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

All right. So I think we're going to go ahead and get started. I'm Stephen Ju with the UBS Equity research team. I'm joined on the stage by Rob Wiesenthal, who's the Founder and CEO of Blade Air Mobility. So welcome back.

Thank you for having me. Sorry, third year in a row?

I think it's the third year in a row. Yes. I see Will in the audience as well, so just he doesn't feel left out, but welcome back, Will. So -- all right, so.

And I thank for all of you who fought for a seat today too, so thank you.

Awesome. No. It was a battle.

So at any rate, let's start at the top. I mean, Blade today is very much a different company versus the one that went public several years ago, right? So can you briefly provide an overview of where you are now and how the portfolio of businesses you have today have evolved over time?

Yes. Well, I think the portfolio of businesses definitely has changed, but the strategy hasn't. When we started the company in 2014, it really was to build the ecosystem for what we saw was really coming quick, which was Electric Vertical Aircraft, so the same battle that was happening. The ground was clearly going to move to the sky, and that goes back to my days when I was Head of Corporate Development globally for Sony and did a lot of work with lithium ion battery procurement strategies and such, and like -- they were getting cheaper and lighter and more powerful. So we knew that those batteries were going to get to the point where they can not only roll wheels on the ground, but provide enough power that provide lift for aviation. So the idea was that there were a lot of companies out there that are being pouring billions of dollars into actually building aircraft, but no one was building the ecosystem that was really required in order to make these services a reality. So that required infrastructure that we now have to facilitate passengers that were all largely exclusive and proprietary. We have multiple terminals in the Northeast, in the New York area, we have it in Western Canada, and we also have it in Southern Europe. And so these are places where if you need to have a real large business, you need to aggregate passengers, do baggage assessment, you need to make sure people are getting on the right flights, and it has to be just for you. You can't have multiple operators doing it. And it's clear that the places that we all land now are private airports and private heliports that used to only deal with, frankly, owned and operated aircraft by individuals or corporations, but not scheduled service like the kinds that we do right now in all 3 of these big locations. So that was really important, and allows us what we call turn times to get people on and off aircraft quickly because we're moving tens of thousands of people to the airport a year. You get flights going on a Friday every 5 minutes or such to various destinations, especially in the Northeastern during events like the Monaco Grand Prix in Southern Europe, things like that. You need that surge capacity. The second part was a technology stack that goes from consumer to cockpit, so that's everything from the consumer-facing app where you can essentially book a helicopter 20 minutes before a flight and see your schedule. That works in Canada, Europe, U.S., and there each experience is slightly different. Everything process in currencies, [indiscernible] transactions. And then you have -- in cockpit where pilots can actually help use tools that compute weight and balance, which is really important because before Blade, you'd really need the manifest of who's going to be on the aircraft sometimes even a day before because weight and balance in terms of fueling and such, aircraft are sensitive to that. You really need to know how do you fuel before your mission. So one of the things that we solve there. And then finally, the third pillar really is this incredible brand. I think we're the largest operating urban air mobility company in the world. Blade is a verb in the markets we serve. You Blade to the airport, you Blade to Monaco. We have routes and we have hundreds of thousands of flyers at this point. Those were the numbers pre-pandemic, and now, we're kind of moving back into that numbers that are approaching that. Most of our areas in the Northeast were bigger than we were before the pandemic. And so those are the 3 pillars, and we do this on an asset-light basis. We neither own or operate any aircraft, and that's to help facilitate that transition from conventional rotorcraft to what we call EVA or Electric Vertical Aircraft. So the analogy that you and I have talked about in the past was very much the analogy of Netflix back in the day, sending DVDs around but calling their company Netflix. We don't call our company Blade Helicopter for a reason, but they're waiting for streaming to get to the point where it was viable. That's where we are right now. We have the ecosystem. We're flying people on the routes that will be essentially roughly the same cost at the same time for the distance, but we'll be able to do that hopefully by 2026 at a certain point on an emission-free and quiet basis. And that's a game changer, and we're one of one, we're the only company doing that. Along the way, and this is what you're alluding to since we became public, we saw tremendous opportunity in using our logistics platform and the people that are working 24 hours a day to use the same aircraft that we use for passengers for medical. And today, we're now the largest air transporter of human organs in the United States. It's a terrific business. It's growing incredibly rapidly, very strong margins, and -- but it also allows our operator partners and us to enjoy better economies of scale because the same aircraft that are flying people during the day are flying organ missions at night, which means an operator can amortize his fixed costs or her fixed costs on hangars, insurance, annual salaries for pilots, maintenance people over a 24-hour period, associated 12-hour period, and that reduced their hourly cost dramatically. Good for us, good for them, so there really is a symbiotic relationship. And also the same people, the terminals are also used as check-in points for doctors and organs, and we're saving lives and improving outcomes. Before Blade, our first client, Langone Hospital, when they would do a mission to Philadelphia hospital, that could be $60,000 for the ambulances and a G4 Jet. We now can do that with a helicopter from hospital to hospital in the $4,000 plus range, so it's been terrific. And I think the 2 businesses fit together really nicely, and it really accelerated our path to profitability. And as you know, we had our first adjusted EBITDA positive quarter this past quarter, so I think we're on the right track.

