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

All right. I think we're live. Right. Great. Stephen Ju from the UBS U.S. Internet team. To my right is Rob Wiesenthal, who is the CEO of Blade. So welcome back to the conference.

Thank you. Thanks for having us back, Steve.

Awesome. Awesome. So I mean, knowing each other a few years now. And I think when I first saw the company, it was immediately, oh, the helicopter ride to the airport, right? But I think you guys are in a bit of a different place now in terms of the different business lines. So can we elaborate on what you guys are doing now?

Sure. I mean there's definitely been a significant transition in our company. When we went public, it was clearly, we created -- we believe we've created the most important ecosystem for enabling Urban Air Mobility. So that's infrastructure technology that goes from consumer to cockpit, staff, operator relationships, safety, roots, the brand, customers. And now flying more people by helicopter than any other company for passenger purposes, where our core markets are in Northeast United States and all of Southern Europe. And so we have that there. And what we've done is because we are number -- either have 100% market share in a lot of our key markets or leading market share, we're focused on prudent profitable growth. And so in fact, when we gave guidance last year for 2025, we said we want the Passenger segment to be profitable. We actually did that a year -- over a year earlier, announced that last quarter. So we don't want to see any kind of drag on the company. We wanted to know that -- people know that we can do that on a profitable basis. So when I take a look at passenger, which is terrific, and I think we got the strongest brand in the world when it comes to vertical transportation. We are well poised to take advantage of what we call EVA, electric vertical aircraft, you may call eVTOL, when it's commercialized. But until then, we're not going to tolerate any kind of drag on cash flow, right? So in that -- so we're kind of looking at a modestly growing business there that's profitable. But when EVA is here, which we expect in Q4 '25, we're hearing from the manufacturers for Middle East and then kind of in Q4 '26, that is the big unlock. That is the point of time in which we are going to have the ability to have more landing zones. And that unlock is quiet, because as you know, from flying us, a lot of vertiports are in tertiary areas, are underwater, they're in industrial zones, and we need to have more density of these landing zones, especially in our key metropolitan markets. Where we talked about this before, we got 20 million people going between Manhattan and all the airports on both sides. So we got that business. And now we have this fantastic medical business that has grown from $15 million to $150 million in just a number of years. So -- it's 3 years, actually. And so that's just a tremendous growth driver to the company. We are the largest air transporter of human organs in the United States. There is great -- they do enable each other, but they're not -- they don't require each other. So a lot of -- clearly, we built the organ transplant business -- organ transplant transportation business on the back of the company we had, but they're now pretty much run separate. They're out here in Arizona. However, the same helicopter you fly to the airport and Knight is probably doing an organ mission, which gives us economies of scale with our operators and such. But it's mostly jets. We still are an asset-light business. Overall, 10% of our missions for both passenger and -- only 10% of our business in passenger and medical are on owned aircraft. We own about 10 jets. And that business, because of technology, is just growing rapidly.

Yes. So entire humans or parts of humans can we fly in the aircraft?

I'd like -- not exactly the way I would put it, Stephen, but yes, fine.

So talk about the synergies there. Because when I first saw you guys, it was the passenger business, and I would have never thought that the organ business would have been the next sort of route there. So talk about that.

