Strata Critical Medical, Inc. (SRTA) Earnings Call Transcript & Summary

Alright, great. I think we're going to go ahead and get started. I'm Stephen Ju from the Credit Suisse Internet Equity Research team. Sitting to my right is Rob Wiesenthal, who's the CEO and Founder of Blade Air Mobility. So before we get started, I think you have a video that you wanted to show everybody.

Yes.

We'll show a quick video, and we'll get into our discussion.

All right, awesome. [Presentation]

All right. Probably one of the better videos you saw today, right?

This was pretty cool. All right. Well, thanks for joining us once again.

Thanks for having us.

Awesome. So I guess for those who might be a little bit newer to the Blade story, I was wondering if you could talk a little bit about the technology and the platform as well as the asset-light model.

Sure. The goal of Blade, since we started in 2014, was to build the entire ecosystem that was required for urban air mobility, using conventional rotorcraft and aircraft today and to enable a seamless transition to electric vertical aircraft in the future, which we all knew was on the horizon, that the battle on the ground with EVs was going to quickly move into the air. And we're not going to get involved with building aircraft or designing aircraft. I like to say, I could barely build an IKEA desk for my daughter. That was not a core competency. So it's based on these pillars of having terminals and landing zones where we can aggregate passengers and do security and luggage assessment and turn aircraft really quickly, a technology stack that goes from consumer to the cockpit, everything from the consumer-facing app to obviously the cockpit, but also in between, an operator dashboard that allows our logistics people to communicate seamlessly with our operators to enable real efficient deployment and dispatch of aircraft, and then roots that are profitable and scalable in markets with just a lot of people, highly dense, and a tremendous amount of traffic friction. That's why we're in New York City and in India and such. And then a brand that is really right now global nature. We flew over 250,000 people in the year pre-COVID. And we're now operating in Asia and India, in the United States, Canada, and after our recent acquisition of a roll-up of 3 companies in Europe as well. And that's the first piece of the business. The second piece of business which represents about 50% of our revenues is our organ transportation business. We're the largest transporter by air of human organs in the United States. And we got into that business because we realized that we had a bunch of core competencies. We were obviously just incredibly strong and focused and obsessed with logistics, recovery, customer service, all the things that are required to make urban air mobility a reality, cost effective, quick and reliable, which is obviously of critical importance when you're moving human organs. But also, we had a lot of [ throw weight ] in the industry. We are asset-light. We neither own nor operate any aircraft. We enter into long-term agreements for the most part with our aircraft operators. They have to go through comprehensive safety exams from our 7-member safety team. They have to financial wherewithal test, insurance, all the things, these are branding, noncompetes, but since we represent about 70% to 100% of their business, we had a lot of [ throw weight ] with them and also we realized that these aircraft were not being used in night. So now the same aircraft that we use during the day with our consumers are being used for organ transportation at night. So now these operators can amortize the cost of hangers, insurance, maintenance across the 24-hour period. So the economics improves for all of them. And then also using our technology stack, essentially we can track chain of custody for every segment of modality of an organ mission. So before Blade, when we start up -- not before -- yes, before Blade, hospitals would -- and we started in New York before we made a recent acquisition -- they would literally take from Langone Hospital in New York, they would get an ambulance, go to Teterboro, get a G4, and then go to Philadelphia, and you have the ambulance back, the whole thing took very long period of time, USD 65,000. We can now actually land hospital to hospital by helicopter. And if there are other modes of transportation, say like an ambulance, because maybe hospital doesn't have a helipad or you're landing in an airport or it's a longer distance, we can track with our technology that chain of custody for each mode of transportation along the way. So it gives them a lot of transparency to exactly what's happening on the mission. It's incredibly professionally done. We've got 15% market share. We think we can get to about 50% hopefully with time, and it's a growing business and good margins, I'd say, on the urban air mobility side or short-distance aviation, we're looking at 30% flight margins, but we do take risk and by-the-seat flights and utilization. We're probably closer to 15% or 20% on the medical side, but there's no risk of utilization, and also no marketing costs and long-term contracts. So you have -- you've got stability there and such. And look, they're like Blade. They're aware of the brand, they appreciate the logistics, the transparency, the professionalness -- professional nature of our team. We raised USD 360 million in gross proceeds and are going public transaction, no debt on the balance sheet, so we have financial wherewithal. If you're used to dealing with mom-and-pops, they tell you like, when you deal with institutions on the procurement side, it's like to say like the janitorial service company that has the school district for 30 years. By year 28, they're dialing it in. So we try to earn it every day, and I think people recognize that. We've been getting a lot of contracts, and we grew 175% year over year last quarter. And it's been a terrific business for us.

Who are the competitors in the organ mobility sector?