Yes. Speaking of that, I mean, I think the third quarter results were better than expected. And as you mentioned, both on the top and bottom line and return to profitability. So are there any sort of key highlights that you want to bring up for investors in terms of what drove that positive growth?

Well, I think there was some skepticism on our ability to essentially beat Uber prices on our Blade Airport product can be profitable, and we've proven in this past quarter that is a profitable business. Both the JFK and Newark as a whole, this -- the airport product is a profitable business now. And a lot of that was done by add-ons, things like excess luggage, a car that meets you on the way once you arrive, but also dynamic pricing in fare classes. So you have 3 different fare classes. One is you can't get a refund, one is you can get credits back, one you get cash back. And so I think that all those things together got us to the point where our average seat prices now north of $300, despite the fact that you can fly for as little as $95 with a purchase of an airport pass or $195 without. So it's clear that of the 27 million people who are going between the New York area airports and Manhattan, that the ones that are trying our service tend to be on a higher demographic despite the fact there are lots of people that can afford that. That's just the natural curve and flow of early adoption versus mass adoption. And I think we're really enjoying that right now because people do have a choice for lower cost, lower-priced airport seats but they want to take the add-ons, and that really has accelerated our path to profitability or accelerates into profitability for airport. So I think that's -- and also dynamic pricing. I think that was a big driver. And then we also have the performance of the medical business, which is really continue to grow and adding hospitals. And margins are improving, which were already pretty strong. And I think we're now at the point where we said in our last earnings call that we are comfortable enough with where we are on the profitabilities in sight, and that we will be giving guidance for the first time for '24 and '25 at the end of our next quarter.

Got you. All right. Well, I think also in the third quarter, I think you announced TOPS which is Trinity Organ Placement Services is the full name. And that is set to -- I think that went live -- it's going live on December 1, and you've already onboarded 2 key customers. That said, you already have about 70-plus customers, existing contracts, so what needs to happen to onboard these customers to the new service? And are they waiting to see the ROI? Or what are some of the key KPIs that you're monitoring for that?

Well, like I think that it's clear that each of the hospitals are now realized or that were 24/7 that we have the ability to do logistics quite well, and would like us to be more involved in that entire process. So the organ procurement organizations that are ones that get an organ and then UNOS, which is a massive organization, that is the one that actually maintains the list of organ donors, decides -- looks at the list and decides what hospital is going to -- it'd be assigned to, and they have some basic specifications. So what we do is come in and actually do figure out if it really is a match based on the specifications required by that hospital. Now usually that happens in the middle of the night surgeons are sleeping. We're now doing that for them, and that actually is a job it really would like to give to us and they trust us to do it. So I think it's terrific that they do trust us to do it. We already -- as you mentioned, we already have 2 contracts. These are going to be $0.5 million to $1.5 million per hospital. Very strong margins. But it also gets us into the process earlier, so that allows us to make sure that we are best positioned to do the transportation of that organ. It's going to be a better service for them. It's going to be -- we're going to be much more involved earlier, more time to scramble the aircraft, know what's going on, know what time they're hitting the OR. We're going to have a lot more information to provide a much better and even better service for our customers, and I think it's going to give us a real edge versus competitors that we have.

Got you. And I think you mentioned $0.5 million to $1.5 million. I mean, at the midpoint, TOPS, could be theoretically grow segment revenue contributions by 50%, right? So is this how we should think about the upside potential for this new segment? And I guess, what are some of the puts and takes?

