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

Great. Good morning, everyone. Welcome back. Next company up at the BofA Transportation Airlines and Industrials Conference is Blade Urban Air Mobility and we have their CEO, Rob Wiesenthal, with us. Rob thank you for coming again.

Thanks you. Thanks for having me.

Sure thing.

Maybe just kick off based on conversations we were having right before coming up on stage. I think people know Blade for maybe one reason, but probably not for the biggest reason that Blade is in -- in terms of where Blade's business has gone. So maybe can you start with just an overview of the business, kind of I think you'll need to teach some people that it's a little bit more than a chopper service. So over to you.

Sure. This is now our kind of 10th anniversary next week. So there's -- and over the 10 years, we've built a global brand. It's probably the most -- it's definitely the most recognized brand with respect to kind of vertical transportation and probably one of the most recognized brands in terms of kind of -- that kind of private aviation segment or small scheduled service business in terms of aviation. But I think that we've spoken in the past and you've said that medical is now a meaningful part of our business. And I think it's more than meaningful now. It's core. And we're talking about a business that had 135% year-over-year EBITDA growth, 600 basis points of increase in flight margin, a really terrific business that leverages our core competencies and it's clearly going to be the engine for growth of this company going forward. And at the same time, the passenger business, which is clearly our DNA, we are the largest -- we fly more people by helicopter for transport than any other company in the world, period. We do that in the 3 biggest markets, which is the Greater New York area, Southern Europe, which goes literally from Monaco Cannes, Saint-Tropez, Courchevel, Geneva and then in Canada between Victoria and Vancouver. And those are the big 3 markets that are important to passenger infrastructure, which is definitely a barrier to entry. For others, since we have a lot of it, you need places to land and we basically decided we were going to go for the places that are the most convenient for the customers that provide the greatest value in terms of not only how much does it cost to fly, but how much time it is safe. And those are those 3 markets. You're never going to see a map of the world from Blade. You're never going to see us flying from Orlando Airport to downtown Orlando across 8 lane super highways because you saved 20 minutes. That's not a business. There are other people want to do that. That's fine. I think it's a lot of that you see as a showcase electric vertical aircraft. But at the end of the day, we're about having a great experience and saving time on a cost-effective basis for our flyers on the passenger business.

Yes, based on commentary from some conference attendees and the time that it's taken them to get from JFK into Midtown. I think I need to sign you up one of these years.

Probably one of these days.

But could you provide just some stats from -- for a perspective just in terms of revenue contribution, medical versus passenger maybe EBITDA contribution as well?

I think that right now, we surpassed. We're run rating about $135 million in revenues on medical and about -- north of about $100 million on passenger maybe a little north of that. And it is, as I said, the growth and the increase in margins on both EBITDA and flight profit line on medical's tremendous. And on the passenger side, there's been a lot of investment in growth. The passenger business was a money-losing business for a very long time. It is now -- we're in a number of quarters of flight profitability. I think there were a lot of people weren't sure we're going to get there. And it is a huge business for us. It is a great customer acquisition vehicle. And it is absolutely strategic when it comes to the transition to EVA, electric vertical aircraft or you may call -- some people call eVTOL, because these are the most busiest routes in the world. 28 million people go between the airports in New York City and Manhattan, we're flying kind of tens of thousands, so we're not anywhere near penetration. But again, I think, I mean, the engine for growth is medical. And the place we are in passenger is incredibly powerful. We can get passenger to a place where it is profitable on an EBITDA basis. We said 2025, I hope for short -- before then. And then at that point, you have the opportunity for an exponential move in growth when EVA is here. When EVA is here, they're going to be quiet and emission-free and that is going to be an unlock to have more landing zones. The big construction you have on growth are landing zones. Because at the end of the day, if I can land a couple of blocks from your apartment, that's a very big deal. It's much better than you getting a car for 20 minutes, going to heliport, adding that time onto commuting time. Sometimes that value is not there. So that's the way we're going to grow. And again, so yes, it's quite, yes, it's emission free. But the reason why we grow form is that ability to have new infrastructure because community boards, governments, all that, local city, state, federal, they want quiet. They're not -- and if you take a look a look at New York City, all our heliports are on the water. Nothing is in the city. I mean, as I've said before, one landing zone south of Central Park in Manhattan, literally, it's kind of around where you are, North of Grand Central south -- Central Perk could literally be an exponential growth to our airport business. And then it starts opening up the doors to kind of intercity flying, which is, again, something else that expansion growth. So our idea is like let's keep taking this great medical business grow like gangbusters. We're #1, the largest air transporter of human organs in the United States, a great position, I think, better competitively situated both in terms of where planes are located, cost for the hospitals, and then let's keep building this passenger business. And at some point, you're going to make -- short term we'll have profitability, but -- and then hopefully, in shorter when you get certification on these aircraft, that's when you're going to see the growth in that part of the business.

