Q2 Earnings Call Recap (SRFM)
Revenue, EBIDA, and Cash Position - Actuals and Guidance
Both revenue and EBIDA came in high side of guidance. With revenue at 29.5m and EBIDA at -10.5m. This was an all-time high revenue quarter, and management confirmed the EBIDA guidance of reducing though EOY as the current Capex cycle comes to an end.
Keep in mind we are already halfway through Q3, and managements guidance for the current quarter is 35m-37.5m and an EBIDA loss of 4-7m. This is the flywheel inflection point for revenue. Q1 - Q3 forecasted starts to really show the hockey stick forming, with revenue this year going from:
Q1 25.6m> Q2 29.5m> Q3 35m-37.5m
and EBIDA -
Q1 -12.3> Q2 -10.5m> Q3 between -4m-7m
This is revenue increasing 20-25% quarter to quarter, and EBIDA reflecting the reduction in capex associated with the SurfOS build out, and investment in electric infrastructure for the Hawaii operations.
If we use the midpoint estimates for Q3, call it 36m revenue and 5.5m EBIDA burn we can back into Q4 estimates by subtracting out from the full year guidance of 128m-138m revenue and 25m-30m EBIDA burn, we end up with 37m-47m revenue and EBIDA between -1.7m and breakeven.
The cash position at the end of June was ~18m from the latest 10Q, and that doesn't include the second tranche of non-dilutive funding that closed at the end of July. If we add that up, and subtract quarter to date cash burn, this leaves us with about 25m-30m in cash, which is starting to look like more than enough runway to cash flow positive.
Overall, with revenue growth, cash on hand, EBIDA loss stabilizing, and high margin products commercializing, this is by far the best financial position the business has been on since it came on my radar in Q3 of last year.
Growth Drivers
The growth driver for Q2 was the On-Demand segment, which will continue to do the heavy lifting from a revenue perspective through the end of the year. This was led by Surfs internal brokerage team which grew 102% yoy, with that growth accelerating over the past 3 quarters, it will continue to be the main revenue engine as SurfOS comes online. There efficienies are largely being driven by BrokerOS and ARGUS certification.
We also got insight into some additional revenue drivers within the On-Demand business segment. The three business units below contributing ~14% of the On-Demand revenue:
Power By On-Demand - This is the independent broker program that allows them to leverage BrokerOS with 50 active brokers on board at the end of Q2, with a target of 100 by year end, and 500 in the queue.
Cargo On-Demand - This is a rather new business unit, but Josh said he expects it to grow. Interested in if this revenue was from the cargo test flights with Beta in Hawaii, or if this is revenue from other markets.
Wholesale - This is the buying of bulk flight hours at a wholesale discount and selling those flight hours at a higher margin through BrokerOS. Good to see some working capital being deployed with the more secure cash position.
I also wanted to shout out the airline business, which showed yoy growth, and is profitable.
Forward Looking
Wheels Up Is Live - This one is 'Forward looking" from a Q2 perspective, but confirmation that 2m of this revenue will be realized in H2 this year. Great to see.
OperatorOS & OwnerOS - Q4 launch is forecasted for both of these products. There was language implying that one of the LOI stage businesses for OperatorOS is in the process of onboarding, with a queue forming behind that initial launch. OwnerOS should be a shorter sales cycle compared to operator, but they have not provided too many details on that pipeline besides the Q4 commit for go-live.
Enterprise Pipeline - Committed to one additional enterprise contract this year. They mentioned operators, brokers, and OEM's in the current pipeline.
Breaking Down the Bear Case
The bear case has revolved around a lack of revenue growth, dilution risks, and cash concerns.
With Q2 achieving ath revenue, and Q3 projecting 20%-25% growth quarter to quarter, the revenue growth argument is falling apart fast.
On the dilution front, with the cash on hand, the restructuring of the high trail note, and no need for GEM draws, the worst of the dilution is clearly behind us.
I've already touched on cash on hand, but the napkin math shows we are approaching cash on hand to get us to cash flow positive at some point next year, further strengthening my point on dilution risks.