Well, look, we started that because we had some of the greatest hospitals in the world between NYU Langone, which was our first client, and Weill Cornell, Presbyterian. So many terrific hospitals. And we started out with helicopters. And then we just -- we then moved into jets. And then also going into ground, we are licensed irons SUVs. We are heart, liver and lung for the most part, but we've just started moving kidneys, what we call above the wing with a courier. Those can live out of the body for over 2 days. So you can use conventional transportation. And we're also doing organ -- even doing organ matching services, where we augment the staff of hospitals so they can make judgments on organs that are now available. This is a $1 billion addressable market in terms of the core market that -- and that we have on the air side, probably high 20s, and we're just growing on the ground side with moving tissue samples, tissue samples in addition to organs and blood samples. So -- and we're gaining market share. New hospital contracts. We recently signed 2 high-volume hospitals. So we are taking market share at a cadence that I'm really pleased with. We got pricing escalators. And most importantly is the technology. So while you have growth in organs that are available, you're also having perfusion devices that allow organs to live out of the body longer. And we are paid by how long these trips take. So perfusion devices just in a number of years have dramatically lengthened the amount of distance of trips, which means there are more organs available for transplant. They -- we're having more great stories and successful transplants. The -- also on -- in terms of techniques, the patients that are suitable for organ transplant has increased with -- from a therapeutic perspective. And also the procedures like NRP where with donor cardiac death, typically organs are not suitable for transplant. When that procedure is done, you're actually repairing the organ and that organ use could not be available for transplant. Now it is. This is new. This is something we really didn't see 3 years ago. And when you compare it to other methods, we're talking about this could be a $3,000 or something at no cost if they have the right technicians. Whereas perfusion, there are lots of competitors. Which is great, because, remember, our deals are with the hospitals. We basically contract with hospitals. We have pricing escalators. We have 100% market share when we contract with these hospitals to move their organs for transplant. So no matter what device they want to use, we are available for them. And we're moving all of them.

Okay. So let's talk about the multiple vectors and just based on what you're talking about just now, there's multiple vectors for growing the organ transplant business. So there's -- if it's a $1 billion TAM and you're talking about $20 million or thereabouts, I mean, that is still a very small part of the overall. And I would imagine the markets...

20% of the businesses that we're in right now.

Okay. So there's still the rest of the 80% left to go. So there's a lot -- that's a lot of white space in front of you.

Correct.

So one of the vectors would be adding additional hospitals to the mix, right? And I think -- and help me out with the nuance here, there are certain organs that you were able to do before, but with the rise of certain types of technology that -- those organs which were not transportable before are now becoming more transportable.

Correct.

And over greater distances. Correct, right?

Again, we're paid on the distance, especially on the jet business, right? So you have perfusion where there are a bunch of different competitors and -- which allow the organs to live off the body longer, heart, liver, lung, specifically. We did the longest trips with organs with a company called Paragonix that went from Alaska to Boston. Obviously, something that you ever think about. And then as I said before, something we didn't see before in terms of NRP procedures to be able to have organs be suitable after cardiac death, which typically that was rare, especially for hearts and lungs. That has really -- we've seen a real big amount of growth in recent years in terms of that procedure really enabling that. And I think you may have seen that we had a -- we announced a deal with OrganOx. They have a device called Metra, and that is a perfusion device and we have an alliance with them. Right now, those devices are getting moved on the ground, and we're facilitating that. And moving forward, it's a priority for us and OrganOx to actually perfuse in air. You can move the devices in the air, but in terms of perfusing in the air, that's something that's to come. And competing devices are $100,000, could be $100,000 for use. So this is a lot less, and cost is important. And I should probably point out that one of the publicly traded perfusion device companies recently said, I guess, in the conference that the OrganOx device does not fit in their plane. Well, it certainly fits in our planes. So we're excited about that. And there's going to be a lot of growth there. I mean, we just -- as you said, it's multiple vectors. And then also the organ matching service, we could be getting into an organ recovery ground. And then beyond that, what I hope to do is come here next year and talk about not so much this medical company that we have being a medical company, but really it being an asset-light logistics company that moves time-sensitive critical cargo where your first vertical is medical. Then we move on to kind of 24/7 manufacturing, people need parts, what they call AOG aircraft on the ground, where parts needed immediately radioisotopes. So if you think about it that way, now you're talking about a TAM that's very, very different. And at the same time, we have our passenger business that because it's profitable, and we got the kind of market share and the brand recognition. We grow in a prudent and profitable way. And then when electric vertical aircraft are here, that unlocks the kind of growth that you and I have been excited about for a long time.

Got it. So last part on the medical business. This was effectively a start-up that lived inside your business for a while now. So can we expect this business to start contributing more meaningfully to the overall operating profit of the company?

Well, it is the biggest -- we're talking about $150 million of revenues versus shy of $100 million on Passenger and really that significant cash flow. And then on the Passenger business, we just turned the corner on that. But because of restructuring that we've done in Canada and Europe, once that we have a full year through that, you're going to see a multimillion dollar improvement on the passenger side.