A lot of mom-and-pops, so it's very fragmented. So M&A is a core competency of this company. We bought Trinity Air Medical, which is right here in Arizona. In fact, we're visiting and had a Board meeting with them just over the past couple days, and they are competing with hospitals who know a couple guys with a plane or helicopter or a bunch of ambulances, very fragmented, but really operating with a different level of detail, focus, and not as a comprehensive nature. There's also the billing cycle, as you can imagine, being repaid for hospitals takes time. Hospitals are customers. We don't have any issues with insurance companies like EMS does. So I think they appreciate moving to more of a global company, with a good sound financial footing and also a great technology stack. I cannot overemphasize how important that's been for us to get customers.

So it generally sounds like regional little fiefdoms of private operators that maybe service a handful of hospitals. Maybe that potentially could be an acquisition target for you guys over the longer term, but...

Some of the bigger ones. But I think with the smaller stuff, we've got a great sales team and I think it's really about getting in contract to contract, and we've been very successful competing for those contracts. And also, the overall business is growing because for a bunch of reasons. Hospitals now have the technology to allow organs to travel longer distances. The definition of a qualified organ or a qualified recipient has gotten much more lenient. So listen, when I was -- I'm old enough to remember they used to do movies of the week on TV about people who received a heart transplant. It happens so often. We're doing hearts, livers, lungs, and we definitely see an opportunity in kidneys. Kidneys tend to have a longer life and don't really need the services that we provide. But there's a lot on the logistics side that we can do, and there are instances where you do have a short life. And there's also other precious cargo like radioisotopes and tissue samples. So it's a fantastic business and it's a great other side of the business for us that really runs well and is not dependent on next-generation technology that isn't here yet and such. And I think the thesis of everything that we do is we have a profitable, we make acquisitions that are profitable and accretive on day 1. We have positive flight margin since day 1. And the focus really is on building this great business using current technology, and at some point in the future, when EVA is here, our addressable market just gets bigger. And that's really because we'll be able to land at places that you haven't even dreamed of because right now we're really dealing with existing infrastructure and the big barrier is noise, and that's what EVA solves for us.

Yes. It doesn't seem like there should be seasonality to the MediMobility business either, right?

There isn't seasonality. We're very recession-proof, which is terrific. And it's -- yes, can't say anything pretty negative or bad. It's a great business, great complement, and it also builds -- it supercharges that [ throw weight ] in reverse. The more aircraft we need on the medical side, the more it helps the urban air mobility side; the more aircraft we have in the urban air mobility side, the more it helps the medical side. The technology platform is used across both, our staff works across both, we have needs for multimodality in terms of ground transport when we connect people between their commercial terminal and a Blade helicopter. Same thing sometimes happens with having connectivity for doctors and organs between landing zones and hospitals. And in the future, the whole dream obviously is landing on top of buildings, and we're doing that almost every day on the medical side.

Got it. Now I think you talked about it mostly as a U.S. centric business for now in terms of the MediMobility, right. So I think what was your share number earlier in terms of...

At 15%, we think we see a path to over 50%. 15% to 20% maybe we're now.

Okay, so you do have some [ beachheads ] now in Europe. So is the MediMobility business something that you can think about for international as well, or is this...?

Yes, we're seeing opportunities there. We're being very careful in the sense that we're very -- we've really got M&A chops our team, buying profitable companies that are accretive in day 1, very focused on integration. We recently did a 3-company roll-up in Europe. We're now the largest premier urban air mobility operating company in the world but also definitely in Europe. And we've got to get those really to the point where they're Bladefied, we have the same level of customer service that we have here, the same technology stack. And that is one of the things that we bring to these acquisitions and really saving costs and improving revenue enhancements by using our brands, our tech platform, our customer service platform, what we do in terms of look and feel in terms of terminals and lounges. And once we get that, and we really understand the geography, we'll start looking at ways to use those aircraft even more efficiently by bringing in medical business at some point.

Got it. You guys reported pretty impressive third quarter revenue growth. So what are some of the highlights that you wanted to relay to investors out there?

So revenues increased about 125% and our flight profit was over 100% for the quarter year over year. And as I said before, on the organ side, we grew about 175% year over year. And this is something like that kind of growth you can only have being asset-light because you really need to flex in terms of when you get that demand in and you need to have that technology and those relationships that are integrated to flex the amount of aircraft. You can't just all of a sudden, my God, I got this new contract, let's go buy some new aircraft. You have to have this integrated network of vetted operators that are using your technology stack, that are branded, that you have set deals with in terms of how you pay them and when you pay them and how much you pay them. So it's been very -- we've been able to keep up with the growth. I don't think if we owned our own aircraft we'd be able to do so.