Well, I think look, we're always trying to add more hospitals. Some of these hospitals will be using the service, some may not. But I definitely think I'm looking at it as supercharging our medical business with brand new lines. And so when we take a look at how do we grow, there's a lot of opportunity for organic growth despite the fact that we have $174 million of cash on our balance sheet approximately and no debt. We're looking opportunistically at acquisitions that are accretive day #1 and that are snap-on and that are low risk with respect to integration. But when we see something like this, here is a great way to grow, frankly, with minimal investment. And there are other parts of this value chain in terms of the transplant business that we're evaluating now that I think can be as much, if not more interesting and more compelling economically than even TOPS.

Got you. And with that being said, I think you might have talked about this before where the amount of transplants that you're even currently handling versus the entirety of what's been done in the United States or happening in the United States, I mean it's a small sliver. So there's -- it feels like there's a very significant opportunity to expand your addressable market...

Well, it's a business of mom-and-pops for the most part, and so -- and organs, the aperture of what organ and organ is suitable for transplant is increasing, and organs are now able to travel longer time -- longer distances and longer times out of the body with [ perfusion ] technology. We actually work with a company called Paragonix that -- and we did the world's longest organ mission from Boston to Alaska, and that's something that a couple of years ago was unheard of. So I think a lot of the growth is coming from some of these longer distance flights. And also, as I said before, just the medical technology in terms of what is an organ that's suitable for transplant, so we expect this to really continue high growth.

Okay. So it sounds like technology is your friend, your competitors are subscale mom-and-pops and you're going to go out there and consolidate the industry?

Well, yes. And I think that in terms of consolidation, I think, when we look at opportunities, the team is very confident, and I think they look at growth in terms of a contract-by-contract basis with the hospital as opposed to necessarily buying someone who's in this business who has contracts. I think our legacy and our performance -- I think we like to compete in those contracts. I don't -- we don't necessarily see all the time an acquisition of someone who has contracts as the most efficient use of capital.

I hear you. Okay. Why pay the equity holders of those said business when you can go out and get the business?

Sometimes, yes.

Yes. Got it. Mentioned the EVA earlier, so I think EVA testing is underway in Canada. And your first test in New York City is set for the first quarter, do I remember correctly?

No. We actually did a test last year, first quarter. The first test in -- there it is on the screen. The first set of EVA in the Greater New York City area with a company called BETA. That was the very first test. It was obviously successful. It's a terrific aircraft. There was a test of 2 other aircraft, both Joby and Volocopter. We're very excited about that. We talk to these companies every day. It's great for the industry. They did at the Wall Street Heliport, and I think it -- and we work very closely with Mayor Adams' office and the EDC and the [ HRPT ]. I don't need to tell you what those acronyms are, but they're basically organizations that handle all the heliports in the New York City area, and they're very excited because they see Blade as being a huge catalyst of getting those operators that are entrenched in Blade as our partners, because we're not a marketplace. People should know that. It's not like Uber. You can't just get a stick, take a phone, download an app, put a suction cup on a windshield of a helicopter and fly for us for a day. These are relatively large operators who go through our massive due diligence, use our branding, use our technology. And the catalyst for those operators flying helicopters to make the shipments to EVA or some of you guys may call eVTOL is going to be Blade because we have the hours, we have the passengers, we have that throughput where they can finance against that, those hours to make that transition quite rapidly.

You mentioned Mayor Adams' the other stakeholder and this equation is, of course, the government, right? So how does regulation for EVAs or eVTOLs differ from the current existing aircraft? And what are some of the friction points that you think you might need to have...