Yes. Got it. Now you touched on this earlier in the call -- earlier in the conversation, but eVTOL, right? So that's been something that we've been talking about for a while now, but can you remind us what that does for you? And I think 4Q '25, 4Q '26, when do you expect -- I guess, what's going to be the, I guess, the more mainstream commercialization of that technology?

Sure. Well, again, we -- I think we spent a lot of time with the leading OEMs and very excited about what the top guys are doing. There's clearly been a shakeout with a number of companies going under and other companies having to deal with, you may call coercive financings. And again, we can literally derisk and accelerate the go-to-market strategy for any of these top guys, right? Because it's one thing to build a machine, but to be in these cities and have the relationships from a public policy perspective, to have this infrastructure that a lot of times is proprietary, to have the brand, the passengers that know how the logistics and even the data exhaust of how people fly, when they fly and what the pricing is, that's tremendously valuable. And so again, when I think in kind of Q4 '26, it may be a little bit more performative. You'll see it in New York City will be flying to the airport. Likely for the -- some of the manufacturers to get bugs out, things like that and see how the people react. But we're in the wild right now. So we have so much information about how people transform. When you think about the Blade experience that you did go into the airport, from being marketed to going on the app to going through one of our lounges, we put it in the aircraft and headset it. And the logistics associated with that and getting you into your terminal. The only thing that's going to change for the passenger is that you're going to be in a quiet aircraft that is emission-free, hopefully be a little more comfortable. And -- but it's still going to take about 5 to 10 minutes. And then over time, when people see they're quiet, you have the ability to open more landing zones. And what stands between us and substantial growth, the kind of exponential growth that I want to see in this business that others believe is really happening, too, it's going to be opening more landing zones. Because you're not going to get community buy-in unless they're quiet. And I think that's really going to happen. And if you're really thinking about -- we spend less on a lot of time with leaders in New York City, both in the private and public sector. If you want to be City 2.0, you better have an urban air mobility strategy. So when you think about New York or any major metropolitan area, you got kind of different layers. You've got underground with subways, on ground with cars. At the top, you have commercial aircraft, and that middle layer is urban air mobility. And that is really starting to come into sight. And I'm excited about it. And when it is here, that's when we'll have this window where the EVA or eVTOL manufacturers are using our infrastructure, others' infrastructure, but probably going in or around a Blade terminal, and then you'll see those new landing zones a couple of years later.

So you touched on this, but the other stakeholder here is some sort of regulatory body from the government, who are going to say yes or no to I guess, eVTOLs landing in certain parts of the city. So is that in process right now? Is the government becoming increasingly comfortable with different zones and different paths, I guess, we're flying over different parts of the city?

Yes. Well, I think, the way I look at it is we take a company like Joby, for instance, I think that their speed to market, they've been doing this for a very, very long time, very well positioned, well capitalized. What they need to do is get through the certification process. That's where -- that is what it to me is what's really taking a lot of the time. And I think the recent renewed interest in EVA is because of a view, which I share that in this incoming administration that regulatory process will be streamlined. And that means a go-to-market strategy that could be significantly earlier or slightly derisked in terms of what that time line is.

Okay. Is it the federal government? Or is it...

That is the FAA. So again, I think what they're -- you're not going to be seeing -- I don't think you're going to see autonomous anytime soon. I think they're not going to -- these are going to be using conventional air space and kind of squawk and talk on radios. New York City is the most complicated airspace in the world. It's also the biggest opportunity, but you've got a lot of airports, a lot of things in the air. And they're going to be using this conventional system that we have over time, if you really want to get to something where you have just massive scale like the way it was talked about years ago and 1 day may be here, that's going to require a change in the Africa air traffic control system, but I don't see that in the midterm right now.

Got it. Now we talked about potential exponential passenger growth. So right now, I have to go to certain pickup departure locations out of Manhattan in order to go to the airport. But now you're talking about a situation in which I could go to the nearest skyscraper, I suppose.

