Surf Air Mobility Q3 2026 Earnings Call Transcript

Surf Air Mobility (NYSE:SRFM) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Surf Air Mobility reported its highest quarterly revenue of $36.5 million, a 25% increase from Q3 2025 and a 24% increase from Q2 2026.

The company is in the expansion phase of its transformation plan, focusing on commercializing Surf OS, scaling Surf On Demand, and improving airline profitability.

Surf On Demand revenue more than doubled year-over-year to $19 million, and their airline segment achieved positive adjusted EBITDA of $1.2 million.

Five operators have signed with Surf OS, with plans to earn a percentage of revenue on each trip managed through the software.

A four-year, $19.4 million contract was secured to serve Lanai in Hawaii through 2030.

Significant management changes include Barrett Brown taking over as President of Surf OS and Jason Secor as CFO.

Future guidance for Q4 2026 includes expected revenue of $36.4 million to $46.4 million and an adjusted EBITDA loss of $5.4 million to $2.4 million.

The company is continuing to invest in Surf OS and Surf On Demand, indicating strong long-term potential and profitability prospects.

Full Transcript

OPERATOR

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 one again. Thank you. I will now pass the call over to Hudson Andrews. Please go ahead.

Hudson Andrews (Moderator)

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 Louton, President of Surf On Demand; Louis Saint-Cyr, President – Airlines; 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-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, CEO of Surf Air Mobility.

Deanna White (Chief Executive Officer)

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 and real operating data. Surf OS 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. Surf Air 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 Surf OS, 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 2026: for our Surf OS business, sign new customers and commercialize Operator OS; for our Surf On Demand business, grow revenue and expand margin; for our scheduled airline business, continue focus on efficiency and profitability through the use of Surf OS.

We made strong progress on all three. Surf OS 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 Surf OS, 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 Surf OS, 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 Fayed, to discuss Surf OS.

Liam Fayed (Co-founder & Chief Brand Officer)

Thanks, Deanna. We started building Surf OS 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 Surf OS 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 Surf OS 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 Surf OS into the next phase of growth. Barrett spent over 10 years at Palantir, 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 Surf OS, 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.

Barrett Brown (President, Surf OS)

Thank you, Liam. I joined Surf Air Mobility because Surf OS has what I look for in a software business at this stage. Products work in 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 Operator OS commercially in September and have now signed a total of five operators to date. Surf OS 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 Broker OS 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 Surf OS in two important ways. The flexibility of Palantir’s infrastructure platform can support small charter operators to large enterprises while keeping each customer’s data secure and under their control. In addition, Palantir’s engineering and go-to-market teams allow us to develop faster, onboard customers more efficiently, and shape larger enterprise contracts.

We have four Surf OS priorities for the fourth quarter and into 2027. First, onboard our Operator OS 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 Surf OS 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 Louton, our President of Surf On Demand.

Joshua Louton (President, 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 to the second quarter this year. 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 4 percentage points compared to the same period in the previous year and increasing gross margin over 10 percentage points compared to 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 Surf OS with shared insights and efficiencies across each one. I will now hand over to Louis Saint-Cyr, our President – Airlines.

Louis Saint-Cyr (President – Airlines)

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 Surf OS. 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 hour 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 Hawaii network is one of the clearest proof points anywhere in the world for advanced air mobility. Mokulele’s revenue increased 9% from the same quarter last year and 3% from the second quarter this year. We now serve nine airports and 12 routes across the islands, and that includes our relaunched service between Kona and Maui. We also won 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 2 percentage points to 98%. On-time arrivals were up 4 percentage points to 87%, and on-time departures were up 4 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 FAA’s Center for Advanced Aviation Technologies consortium, and we joined the FAA’s 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 Surf OS. With that, I’ll turn it over to Jason, our CFO, to talk through our financials.

Jason Secor (Chief Financial Officer)

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 million. 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 million, an important milestone that we believe shows our platform strategy is 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 EBITDA 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 revenue of $36.4 million to $46.4 million and an adjusted EBITDA loss of $5.4 million to $2.4 million. For the full year of 2026, we are reaffirming our guidance of revenue of $128 million to $138 million. And we are modifying our adjusted EBITDA loss to $35 million to $32 million due to higher fuel prices and extended implementation periods for Surf OS.