Well, I think it's -- yes, you're 100% correct. The big -- what's standing between us and EVA adoption is certification, and I think people are moving very quickly with certification. Some people are saying 2025, we're probably more about 2026, and it will probably be very few aircraft in the beginning. And because we're so big and do so many kind of diverse routes, we need a portfolio of different types of EVA because the same aircraft that goes to -- as an organ mission is different than one that goes to the hospital. That's different than one that goes to, say, Washington, D.C. or even flying in between Nice and Monaco in Europe or Vancouver and Victoria in Canada, so we need a portfolio. So I think the start for Blade will be using them where we can move people between helicopters and EVA. It's clear from our own research that it's going to be much easier to get someone to go from a helicopter to an EVA than, say, from a car to an EVA. They may want to see how it is. It's a new type of propulsion. It's kind of aircraft and aerodynamics people haven't seen before. There may be some concerns, but we know that our passengers are quite excited about it. But I think kind of in 2026, you'll start seeing them so that the real gating factor is that. But this government, especially in [indiscernible], because it's green, that is a very big deal. So I think they've really accelerated that adoption process and feel the pressure to -- just as you feel to see the pressure on the ground moving to EVs and hybrids, they do the same thing in the sky. So I think they're moving as fast as they can at a prudent level. Obviously, safety is the #1 paramount concern. And the great news about Blade is that if it's late, we still have a great business that can be profitable and we just grow that much more, have that many more terminals, that many more routes ,passengers, revenues. And if it comes -- when it's supposed to come, great too, but we're -- there's no waiting for [indiscernible]. We're here and running a great business today with conventional aircraft. And I think it's also important to know that the price the aircraft really in the beginning is not going to be that much different. And the experience for the customer is going to be pretty much, especially if you think about like an airport flight, exactly the same. Five minutes in the air, 4 minutes to the Newark, 8 minutes to Kennedy same basic price, but it will be quiet and emission-free. And what that does is it gives you the great unlock of opening more landing zones. And any pair of landing zones, either business that can grow you exponentially. And right now, the only thing that stops us from opening more landing zones is noise, right? And so -- what's going to happen is you're going to have EVA come onto play, but we are the incumbent in terms of having these exclusive terminals. And then it probably could be 3 years, maybe 5 years before you actually get these new landing zones because that's when you get into the real regulatory on the local level of whether people not want this technology in their backyard. But luckily, we can use our existing network to start, and eventually, it's going to -- it's clearly going to happen. I mean even one new landing zone, say, for example, in Manhattan south of Central Park, north of 42nd Street, could give an exponential rise in terms of the kind of revenues we would have in the Northeast just because of the interconnectivity and network effects of Blade West, Blade East, Wall Street. So not only having airport routes, but having routes that are interim Manhattan that sometimes, say, this time of year, take you over an hour to get from Hudson Yards to Upper Midtown...

Yes. And mentioned green, mentioned noise, right? So the other place where you have a footprint is, of course, in Europe. And I think the regulatory backdrop there, I think there's stricter, I guess, parameters with carbon and noise emission. So theoretically, the eventual rollout of EVA isn't that becoming more commonplace should help ease some of those concerns. So you should theoretically be, I don't know, perfectly aligned with what the government wants to do there. So should we look for the same set of catalysts for both passenger as well as the medical business in Europe as well?

Well, it's interesting. I think now, we're actually seeing a lot of interest from European investors too because of the ESG element. There is much more focus on emissions. I would say the U.S. is focused on noise, and Europe is focused on emissions. There is also a focus on noise in certain parts of Southern Europe, some of the [ Missouri ] areas and such. But I think that EASA, which is the European version of the FAA, is very much focused on accelerating this as quickly as possible. And the good thing about EASA is that they haven't constrained us in terms of the existing rotorcraft operators and where we operate ahead of the deployment of this because they know this is the path. So I think it is a great opportunity and could be -- is going to be enjoying acceleration there for sure, and has a nice -- a nice balancing effect from what we have in the U.S. But right now, our medical business is strictly in the U.S. That's where we see the opportunity. It's a very different type of organ procurement process in Europe. It's more country by country. Very, very different and something that we're probably -- I think we see so much opportunity in the U.S. I want to keep focused on that in terms of medical.

Understood. Now without EVA and waiting for '26, I guess, should we be thinking about any other potential flight [ quarters ] you see opportunities in domestically or internationally?

Well, I think -- one thing I'll say is that part of the reason for the success and the fact that we were around now and we're able to go public when others couldn't is that you're never going to see a map of the globe with Blade with [ TOPS ] all over the place. With the landing zones you have right now, we are on the 3 largest markets in the world, period, because it's all about where you can land. If I can land a block from your house, that's a lot more valuable than you having to spend 40 minutes getting in a car just to save 20 minutes. That doesn't make any sense. And so we rather -- our view is we want to -- instead of being an inch wide, we want to go mile deep. There's so much penetration to be had. We talked about the Northeast, 20 million people going between the airports in Manhattan. We're in the tens of thousands, and so there's so much more to go there. Same thing in Europe. Europe, during COVID, they stopped by the seat service between Nice and Monaco. We restarted that great opportunity. We're now -- we've been looking at Milan because our partner, RedBird Partners, who owns RedBird Capital that owns a stake in Blade, recently purchased AC Milan football team, and we noticed there's a lot of traffic between Monaco and Milan. So we're really trying to be -- go deeper in the areas that we are. That's the best opportunity for investors. It's the lowest risk, quickest return as opposed to what you hear from other companies where they're saying, let's fly from the Orlando Airport to downtown Orlando, an 8-lane super highway that was built 20 years ago and no traffic, and it just doesn't make sense. You have to either be geographically contested, like you have in Europe. We've got mountains that have to go over and through and sometimes -- or you have to be highly congested like a New York City. And so that's really where we see the opportunity. Once EVA is here and we have new landing zones, then you're going to have the opportunities for [ newest ]. Now we've done some experimentation on the West Coast as we've talked about before, but the landing zones just aren't there. It isn't a compelling product. We need a compelling product. They have to be priced right, save time, provide a good experience.