Well, it may not necessarily be a skyscraper, but I think that's what we've learned about our business that -- I mean it's clear. If I can -- if you can just leave your building and go to walk 2 blocks to a Blade terminal, that's much more attractive than jumping in an Uber and going into our Blade terminal. So we have what we like to say as dead spots where does the product doesn't necessarily make perfect sense. There are always going to be a lot of people just want to be in the air and don't want to deal with traffic and they like that. But in terms of people who are just looking at the time and value difference, they're relatively -- we can see the hotspots are relatively close to our heliport. So when I look at even just Manhattan, the biggest vertical transportation market in the world for passenger, you've got East side, you've got West side, you've got [indiscernible], Wall Street. We had anything in midtown south of Central Park, north of the Port Authority, I really think that has tremendous growth just in New York City for interim Manhattan travel in addition going from Midtown to the airport. And that's something you need to see in a lot of different cities. L.A. should be the greatest helicopter market in the world. There is no place to land. When there's EVA, I'm confident there'll be a number of strategically located vertiports in time that will bring that business that currently is here on the East Coast to the West Coast.

It's probably too early to prognosticate, but what do you think the price of a ride to the airport will be versus what it is now after this technology, Main Street, do you think it will be lower ?

Yes. I think another question, I mean I think what's interesting is that what we found is that we've obviously started out as extremely high in brand. And now we're competitive with Uber Black, going to the airport at peak times. We even beat UberX, you can fly for as little as $195 or $95 with an airport pass. And then -- but also, what we're finding is that real pricing power in the sense that people want other things. They want flexible fares. They want additional luggage. They want to connect a car on the end. So we're seeing average prices north of $300. And -- but when these aircraft first come out, it's probably similar in price. But you got to think that there's a lot less moving parts in the aircraft than in a helicopter. And over time, once that gets all the bugs get figured out and we understand like the maintenance schedules and what the issues are, they're going to go down dramatically. I can't give you a time frame, that's really more on the OEM side. But also -- so I think that at the start, it's probably relatively similar, maybe slightly less than we have here. But also don't forget the number of seats, weight is critical. Right now, we're moving 6 passengers per flight. We break even at about less than 2 per flight to the airport, 1.8, I think. And a lot of these aircraft are only 4 seats. We'd like to see 6 seats, okay? So that impacts the economics beyond the fact that the aircraft itself may be cheaper operating.

Yes. Do these aircraft also require, I guess, special pilot licensing? Or is that something that we need to figure out over the course of time?

Well, you may notice that Joby just got approval for a flight school. And yes, it's going to be very different than flying a helicopter. I think it's going to be much easier. There's going to be a lot more redundancy. I think ultimately, I think that makes it for kind of wider breadth as the kind of pilots who are suitable for flying. But it's been very different than flying helicopters.

Got it. All right. So switch gears to the profitability side of things for your passenger business. So I think there was a pretty important milestone on the profitability side. So can you talk about the key drivers? I know you touched on this a little bit earlier.

Sure. Yes. I think on the Short Distance business, we have a target of about usually 30% flight profit margin. And those are kind of close to a gross margin type -- that's where I put it more of like a gross margin. And I think that kind of single-digit growth and no revenues. But however, on the medical side, which we just see so much opportunity right now, we see double-digit growth on medical. At this point in time, it's really right upon us. And that's kind of without moving into some of these other verticals when you're thinking about time critical but nonmedical stuff. And on Passenger also, you haven't seen, as I said, the full impact of the restructuring that we did in Canada and Europe. And so again, profitable growth, not going to be a drag. There's no need to kind of grow at all costs. We are here. It's an index play on any of the OEMs, because you don't know who necessarily is going to win, and we need the right aircraft in the mission. And in the beginning, there's going to be a portfolio. You'll probably have this cohabitation phase of helicopters and EVA. Some EVA won't go too many distance, too much distance. And you have helicopters that may need to take more weight. So -- and definitely, you're going to need that kind of portfolio. And I think that right now, about 10% of our flying are on owned aircraft or asset light, specifically on passenger because it gives us the most flexibility, deals seasonality and part of the reason why we were very profitable even during COVID on the passenger side on a light margin basis, that is. And on Medical, we're kind of tapped out on planes, on jets. We're just constantly flying on medical. I'd love to see some of those do some missions on the passenger side, but right now, medical is a priority. And I think one of the things we haven't touched on is our capital structure and balance sheet. We've about $140 million of cash. That cash is earmarked for kind of tactical tuck-in acquisitions on the medical side, in addition to potentially adding more owned jets. We like the flexibility of having some owned, some not. A lot of the hospitals, frankly, want to see us own jets, they want to talk to. So it's been a good thing for that. If we didn't have them, I'm not sure that we have the kind of growth in business and new contracts at new hospitals and take market share if we didn't have those. But when we add an incremental -- another additional plane, that's an incremental 30%, incremental ROI on our core business because the more you fly, your costs go down. And because it's growing, it's a real driver of profitability.

