Good afternoon and welcome to the Surf Air Fourth Quarter and Full Year 2023 Earnings Call. Please note that this call is being recorded. All participants are now in listen-only mode. After the speakers’ remark, there will be a questions-and-answer session. [Operator Instructions] I'll now turn the call over to Bill Margaritis. You may begin your conference.

Thank you, operator. Welcome to Surf Air Mobility’s fourth quarter 2023 and full year 2023 earnings call. I'm joined today by Stan Little, Surf Air’s CEO; Oliver Reeves, Surf Air's CFO. Please note, we released our Q4 2023 results this afternoon, which are available in filings with the SEC and on Surf Air's investor page at investors.surfair.com. Before we begin, I will remind everyone that during this call, we may discuss our outlook and future performance. These forward looking statements may be proceeded by words such as we expect, we believe, we anticipate or similar such statements. These statements are subject to risks and uncertainties and are actual results could defer materially from the views expressed today. Some of the risks have been set forth in our earnings release and our periodic reports filed with the SEC. During today's call, 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 measures are included in the earnings release we issued earlier today, which has been posted on the investor relations page Surf Air Mobility's website and in our filings with the SEC. With that, I'll turn the call over to Stan.

Thanks, Bill, and thank you everyone for joining our call today. We are pleased with our overall performance in both the fourth quarter and the full year 2023. I'm grateful to our team for delivering financial results that met or beat our guidance. The company recorded $112.9 million in revenue, up 12% year-over-year, beating our 2023 guidance and negative $50.9 million in pro-forma adjusted EBITDA, including investment in electrification and software achieving our 2023 guidance. 2023 was a transformative year for Surf Air Mobility as evidenced by our completion of two big milestones. Our direct listing on the New York Stock Exchange and the completion of our merger with Southern Airways, we're also pleased with the integration of Southern Airways and Surf Air. In just seven months, we've made strides in defining the strategic path ahead, bringing on new talent and building key partnerships. We've also made steady progress in expanding our leading regional airline network, developing proprietary powertrain technology to electrify the Cessna Grand Caravan and advancing our AI driven software platform with the supportive Palantir. Our aircraft as a service platform model will enable independent owner operators to join our platform where they will benefit from electrification technology, state-of-the-art software and aircraft financing or a bundle of all three. Over time, our aircraft as a service model will enable us to expand our operational ecosystem and grow our off fleet products. Our partnership with Palantir Technologies and continued investment in our software platform are core to these efforts and we intend to offer access to our software to operators prior to launching electric powertrains. The expansion of our network over time and our steadfast commitment to and investment in electrification should enable us to capture a meaningful portion of the emerging regional air mobility market. According to McKinsey…

Thanks Stan, and thanks to you all for joining us on the call today. As Stan mentioned, we are pleased with our financial performance with revenue beating and pro-forma adjusted EBITDA meeting 2023 guidance. I began my role at Surf Air Mobility this January. I joined the company because I'm excited about the growth and profitability potential of the nascent regional air mobility market, the transformative potential and positive environmental impact of our electric planes, and the related technological advances we are planning to bring to the market over time alongside our partners such as Palantir. My background is in finance, enterprise software and insurance. I joined because of the company's transformative vision as well as the caliber of the team. I would like now to thank this team for its warm welcome, and I'm excited to roll up my sleeves as we continue to fine tune our strategy. Now let me turn to the numbers. On a GAAP basis, the company reported fourth quarter revenue of $26.8 million full year revenue of $60.5 million. On an unaudited pro-forma basis, which assumes that Southern acquisition closed as of the beginning of fiscal year 2023. The company reported $27.4 million of revenue in the fourth quarter flat year-over-year and $112.9 million of revenue for the full year, up 12% year-over-year. Our on demand platform, which includes both Surf Air and Southern's charter businesses, continues to be a key source of growth, with revenue up 18% and departures up 36%, all on a pro-forma year-over-year basis. We are continuing to see very positive trends here exiting Q1, and we will update you further on our next call. Pro-forma adjusted EBITDA, which assumes that the southern acquisition close as of January 1, 2023, was negative $18.4 million for the fourth quarter as compared…

[Operator Instructions]Your first question comes from Austin Moeller with Canaccord.

Just my first question here. So what Tier 1 routes do you view as being critical to getting closer to profitability breakeven over the next year or so as you roll out additional routes?