Got you. Now seats flown grew sequentially as well as year-over-year, and in line with sort of historical trends. But marketing dollars remain relatively consistent, so is this -- has the increase in seats flown, has that been driven by existing customers or new users? Or anything you can share in terms of the rate of repeat customers? And how has this been trending over time for you?

Well, I think we're very happy about new customers, especially on products like the airport product, where it's not a mature product like some of our leisure routes where we're now close to 100% market share in some leisure routes. And I think you'll see marketing dollars, I think they have come down a bit because now that the top level of awareness is there, it's much less expensive to get someone who has flown before to fly again, than to get someone brand new to -- that's a process of getting awareness and then convincing them to fly. So offering new products when people fly, showing them the way they can use it and brining companions to go in different places, that we've been very, very effective with that. And I think the good news is, I think post pandemic, we really made a huge push once we turned the airport back on after the pandemic. It required a lot of marketing dollars. I think those marketing dollars, we now can spend those and be much more conservative in terms of that spending, which should enhance our margins going forward.

Got you. And speaking of margins, is there a meaningful difference in flight margin for passenger versus vertical? Passenger versus medical?

Yes. The medical is slightly less than the passenger business, and I think that mature routes on passengers can be 30% plus. And -- but on the passengers and also the -- on a blended basis, you're in the kind of like 16% range on passenger and maybe 18% probably -- excuse me, [ 16% ] to 18%, maybe a little bit more, and then you're slightly less than that on the medical side. And -- but medical, you're not taking risk right? Because as opposed to you don't have any utilization risk, so it actually is a smart margin in the sense that it's much more -- it's less prone to volatility since every time we do a mission, we know we're being paid for it, we know what it costs, that margin's kind of built in, whereas you do have vagaries of seasonality in passenger. We're much less seasonal in seasonal and the medical business.

Got you. So it's not an either or, it's both?

Yes, and the blend is great. You want to have that blend between the -- having those contracts and having the utilization risk. And it's a great balance between that and the passenger side where while you do have charter, you do have the ability to have that great TAM really is the way to see the business because it makes it -- we make it affordable. We're beaten Uber Black every day, we are beating UberX during a lot of -- during prime times, and we're handily beating it from people who are purchasing airport passes, say, in the Northeast. . And in Europe, it's a very compelling product as well. And in Canada, as much as people think that helicopters are kind of this high-end product, it's mostly government employees, government lobbyists, people who do work with the government who are flying between Vancouver and Victoria. Victoria is kind of like the Washington, D.C. in Western Canada. So it's not considered -- considered mode of transportation.

Yes. We're almost out of time. So let's fast forward a year from now. We're sitting here once again at the UBS tech conference. And what do you think we'll be talking about -- at that point in terms of what you've been able to accomplish in the prior 12 months?

Well, I think hopefully, you'll -- I'll say you will see, hopefully be quite pleased with our financial performance and the progress that we've made. I think TOPS is going to be really hopefully showing its colors a year from now that people will feel comfortable that this is a nice new leg, like, kind of leg in the stool in terms of medical. We'll continue that growth in medical, because you're continue going deeper in the core products that we have on passengers. And also, I think we definitely are really working on a hell of a lot more -- as much efficiency as possible to get out of our business, especially when it comes to operating expenses and corporate overhead. And then I think if we take a look at our expenses that are non-flight expenses as a percentage of revenues were consistently pushing that down. That's their process, and that proves to investors this really is a platform. When you see increasing revenues and you're seeing your percentage of costs declining as a percentage of revenues, that's showing people the platform is working, and that's our continued focus and goal.

Got you. Rob, thanks so much for joining us once again.

Thank you.

Looking forward to watching your progress.

Great. Thank you.

Thank you. Bye.

Bye.