Got it. I guess infrastructure is the -- probably the biggest -- it's a big issue, right? I guess -- I mean you mentioned, right, Midtown Manhattan would be a perfect opportunity for you. But where do you find the space? Like if you do find the space, what's the process like how long would it take to actually get through Board's approvals and actually get up in operation.

Well, I think you actually -- what you've highlighted is an incredible strategic advantage that we have, because we have existing infrastructure. And there's no question that what's going to happen is once we get certification, they will be landing in places where Blade has terminals. And there could be a 5-year gap between when they're landing a kind of in and around our terminals to when there's brand-new EVA only infrastructure, and that gives us a tremendous opportunity because when we say infrastructure, what does that mean. It's not just Atlantic zone. That means a Blade terminal where we're processing passengers. We are getting them to security checks. We're assessing luggage, we're checking them in and you can have multiple flights happening at the same time. All those people have to be organized and you have to turn those aircraft really quickly because you may have flights on a Friday that are going every 5 minutes, and you need to turn those aircraft. And you -- all of these pre-existing infrastructure heliports where we have strong presences, Remember, they were just basically pretty old private helicopter landing zones where big -- CEOs of big companies were kind of wait in a small box and the pilot will come out and say...

Let's go.

Yes. Andrew, come on, let's get on your helicopter and take you to where your next meeting. And they were never set up for by-to-seat passenger service. That's what we did, Eastside, Westside, at a certain point at Wall Street, Monaco. We're inside the terminals of Nice International Airport Terminal 1 and Terminal 2, unheard of. We're doing security check-in, I'm a tarmac. So when you actually land from [ Insanise ] from Monaco, you are getting processed on the tarmac, getting in a Blade sprinter van going straight to your gate. That's the kind of infrastructure that cannot -- it cannot be replicated. We have the exclusive right to fly between 2 countries between Monaco and France and Nice. That's an exclusive on a by-to-seat basis. So that is all infrastructure that are the kind of things that when EVA does come here -- it can't be replicated. We're going to have to start using it with us, cooperating with us. And then over 5 years, I think, then you'll get to the point where people feel that they're safe, they truly are, emission free. They have the capabilities in terms of payload and an amount of time, it can be -- they can be in the air and comfortable with the public with safety. And then you'll start seeing what we want this new...

Okay. So you all basically use your current infrastructure as the proving ground for the new concept and then as it's adopted...

You raised a good point. Everybody is asking 1 of the 2 right questions. When are these things will be certified, but not many people yet are saying, when are they going to be landing zones for these. That are beyond the existing infrastructure, which clearly is capping the growth for vertical transportation.

Right. Okay. So maybe moving on to Medical. I'll admit a little bit out of my zone being a transportation airlines kind of travel analysts. But yes, I know, Rob, you spoke on the last earnings call about wanting to provide a lot more disclosure around the medical side of the business. What do you -- what are the key aspects of medical make KPIs growth opportunities that you think are most important for investors to understand?

Well, I think that the -- I think we have a pretty good disclosure now when you take a look at, as I said, just the significant year-over-year growth in revenue, flight margin, EBITDA, the fact that because we're still predominantly asset light, although we do own some aircraft, so much of that flows to the bottom line from EBITDA to free cash flow. It is -- and then no marketing cost or the core of our team is in Tempe, which is really cost effective. I think that those are the KPIs that the -- our companies or our investors are looking at. I think we're around 75 to 80 contracts, hospitals that we work with under contract and doing lots of one-offs every day. I think that the growth in my personal view is a bit understated in the sense that we now have perfusion devices that are out there that allow organs to be out of the body for a much longer time. We did the world's longest organ mission between Boston and Alaska. That's never been heard of before. So all these perfusion device companies, they just supercharge our business because now the death of the aperture of what an organ is an organ that is suitable for transplant has both changed in terms of -- because of perfusion and also the technology that you have on the medical side just to assess whether a patient could be a recipient for that organ. So I'm expecting continued growth. And again, we're mostly heart,liver, lung. We don't even do kidneys yet or very few. And I see the growth coming from not only kind of organically from heart liver lung, moving into also other areas of critical cargo. At the end of the day, we are a critical asset lightly logistics company for critical cargo, whether it be people or organs. We're already moving radioisotopes. We're already moving tissue samples, blood samples, and I think you'll see a lot more kind of leveraging those hospital relationships. We started a thing called TOPS, which is our organ procurement service, which we've signed up hospitals to make it even more cost effective, so we can actually help assess be that front line of assessing with an organ and suitable transplant for surgeons. So there's just so much to do, and I think we just have to be really tactical about it and try not to boil the ocean and go one by one with each of these new verticals and leverage the infrastructure we have, which is great technology, showing chain of custody, teams that are up kind of 24/7 pilots that are trained and can have duty hours that are unconventional, kind of sometimes midnight to 6 a.m. And again, it also feeds back. It's a feedback loop to our passenger business because the same helicopter you may fly to JFK from Manhattan is probably the same helicopter that is moving an organ at night. So that is movers basically taking cold storage device and a surgeon to a hospital. And so what that allows is the operator of that helicopter to amortize their cost of insurance, pilots, maintenance across a 24-hour time wheel as opposed to just kind of like 8 hours a day, making their cost lower and making it easier for us to have -- offer the lowest possible cost.