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 Surf OS, 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.

Deanna White (Chief Executive Officer)

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.

OPERATOR

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 one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If 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 Alliance Global Partners. Please go ahead.

Brian Kingslinger (Analyst at Alliance Global Partners)

Great. Thanks so much. Nice to see all the progress. Can you highlight if there’s any revenue right now coming from the Surf OS product in the third quarter, and then with the five operators added, how 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?

Deanna White (Chief Executive Officer)

Thanks, Brian, for your question. Really appreciate that. I’m going to turn it over to Barrett Brown to provide the answer.

Barrett Brown (President, Surf OS)

Hi, thanks for the question. The initial revenue from Surf OS was not material in the quarter. We launched Operator OS commercially in September, and Wheels Up is 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’ll continue to develop and sell more advanced modules as well.

Brian Kingslinger (Analyst at Alliance Global Partners)

So it’s all transactions. There’s no platform fee, for example?

Barrett Brown (President, Surf OS)

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.

Brian Kingslinger (Analyst at Alliance Global Partners)

Okay. And then can you speak to 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.

Barrett Brown (President, Surf OS)

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 — you know, that’s part of our moat, so to speak. Right. And so they all need this. It’s the most amazing product-market fit 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 enterprise software is always a much longer deal cycle. But it started long before I got here, so we are in advanced discussions with the key players in the industry and, you know, shepherding them towards close.

Brian Kingslinger (Analyst at Alliance Global Partners)

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 Surf OS ramping? Is it stronger revenue from the airline? Just kind of take us through how you get to your target of the next four to five quarters and what that might look like.

Jason Secor (Chief Financial Officer)

Hey Brian, this is Jason Secor, CFO, and thanks for the question. Are you specifically Surf OS, or are you asking about the entire business?

Brian Kingslinger (Analyst at Alliance Global Partners)

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?

Jason Secor (Chief Financial Officer)

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 has shared a little bit about Surf OS — 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, that by itself will obviously increase the overall level. Right. You then look at the other two businesses. We’ve not guided — we’ve not guided to — except we’ve stated that the airline business is positive for this quarter, and as well as Josh’s business 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.

Brian Kingslinger (Analyst at Alliance Global Partners)

Okay, thanks.

OPERATOR

Your next question is from Dave Storms with Stonegate Capital Partners. Please go ahead.

Maximus (Analyst at Stonegate Capital Partners)

Hey, good afternoon, this is Maximus asking questions for Dave. Wanted to start off, if you guys could walk us through how the higher fuel costs and the longer implementations factored into the updated EBITDA outlook, and how you’re thinking about those pressures heading into 2027.

Jason Secor (Chief Financial Officer)

Thank you. Hey Dave, I’ll take the fuel question. Fuel is up this quarter. We’ve seen an increase year over year, about 37% if you look at price per gallon. But with that said, we’ve been able to utilize lower burn in our operation, so ultimately we’ve only seen about a 9% increase year over year in fuel.

Maximus (Analyst at Stonegate Capital Partners)

And just to follow up, what would you describe— Correct. Yeah, the second part of my question. Thank you.

Jason Secor (Chief Financial Officer)

Repeat the second part, Dave.

Maximus (Analyst at Stonegate Capital Partners)

Yeah, I guess how would you describe the mix of the updated EBITDA outlook with implementations as well and the higher fuel cost for Q4?

Jason Secor (Chief Financial Officer)

Yes. We’ve not provided—yeah, we’ve not provided any guidance for 2027. We’ve reaffirmed our revenue guidance for the full year. We slightly lowered our EBITDA guidance for the full year as well, as we mentioned, due to two things: the higher fuel cost as well as the delays in the Surf OS implementation.

Barrett Brown (President, Surf OS)

So it’s—this is Barrett again. It’s just like every enterprise software 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 want to do it.

OPERATOR

Your next question is from Austin Mueller with Canaccord Genuity. Please go ahead.

Austin Mueller (Analyst at Canaccord Genuity)

Hi, good afternoon. So just my first question here. Can you detail some of the recent productivity improvements that have been achieved with Surf OS within the airline operations unit?