To answer that question, we have changed a bit of our strategic thinking over the last six months, not vis-a-vis new routes versus not new routes, but vis-a-vis which ones are we willing to take on first based on the level of risk. If you recall, I talked at Investor Day about how new routes, even the Tier 1 routes can take anywhere from 6 to 12 months to achieve profitability. What we discovered in the meantime is there are a lot of routes that can be profitable with zero days of lead time through subsidies or minimum revenue guarantees. So once we got the deal in place with Purdue, and then following that one with Williamsport, we discovered that in this near-term, as we're truly focused on profitability as our top goal for the company we should proceed with these subsidized and MRG routes before we go into even the really good Tier 1 routes that still require some time to mature. So I believe that there are not prepared to announce any today, but I believe that there are more routes out there similar to the Purdue and Williamsport routes, and that's what we'll be looking at for the remainder of this year. And then as we announce other market based flying for 2025, I'm not prepared to give cities right now, but I will say when we do it, we're going to do it with scale. So you're not going to see us go to two routes on the East Coast and three routes on the West Coast and one in the Pacific Northwest. We're going to really build out footprints following that.

Just to follow-up, I think we already touched on this in the remarks, but I guess route expansion and continued development of the powertrains that the GEM advances should be sufficient to provide enough cash for that?

We've not wavered in our position that the GEM facility is adequate for us to execute the business plan. We still believe that to be the case. That being said, one of Oliver's great strengths is capital markets. And certainly, one of the things he's looking at and working hard on every day is additional sources of capital, not alternative sources but additional sources of capital. So we'll be able to do additional things when he is successful in those areas. But the GEM facility is adequate, we believe, to fund the business plan as it now exists.

Your next question comes from Ben Johnson with Piper Sandler.

Ben Johnson on for Alex Potter. I guess I have two for you. Previously, I think you mentioned that you expected SEC certification in like ‘25 to ‘26. I guess what's causing the updated expectation of early 2027 now? And then secondly, once you do receive the certification, how quickly do you expect to be able to convert all of your plans to hybrid or electric powertrains? And at what time do you expect to be able to purchase purpose-built planes from Textron and no longer have to retrofit them.

First of all, I do have Ido Gruberger in the room with us today, and he's -- I'm sure will want to add something to my comments here at the end. But as we get to the end of the conceptual design review phase, which is the phase that we're in right now. We're down selecting the suppliers for the motor, for the battery, for the other components of the STC. And what we've discovered is that not only do we have to certify, well, we didn't discover this. We've known this all along, but what has come to light is many of the best of those components are not yet certified. So we have to do the certification timeline of the supplier and then allow time for the certification of our own STC. So what this is going to mean actually, is that it's going to be a better product in 2027 when it comes out, because we'll be able to use the exact motor that we want and the exact battery that we want. So a little bit of a delay there from what we were looking at before. But I don't think anything considerable, and I think that it'll be a better product once we get out -- once we get it out. Then as to the rollout of our of the conversion of the fleet, it's really too early for us to opine at this time how quickly we're going to be able to do the conversions and part of it will be on a case by case with the motors, certainly, we're going to want to convert the engines that are up for overhaul anyway, as you know, the whole plan for this is that the cost of doing the transition will be very similar to the cost of doing the overhaul. So the last thing, frankly, that we would want to do is take a freshly overhauled engine, pull it out of service and then immediately replace it with electric. So there's going to be a lot of work for our team in determining the order and the timing of making those conversions, but we do believe we'll be able to do them simultaneously across multiple conversion sites, being that we have five heavy maintenance centers across the country. Let me hand it over to Ido for any further comments on both of these as well as whether or not he may want to put any kind of timeline on the Textron question.

Hello everyone. The only thing I would add is the initial STC will be applied even to new aircraft as they're rolling off the line. If you have a customer that's bought from Textron directly a one powered Caravan EX that SEC will be initially applied after the aircraft has been constructed. So it would've been rolling off the line as a Caravan EX rolling into a hangar next door and having the STC apply to it. That's the initial state. The next state of that. And part of what we're doing is in our relationship with Textron and the coordination of the STC development with Textron as we're holding hands with them so that this phase is short as possible, but that next phase will be them ingesting our STC into the TC and making it what was called in the industry aligned fit. So you apply the STC as if it were part of the TC, and that could happen as early as six months after we have the STC and that really depends on how good a job we do at the, at the coordination of that.

And that would be a Textron decision and a Textron issue, not internal to Surf Air, just to clarify. Did that answer your question, Ben or did you have anything else?

That's great.

Your next question comes from David Vernon with Bernstein.

Couple questions for you. First, is there a comp for the $29 million in 1Q revenue that you expect? And is there a way to think about whether the top line in ‘24 is growth rate anyway, is better or worse than the 12% you realized on an adjusted basis in ‘23?

Let me hand that over to our new CFO Oliver and he can opine on both of those. Oliver?

So you didn't come in very well, would you just mind repeating the question?

