Strata Critical Medical, Inc. Q2 FY2024 earnings call

Management Statement and Operational Highlights

• Medical: Closed on seven of the eight previously announced and committed jet aircraft acquisitions this quarter. Medical ground logistics business expanded with two new ground hubs. Owned aircraft are delivering 30% plus returns on invested capital. Flight margin in Medical increased 700 basis points year-over-year.
• Passenger: Saw growth in New York Airport transfer and Airport charter. Exited unprofitable Canadian operations, focused resources on core routes. Europe showed early results of streamlining commercial organization and cost structure. Executed first share repurchases under $20M authorization, eliminating approximately 80,000 shares, and changed restricted stock unit tax withholding method.
• General: Focus on low-risk, high-return investments in Medical aircraft and ground vehicles, and bolt-on acquisitions in Medical. Adjusted unallocated corporate expenses shrank about a percentage point year-over-year this quarter.

Segment Performance

• Medical: In Q2 2024, Medical achieved a record high revenue of $38.3 million, up 11.5% year-over-year. Excluding the impact of non-recurring support for a large hospital in the prior year, Medical revenue increased 19% year-over-year. Medical segment adjusted EBITDA increased by 82.7% to $5.5 million in Q2 2024. Medical ground revenue increased more than 50% year-over-year during the quarter and represented 12% of Medical revenue.
• Passenger: Revenue grew 11.3% versus the 2023 period. Despite discontinuing the BladeOne seasonal jet service, there was strong growth in New York Airport transfer and Airport charter. The Passenger segment adjusted EBITDA increased to a positive $0.8 million versus a loss of $2.1 million in the year ago period. The company exited unprofitable Canadian operations, writing off $5.8 million in intangible assets related to Canada. Europe resumed year-over-year revenue growth during the quarter.

Guidance

• Reiterated 2024 and 2025 financial guidance. Medical revenue and adjusted EBITDA expected to be flattish in Q3 relative to Q2, then resume low single-digit sequential revenue growth. Passenger segment adjusted EBITDA expected to see further year-over-year improvements in Q3 and Q4 2024. Adjusted unallocated corporate expenses expected to be flat to down sequentially for the remainder of the year relative to Q2 2024. Q3 off to a great start with solid growth in seasonal Short Distance businesses while Medical remains strong.

Risks

• Uncertainties in the economic environment that could affect consumer spending on the Passenger business. Challenges related to the deployment and certification of electric vertical aircraft, which could impact long-term growth plans. Risks associated with aircraft acquisitions and ground logistics investments not delivering expected returns.

Question and Answer

Q: Jason Helfstein of Oppenheimer & Co. Inc. asked about Canada exit impact on Passenger gross margin, growth initiatives, and $5.8M impairment.

A: William Heyburn and Robert Wiesenthal responded, noting Canada exit was small and not material, seasonality of Canada revenue, and details on growth in Airport partnerships and the $5.8M impairment.

Q: Edison Yu of Deutsche Bank inquired about aircraft return profiles, Europe growth, and share buybacks.

A: William Heyburn answered, discussing aircraft and ground vehicle return profiles, Europe's growth outlook, and details on share repurchases including the $20M authorization and RSU tax withholding method change.

Q: Bill Peterson of JPMorgan asked about learnings from Canada exit and flight margin trajectory.

A: Robert Wiesenthal replied, sharing learnings from Canada exit and discussing the trajectory of flight margins in Medical towards 25% by year-end.

Q: Jon Hickman of Ladenburg Thakmann questioned G&A costs, EVAs, and Canada medical presence.

A: William Heyburn and Robert Wiesenthal answered, discussing G&A costs, EVA deployment timelines, and confirming Medical business is only in the US. Q&A from Say Q&A platform: Question on Marriott partnerships and more partnerships.

A: Robert Wiesenthal responded, highlighting the Marriott partnership and potential for more partnerships. Question on profitability plan.

A: William Heyburn and Robert Wiesenthal discussed the plan for achieving profitability through growth, tough decisions, and focusing on core competitive markets.