So you started off the presentation saying about 10-year anniversary of Blade. Can you provide a little bit more color on the medical side? When did you get into that side of the business? How much has it grown? And I think early days of medical, you grew a little bit more through some M&A.

One M&A, actually.

Right. And then now you're speaking to a little bit more organic growth? Like how do you -- maybe speak about how that side of the business has evolved over the last 10 years and then kind of your goals in terms of being able to source additional business for that organic growth.

Sure. So we started that business, we obviously started in the passenger business. And on the East 34 Street Heliport it was right next to [indiscernible] Hospital. And I knew that one of our Board members, David Zaslav, who's the CEO of Warner Brothers Discovery had a good relationship with [indiscernible]. And I said, this got to be something at you here. Is it Medevac, is it something else? And when we spoke to them, they said their biggest need was actually organ movements. And frankly, Medevac, we were very apprehensive about because as some of you may know, that is -- those are paid for by insurance companies and largely, there are lots of instances where a patient can pay and the company that operates a helicopter or provides a service ends up eating that. And you've seen some bankruptcies in the pass of companies like that. So we like the organ procurement service because we are paid by the hospitals. We were not paid by the insurance companies. And immediately -- I won't say immediately, but over time, I'd say it's months and maybe over a year, we became the largest air transporter in New York area. And we met the folks at Trinity. They were doing a lot of ground licensed sirens and ambulances. We clearly had a lot of thorough weight in terms of aviation. We were already doing a fair amount of fixed wing work. And then I think we really -- this was one of those great -- my career, great M&A deals where you really were able to kind of help supercharge the acquisition and make it the company even better than it was before, leveraging resources in terms of capital technology to help chain of custody, access to aircraft and improving their mix of different types of vehicles. And today, we start in just helicopters. We're now -- a lot of jets, 8 of them owned. The vast majority of our emissions are done in terms of non-owned aircraft, keeping our asset-light model and still helicopters and even licensed sirens SUV. So we need to cover that whole gamut on the medical side. And I think it's working. And I think that it's based on relationships with these hospitals. I think it's working also because the team at Trinity in Arizona maintains those relationships. They can help locate -- help us locate aircraft around those hospitals that make it even more cost effective for the hospital. So it makes very tough -- it's very tough to compete with Blade and medical right now.

That was going to be my next question. Like with the organic growth that you see ahead, when you go into these hospitals and you pitch the Blade business, who are your -- are the other operators that you're competing against?

Well, it started things like Langone. I mean they would have maybe literally compose note on supervisors desk transplant coordinators, they're saying call Joe's Jack Company, if you need a jet. I mean, in fact, I think about the cost-effective nature, one of the things that we looked at some of the stories that we heard, we know Langone actually was taking ambulances and it costs a couple of thousand dollars to Teterboro, flying people in a G4 to Philadelphia hospital, getting the organ coming back with more ambulances and the G4 back and be like a $65,000 mission. We would do that between $4,000 and $6,000, taking off from Langone, landing on top of Philadelphia Hospital. So by using this complex of multimodality, we are able to optimize the best set of logistics and forms of transportation for the mission, period. And I don't think anyone does that better. And so that's made it really cost effective. And in terms of growth, we've looked at a lot of acquisitions. But essentially, if you're in a situation where you're just buying contracts, you're growing so much organically, some -- when we do the analysis and at the end of the day, we are looking at rates of return, deals that are accretive day 1. We're very firm about that. Sometimes build is better than buy. However, if you think about the horizontal stuff, in terms of these other businesses we can get into, if we found something that was really interesting in critical cargo. If we found something that was really interesting on next flight out in terms of kidneys, which means kidneys, for those of you who don't know, can live outside the body much longer than heart,liver, lungs. They can kind of 1 day, even 2 days sometimes. There sometimes are instances where they need to get there quickly. But there are forms of transportation, using couriers, commercial aircraft, things like that, where the kidney business coming a viable business. If we found businesses that were in these adjacent industries where we can make the companies better and leverage our hospital relations, offering more services to our hospital clients, those are good acquisition candidates.

Right. Okay. Interesting. I think you said your -- you have contracts with -- was it 75, 80 hospitals. You were using the Langone kind of Philadelphia example. Where are those hospitals? Are they concentrated in a particular...

They're all over the country.

They're all over the country. So there are no in terms of your network or reach. There are no geographical limitation.