Yes. Let's go back to that potentially some of these tuck-in acquisitions, especially on the organ delivery side. I mean you're now at 20% market share, I guess, in the areas where you operate, I mean, your competitors. I would imagine this is a very fragmented market?

Yes. I mean we're pretty much competing, with exception mom and pops. That's how we started the business. And we're able to strategically locate aircraft and teams and sometimes ground near hospital, which allows a bunch of great things. It's better outcomes because you can scramble an aircraft quickly. It's reduced repositioning times, which makes -- creates better economics for us and for hospital partners. And so that's really where the mom-and-pops are much more the competition. And I think that in terms of tuck-in acquisitions, we recently did a deal for a ground company that service a lot of our hospitals. So that's really important. When you think about ground, it's not only moving organs, but it's also tissue samples, blood samples. That is a growing business for us. We see when we purchased one of those vehicles, you're going to pay back in 3 or 4 months potentially. So it's definitely been a strong business. And then also beyond that, this organ matching program where we're helping augment staff and hospitals to basically when donors come up, they can make the assessment, whether it's right for their patients. And then also kidney, which is something we were never in before. And moving kidneys above the wing by courier to make sure they get there, and there are no mishaps. That's what we're good at.

Okay. So why wouldn't a hospital sign up with you to be exclusive? Is it just a matter of having a bigger presence in that area? Or what's the impact?

Well, I think that hospitals really -- especially if you have a real meaningful program for transplant, you want a dedicated provider. You want to be integrated, you want to use your technology stack, you want to see chain of custody. You want visibility. You want a team you know, and you want aircraft that you can get on-demand, you don't want any issues, right? And there are always going to be issues in anything you do, especially in aviation, but you want to mitigate those and you want someone who provides you with redundancy, transparency and kind of 24/7 service. And then because there's scale and we can move aircraft to those locations, there is no substitute. They do not want to be looking at a post it note and trying to find some guy with the jet who can kind of figure this out. This is all we do on the medical side.

Okay. So you're talking about double-digit growth potential for the organ business next year? What are the underpinning drivers to kind of get you there? Just going to be...

Going forward. I mean, I think, look, a lot of this is going to be taking market share. It's going to be longer distances. For sure, it's going to be continued expansion of ground. It's going to be organ matching more of the kidney. And then also, more of these perfusion devices, especially the lower cost perfusion devices like OrganOx and others are used, those are longer distances. Those are more -- there is more growth there. And then also, we didn't -- we talked about NRP. Again, those organs that were previously after donor cardiac death, those were unusable, they're now usable with NRP. And that's something, again, we haven't seen -- we started seeing that 3 years ago. And so there's lots of different drivers of where we see the growth arm. And then on the therapeutic side for patients, there are a lot of patients who typically were not suitable for a transplant on the receiving end. And that's improved, too. So we just kind of see, as you said, from -- use your term of all vectors.

Okay. Got it. Now let's fast forward 1 year. 2025, we're sitting here on stage again. So what do you think we're going to be talking about that you have been able to accomplish in the trailing 12 months?

I think that we will be coming back here and talking about medical as 1 vertical and an asset-light critical cargo logistics company. Time-sensitive things, like those verticals we have. So as opposed to just thinking about medical, we have this incredible platform. And what else can we layer on it, and there's so much to do. We've already started in terms of really doing the hard work to make that a reality. We'll be talking about that. And I think there'll be a lot more clarity as to when we will have the kind of relationships with the OEMs to kind of hopefully together, accelerate the go-to-market strategies and reality of getting people to fly in [ EVA ].

Got it. All right. Looking forward to tracking your progress in the coming year. Thanks for joining us.

Thanks for the time, Stephen, as always.