Yes. One of I think the other thing...

Yes. Sorry, one last thing I'd say, just talking about the quarters that I know a lot of you listening in, both in the room and been asking questions of a lot of companies about the impact of inflation, the fear of recession, jobs, hybrid work models, all this. What I can tell you is in terms of the consumer side of our business, we grew our short-distance business; we raised prices about 25%, in some cases 30% and we -- in our summer quarter for most of our business that is seasonal, and we increased our revenues, and we did not see any kind of real impact on the take-up rate on that. So we do think we have -- especially in our high-end products a fair amount of pricing flexibility.

Yes, got you. Now one of the other themes that you guys highlighted for the third quarter, I think it's in the shareholder letter, was the path to profitability. So what have you communicated to investors in terms of the building blocks to get to that profitability?

Yes. So over the past 12 months, we had an EBITDA loss of about USD 25 million. As you know, we recently acquired this set of European companies, and we've said, in that first full year, it'll probably add single-digit millions, so you call it USD 5 million or USD 6 million. And you've seen the growth of 175% year-over-year in MediMobility. Let's say that slows down to 100%. We're obviously growing market share there as well. Now you're talking about an USD 8 million loss. And that's without doing dynamic pricing, the integration benefits and supercharging Europe with our brands and such, and also we have a lot of people in the U.S. who are using the service over there, increased performance in Canada as they pull out of COVID, all that off the table, you're already at negative USD 8 million. So we do see in the call it the near term flipping to that cash flow positive place that we all want to be. And as I said, clean balance sheet, over USD 200 million of cash on the balance sheet after a lot of these acquisitions, and our business model plan, and our going public transaction was really showing a need for like USD 150 million. So we've got a great balance sheet. We do not need to raise capital. We have no intention of raising capital. We have an intention getting the share price where it needs to be.

Got it. All right. So I think you touched on this earlier, but you brought up the short-distance business. So what markets do you operate in currently and why did you choose those markets?

Yes. So, again, we believe that you're never going to see a map coming from Blade that shows a map of the world and lots of red dots in all these different cities. We want to be an inch wide and a mile deep. 27 million people go between New York City airports and Manhattan, excluding public transportation. So excluding trains, buses, even these super-vans, just cars. So that's like Ubers and Lyfts and rental cars and your own car, and we're less than 1% on that right now. And we have shattered the Uber Black pricing at USD 195, we shattered UberX actually if you buy an airport pass where it's only USD 95. So we turn 2-hour drives into 5-minute flights. When you fly us in India, you're turning a 5-hour drive to a 30-minute flight when you're going between Shirdi and Mumbai, and in Europe you're flying between call it Nice and Monaco, especially since it's so event-driven, again, 1.5 hour, lot of traffic, you're going through mountainous-type terrain, it's not a straight line like you can do in a helicopter. That's like a 10-minute flight. And in Vancouver it's really interesting because it really isn't so much about traffic, it's about water. When you want to go between Vancouver and Victoria or Nanaimo, you're taking the ferry or you're taking Blade, or maybe a seaplane, depending on the season because in the winter the seaplanes really can't go after dark, so you're done at 3 o'clock or maybe 4 o'clock if you're lucky. So high friction, lots of traffic, dense markets. And then when EVA is here, again, that big unlock of not having noise, and we're talking about think about our deal with BETA Technologies, we're looking at their aircraft. We'll be doing a test probably in the early part of this first quarter that as an aircraft that is quiet on takeoff and absolutely silent in overflight. And that's going to be the unlock for more landing zones because, Stephen, if I can have a landing zone 2 blocks from where you live, that's much more valuable than if you have to get in a car 15 minutes to go to a Blade heliport. And so that really is when you start seeing exponential growth in our addressable market. And so we -- the goal was always to say -- when we were talking to our initial investors, like, look, we don't know when EVA is going to exactly be here, '24, '25. we don't know who the winners are going to be. So let's take a look at Blade because it's going to be very tough for these manufacturers not to work with us just given the footprint we have in terms of customers, brands, exclusive terminals, and such. And then also this is a business that's built for profitability today. We don't have to wait until EVA is here, and we also have this great medical business that feeds really nicely into it. And so whether you think it's option value on EVA or whether you're putting a firm date on it, it is an interesting way to play the sector.

Yes. You lock up the consumer demand ahead of time and force the equipment owners to come to you.

Yes. And they seemed to believe me. I spent 7 years trying to convince people getting helicopters. It's going to be easier for me to convince someone who's been in a helicopter to get into an EVA than it would be for just some manufacturer based in Silicon Valley and working out of a warehouse to give people, who've been using cars, who've never been in a helicopter. So I think that transition is actually going to be much easier. The brand is really strong. We started with a high end. We've been working our way down to being something that's really affordable for almost just about everybody.