Louis Saint-Cyr (President – Airlines)

Hi, this is Louis. Thanks for your 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, 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 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, 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.

Austin Mueller (Analyst at Canaccord Genuity)

Okay, and if we think about Broker OS, 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?

Barrett Brown (President, Surf OS)

So I think there’s two paths here, right? Because you’ve got smaller operators that are going to be using a 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 down both paths simultaneously. And so, for—you asked about Broker OS in particular—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.

Austin Mueller (Analyst at Canaccord Genuity)

I would assume you’d want to prioritize the full enterprise though, just given the larger contract dollars and probably the associated margin uplift.

Barrett Brown (President, Surf OS)

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 have to—we need to be doing both in parallel to build up both sides of the market.

Austin Mueller (Analyst at Canaccord Genuity)

Awesome. I’ll pass it back there. Thank you.

OPERATOR

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.

Deanna White (Chief Executive Officer)

Yes, thank you. We got a number of questions from our Say 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. With five operator 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 commercialization continues?

Barrett Brown (President, Surf OS)

Right. So we will announce the full-year 2027 guidance in due course, and at that time we can provide more detail on the expected revenue growth of Surf OS broadly. We’re in the early stages of commercialization, as I said on the call, 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—hopefully skyrockets—certainly grows. As I touched on before, Operator is earning a percentage of revenue on the trips—every trip that an operator manages—meaning that the revenue begins as soon as each operator is onboarded and starts running trips through it. So onboarding our five signed operators is our top priority for the fourth quarter—my top priority for the fourth quarter. And then as we said before, Wheels Up: the initial phase of enterprise Broker OS is deployed under a contract worth a little more than $12 million over its term.

Deanna White (Chief Executive Officer)

Thank you, Barrett. The next question is more on Surf OS strategy. I’m going to give it to Liam, our co-founder. Is there a chance Surf OS can expand to bigger airlines, cargo airlines, and in the near future to drones? I am seeing a lot of potential for this kind of application for this product.

Liam Fayed (Co-founder & Chief Brand Officer)

Thanks, Deanna. Yeah, we absolutely see opportunities beyond our current products. You know, extending Surf OS to new use cases across the industry is sort of core to Surf OS initiatives. I think what we’re seeing is as we deploy the core features across operators’ flight management systems, there’s more to sell within the airline—you can start going into maintenance and predictive planning, AOG recovery, there’s several others—sort of as we sell the products just inside a small operation.

But also, you know, as we’re building kind of the operating system for an airline, I think there’s many other industries that need an operating system. You know, it’s built on top of Palantir, which is an infrastructure we can build on 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—you know, a lot of the problems that we’re solving of flying airplanes is common across other industries.

So, 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.

Deanna White (Chief Executive Officer)

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?

Jason Secor (Chief Financial Officer)

Thanks, Deanna. We’re directing our capital to our most profitable and fastest-growing businesses. As I mentioned, Surf OS 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.

Deanna White (Chief Executive Officer)

Thank you, Jason. Next question, Jason, is also for you. What specific milestones must Surf Air Mobility achieve over the next 12 months to reach sustainable profitability? And when does management realistically expect the company to become cash flow positive?

Jason Secor (Chief Financial Officer)

Thanks again, Deanna. As you mentioned in your opening remarks, we’ve built a four-phase transformation plan—the clear path 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 break-even today, but here’s what to watch out for in the next 12 months as we execute on the phase. First, commercializing Surf OS. 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 multimillion-dollar enterprise deals.

Second, we’re going to continue scaling Surf On Demand. Revenue grew again 121% this quarter while margins expanded. Gross margin improved more than 4 points year over year and more than 10 points from the second quarter. And then third and finally, we’re going to continue to expand airline profitability. The airline 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 EBITDA 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 break-even will follow adjusted EBITDA break-even. Since we’re continuing to invest in Surf OS, we have enough visibility to give a specific target. We’ll share it.

Deanna White (Chief Executive Officer)

Thanks, Jason. And that ends our retail question Say Media section of this earnings 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.

OPERATOR

This concludes today’s call. Thank you for attending, and you may now disconnect. Goodbye.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.