Absolutely. The $29 million in revenue you're expecting for 1Q, is there a comp for that number? Like what's the growth rate on a year-over-year basis for the 1Q sort of like for like. And I'm just trying to get a sense for whether you think ‘24 is setting up to be better or worse than the 12% adjusted revenue growth rate you realized in 2023?

To answer your first question, our guidance does imply some growth top line. I don't think we've particularly guided to the number but somewhat similar to what you saw for the full year. And with regard to your second question, we haven't really -- I think, what I would do is I would invite you to our Analyst Day where we'll be far more prepared to answer that question for you. We have a lot to offer there and I think that that would be a good use of time

We can get back to you David on the issue of the comp question, let us get back to you on that one.As you can imagine, Oliver wasn't here this time last year and is just getting settled in. We will get back. Sorry to interrupt you. What's your follow-up?

We look the comps with the merger and everything, it's foggy. So I'm just trying to get a sense for the exit versus entry rate rates of growth. So, second question would be around, you mentioned in your prepared remarks that some of the work you're doing on the software side is actually going to become commercializable before you are getting certification for the electric powertrains. Can you talk a little bit about what you might be able to do to further sort of stimulate the top line outside of just traditional route expansion on the software side and whether that can be meaningful ahead of electrification?

Absolutely. I was talking about it this morning at our Insurance Underwriters Summit here in Palm Beach. We're always looking for a way to increase revenue without burning a single gallon of jet fuel. And because we're an electrification company, someday we're going to make most of our revenue by not burning a single gallon of jet fuel. But in the meantime, it's from these ancillary sources. And one of the ones I'm most excited about is the software package. So, right now, we are actually beta testing on the southern airway side, on the operational side, the crew scheduling AI unit. And it's really remarkable what we can do right now with AI. The AI scans emails and can detect when, if it detects a sick call on an email, it's already looking for a replacement crew before a human being has even realized that a sick call has occurred. Tons of things like that when you, especially when you tie in the maintenance side of it and the regulatory side of it that we're going to really be able to take the human element and the human error rate out of this. And I think that's something that we're going to be able to market to other airlines with a recurring revenue component every single month. They're paying for the license for this software. There's also the distribution element that comes with it. I was speaking at a conference down in Panama City, Panama for operators in the Americas three or four weeks ago. And I talked to several small operators that are looking for the ability to get their tickets distributed outside of just their own website. So they how can you get us on Kayak and Google Flights and Expedia and can you potentially get us, if we're going to do a connection with one of your airline partners, can you get us onto their website? And the answer is yes, and for a fee. So that's another part of the software package that we're working on. And then of course, the airline as a service which is the leasing arm of what we're going to do and would come with much of the software. The goal is to have to have a menu that you can basically tick down the menu and say, we can supply you with everything from the airplane, the ticket distribution, the software required to run your finances, the software required to run your operations, the software required to maintain compliance with FAA regs. You pick and choose what you need and we'll set you up with something that provides that recurring revenue to Surf Air Mobility.

And I guess, as you're thinking about putting together your investor day presentation to the extent that you can help us understand what that addressable market is on the software spend side, outside of the leasing and the electrification part of it, which is a little bit more tangible. It's sometimes hard and difficult from the outside looking in at this part of the industry to really understand kind of how much money is spent on this stuff today. So anything you can do to help us flesh that out would be really helpful, as we look ahead.

Absolutely. We'll make a note of that and make sure that we address that at Investor Day. And I understand the importance of that to you guys, because the software income is going to likely be the first of the new ancillary income that comes in that will happen of course before electrification. It'll also happen before the aircraft as a service is launched as well. So we need to be able to get you, what you need to be able to model that.

Your next question comes from Ravi Shanker with Morgan Stanley.

This is Catherine on for Ravi. I just had a quick question on premium, which has been a big move a lot of airlines have been pushing towards recently. So just curious if you guys would consider yourself a premium product or if there's anything more you can do on that front?

We absolutely consider ourselves both a premium product but also an egalitarian product, because there is something there for just about everybody. If you want to -- if you're accustomed to flying first class and you're accustomed to spending $700 or $800 on a seat on one of the legacy carriers, we can be price competitive and give you just -- give you a better product in most cases in some of the cities between -- that we fly between. But then again, we also put 400,000 people a year on scheduled service routes at for tickets that are under $200. I think it's a combination of both. Certainly, it's depending on what your priority is. If you're looking for a hot meal on your flight, you're not going to get that on Surf Air Mobility, but we're going to get you to your destination and get you to your favorite restaurant a heck of a lot faster than if you go through the airport experience at LaGuardia. Anything else, Catherine?

That’s it.

There are no further questions at this time. This will conclude today's conference. Thank you all for your participation. You may now disconnect.