Yes. You touched on this on your prior remarks, but I think you guys announced that you will be conducting a test flight with an EV aircraft with BETA Technologies. So can you share any sort of details about that?

Yes. So BETA Technologies is based in Vermont. And one of the reasons we selected them as our first EVA partner is because they are keenly focused on getting to market with path of least resistance, well capitalized, probably USD 800 million or USD 1 billion private, not trying to fly themselves, and they picked 3 great partners. They picked I believe us on the passenger side, UPS on the cargo side, and United Therapeutics on the medical side. And they have -- they are part of the Agility Prime program with the U.S Air Force, so they're flying every day with them, and they're flying every day between Burlington, Vermont and Plattsburgh, New York, and we're hoping to do a test Q1. It's been pushed back a little bit from Q4 due to their U.S Air Force testing, probably early part of Q1 in the Greater New York City area. So we can actually have legislators come and see that this aircraft is real, it's emission free, it's quiet, and start really building -- you get these building blocks out there to get approvals to build landing zones for these aircraft because in the beginning the good news for Blade is that they're going to be landing at our terminals because we already have a lock on a lot of key infrastructure in key markets. But we want the industry to grow and that's going to require a lot of our landing zones in a lot more convenient places, too.

So it doesn't sound like any of the recent delays in the OEM certifications are really going to affect you at all.

No, it's not going to impact us because our business was built that that's something that would be just an asset swap, right? Again, going back to that Netflix analogy of what streaming was to Netflix, EVA is to Blade. They went on with DVDs and bags for quite some time and were pretty successful at it. But it didn't get that huge TAM right until they were able to do streaming. And so we're looking forward to it. We were always a bit more conservative than they were. People were saying '22, '23. We were out there in '25. '25 feels like I think you're going to be seeing them out there. You may not be paying to fly in them, but you'll be seeing them, just like hopefully you'll be seeing them with this test that's coming up.

Okay. Of course, that's somewhat dependent upon the government, and they have their own timeline. So I guess what needs to happen from I guess a regulatory perspective? You've mentioned I guess concerns around noise. And is the regulatory environment in the United States materially different versus what the case might be in Europe?

Yes. Well, I think Pete Buttigieg, because this fits nicely into the green slot of transportation and also when you think about the city of the future, what does City 2.0 look like, if you want to be competitive with literally the Middle East, even Paris and a bunch of other -- come to Singapore, there are a lot of countries that are a little bit more ahead of us in terms of coming up with what they believe is needed for infrastructure and regulations for Electric Vertical Aircraft. But I think Pete Buttigieg, because this fits very nicely into the green program, is going to put certification on a fast track obviously not without compromising safety. So it's really about certification, and I think that BETA and maybe one other company are probably best positioned to be in that path to certification in terms of those kind of timelines. I don't believe it's a question of technology. It's not a question of like the batteries last long enough, it's not reliability. I think what I've seen in these tests, they're really impressive aircraft, but the FAA and certification, it's a job they take really seriously as they should, and when they're ready, they're ready.

Yes. I would have to imagine in Europe there's probably an increased amount of focus on the green angle.

Absolutely. So EASA, which is the European's version of the FAA, is very, very much focused on that. And it even drives this more in terms of the carbon footprint of aviation of why they need to certify it. We look at it a little bit differently when we think of a helicopter. Helicopter burns 40 gallons of jet fuel an hour. It's actually each passenger on a 6-person helicopter is leaving less of a carbon footprint than 2 passengers in an SUV going to JFK. So we're not as focused on that, even though it's important. It's really the noise is the great unlock. In Europe, you're 100 right, they're very much focused on the green aspect.

Got you. Now let's hop in a time machine. It's now December of 2023, and we're sitting up here on stage once again, and we're reminiscing about what you were able to accomplish in the prior 12 months, so what do you think we're going to be talking about?

Well, hopefully, we'll be talking about great performance in the company.

Yes.

And I think that we'll have had our test, I think EVA will be that much closer, and a lot more tangible to people. I think I hopefully will be talking about successful integration of our European business, and then also tremendous growth on the medical side both in terms of contracts and new markets. And then hopefully, we'll also -- the building blocks to profitability will really be self-evident hopefully around that point because really this is -- we're economic animals. This has always been a company that was started with a culture of fewer people working harder and treating each dollar like it was your own. It was never a growth-at-all-cost company. So we've been well positioned for that. So I think when you invite me back next year, I think it'll be a good meeting.

Awesome. All right, I think we'll wrap it there.

All right.

Thanks for joining us once again.

Thank you, Stephen.

All right.