheet now. We have $30 million of our convertible that converted. That was not the most senior secured layer of our capital structure, but the one directly beneath that, Amit, at prices that we were pleased to see that go.
That has also a significant impact on our cash flows because that is about $3 million worth of interest expense that we no longer have to pay on an annualized basis. Also very good steps there. In terms of thinking about the opportunity moving forward, being first to market to establish this commercialization distribution platform anchored by SurfOS, which is our business model, time is critical. As we think about new financings, we will do it for one of two reasons, because we intend to be opportunistic. The first is if we can materially accelerate or strengthen the acceleration phase and the expansion phase of our four-phase transformation plan. What that essentially means is can we strengthen and accelerate SurfOS and some of the other ancillary products that we have been talking about?
I think we feel very strongly that we will emerge as the leading platform for Part 135 regional air mobility in terms of our reach. It is a very substantial opportunity. You're talking about a market that is estimated to be between $75 billion and $115 billion by 2035 globally. In the U.S. alone, above $15 billion.
That's just for the services side, right?
That is absolutely for the parts that we are talking about. What's most exciting, Amit, is that the products that we're building don't have borders. The assets tend to be transportable from their very nature. The second part is that the software can be tailored in the ways that you've talked about and we have talked about before, which is, you know, you can already see it in the fact that it's modular, but we will also build it in ways that will allow us to very specifically address the pain points of the operators, brokers, and owners that we work with. That's something that we're spending a lot of time on in the beta. As we think about all of these things, our capital market strategy is very interlinked with our new opportunities. We will be opportunistic.
We have done, I believe, the right things so far with the capital structure, and we will continue to be opportunistic on how we look at it.
I feel the future needs on that front are going to be very different from the needs of the legacy regional airline operator where maybe there were bigger capital needs versus as a software provider, as a technology provider, and an asset-light business model, there's going to be less reliance on big capital raises and more funding from just the cash flows that can be generated from that business.
We like to think that it is a transformation in our business plan, Amit, and of course, you're moving from what is essentially a legacy regional airline operator to a technology-enabled platform of which the airline is a component. It is a core component because it does allow us to test our software in a real use case. We fly millions of people. We have flown millions of people, millions of miles. Last year alone, we flew 320,000 passengers in our network. That's something interesting when you look at the sort of the eVTOL space. Yes, technologically, they're very advanced. Yes, the products look incredible and are amazing. Very few have flown that number of passengers, and it's just not that easy.
Coming from a software background, I was quite surprised to see the level of regulation, this safety-first culture that is being implemented, all of these things that, it's just very different. I think that is something that will remain one of our competitive advantages, our operational experience.
One thing to add on that is I mentioned that the Hawaii inter-island flying that we do is our gem. Those are all very short, 50-mile, perfect environment to launch an electric aircraft and to be a ground for us to launch our Caravan that we're doing. Also, our platform is agnostic to aircraft type, so electric aircraft from any manufacturer or from the eVTOLs could fly via our platform. In fact, we have a partnership and an LOI for an order with Electra and their aircraft, which is supposed to come online in 2029. Our platform can not only operate and fly our Caravans on that, but we can also operate and fly the Electra plane or any other type of plane, and other operators can use all of those planes on our platform.
Awesome. I think that's our time. I'm excited about the story. I'm looking forward to some of these catalysts playing out, and I think this talk remains undervalued at this point. Thank you, guys.
Thank you. Thanks for having us.
Thank you.
Appreciate it.