Blade Air Mobility, Inc. (NASDAQ:BLDE) Q1 2024 Earnings Call Transcript

Blade Air Mobility, Inc. (NASDAQ:BLDE) Q1 2024 Earnings Call Transcript May 7, 2024

Blade Air Mobility, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, ladies and gentlemen and welcome to the Blade Air Mobility Fiscal First Quarter 2024 Earnings Release Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to Matt Schneider, Vice President, Investor Relations and Strategic Finance. Matthew, you may begin.

Matt Schneider: Thanks and good morning. Thank you for standing by and welcome to the Blade Air Mobility conference call and webcast for the quarter ended March 31, 2024. We appreciate everyone joining us today. Before we get started, I would like to remind you of the company’s forward-looking statement and Safe Harbor language. Statements made in this conference call that are not historical facts, including statements about future time periods, maybe deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties and actual future results may differ materially from those expressed or implied by the forward-looking statements.

We refer you to our SEC filings, including our Annual Report on Form 10-K filed with the SEC, for a more detailed discussion of the risk factors that could cause these differences. Any forward-looking statements provided during the conference call are made only as of the date of this call. As stated in our SEC filings, Blade disclaims any intent or obligation to update or revise these forward-looking statements, except as required by law. During today’s call, we will also discuss certain non-GAAP financial measures, which we believe may be useful in evaluating our financial performance. A reconciliation of the most directly historical, comparable, consolidated GAAP financial measures to those historical non-GAAP financial measures is provided in our earnings press release and investor presentation.

Our press release, investor presentation, and our Form 10-Q and 10-K filings are available on the Investor Relations section of our website at ir.blade.com. These non-GAAP measures should not be considered in isolation or a substitute for financial results prepared in accordance with GAAP. Hosting today’s call are Rob Wiesenthal, Founder and Chief Executive Officer of Blade, and Will Heyburn, Chief Financial Officer. I will now turn the call over to Rob. Rob?

Rob Wiesenthal: Thank you, Matt, and good morning, everyone. I am very pleased to report a strong start to 2024 that represents an early but important first step in achieving the 2024 and 2025 financial guidance that we provided last quarter and reaffirmed today. Most notably, this was the best quarter in company history for our medical business. We achieved record revenue and segment adjusted EBITDA, building upon our dramatic growth driven by increased trip volumes and trip distances both from existing and newly added hospital clients. This should address issues that have been raised on the impact of competition. We are America’s largest dedicated air transporter of human organs for transplant and we are confident we are the most cost-effective as well.

Total revenue in the first quarter ending March 31, 2024 increased 13.8% to $51.5 million versus the comparable period in 2023. Excluding the impact of last year’s discontinuation of Blade 1, our scheduled jet service between New York and South Florida, total revenue increased 21.5% year-over-year. Profitability continues to improve across the business driven by several initiatives, including a shift to dedicated aircraft and vehicles in our medical business, meaningful profitability improvements in our New York by-the-seat airport service, and a continuation of cost rationalization programs across the company, including the elimination of unprofitable services such as Blade 1. While total revenue increased 13.8% year-over-year, total flight profit increased by 41.5% year-over-year, as flight margins rose to 19.7% in Q1 2024 as compared to 15.8% for the comparable period last year.

We achieved significant year-over-year improvement in both medical and passenger segment adjusted EBITDA, which when coupled with a 19% year-over-year decline in our adjusted unallocated corporate expenses, drove a strong $4.2 million improvement in adjusted EBITDA in Q1 2024 versus the comparable period last year. Medical revenue increased 34.6% in Q1 2024 year-over-year. And importantly, we saw the resumption of sequential revenue growth in the quarter with revenues increasing 12.6% versus the fourth quarter of 2023. Medical segment adjusted EBITDA increased 134.5% year-over-year as adjusted EBITDA margins rose over 500 basis points versus the comparable period last year. Additionally, our clients use of perfusion and other organ preservation devices continues to grow the overall market beyond industry expectations, given the ability to move organs over much longer distances and accept organs that just a few years ago would not have been suitable for transplant.

When our contracted clients utilize these devices, they continue to use Blade’s logistics services. We have now closed on seven of the eight jet aircraft acquisitions that we announced last quarter. This is a win-win as it enables lower costs and improved service delivery for our clients and improved flight margins per trip for Blade. The vast majority of our flying will remain with third-party owned and operated aircraft as part of our layered asset light approach, enabling maximum flexibility and availability for the hospitals we serve. In our passenger business, despite inconsistent year-over-year revenue comparisons due to the discontinuation of our Blade 1 scheduled jet service, poor flying weather for ski season in Europe, and lower passenger volume in Canada, the passenger segment still reported a $0.4 million year-over-year improvement in adjusted EBITDA.

Importantly, we continue to see improvement in our New York by-the-seat airport service with revenues increasing 26% year-over-year in our third consecutive quarter of positive flight margin. The airport business remains our most strategic route given the combination of the large addressable market of 27 million annual flyers and our proprietary passenger infrastructure in New York City. We have also – seeing continued growth in revenue per seat, while the total number of airport passes outstanding, which allow flyers to travel between Manhattan and JFK or Newark Airport for as low as $95 per seat, rose more than 30% year-over-year. Given the annual cost of our passes of $795 per pass, purchasers are signaling that they expect to fly Blade Airport more than 8x during the course of the year.

As a reminder, Q1 is the seasonally lightest quarter for short-distance business. Regardless, I’m pleased to see that we’re delivering on the cost savings and profitability improvements we promised both in the passenger segment and on the corporate level. Before I turn the call over to Will, I would like to address our long-planned management transition in the medical division. Seth Bacon, founder of Trinity Air Medical, which we acquired in September 2021, will assume the role of Executive Chairman of Blade Medical. He will continue to be involved in all strategic manners, key client relationships, and high-value sales processes. Our current medical COO, Scott Wunsch, will assume the role of Chief Executive Officer of Blade Medical. Scott has been with Trinity since 2018 and previously spent 13 years at one of the largest organ procurement organizations in the country.

Scott has served as Trinity’s COO for the past four years, where he’s been responsible for day-to-day oversight of Trinity, and following our acquisition, Blade Medical Operations. Seth has built an incredible team in Phoenix. He is a large shareholder, and from his new position, he will continue to foster the culture of excellence that has led to our incredible success. With that, I’ll turn it over to Will.

Will Heyburn: Thank you, Rob. I’ll now walk through a few financial highlights from the quarter, starting with medical. We’re benefiting both from solid industry fundamentals and our strategy to establish and refine the most cost-effective and reliable end-to-end organ logistics platform in the United States. Nationwide, heart, liver, and lung organ transplants rose approximately 9% year-over-year in the first quarter of 2024. Blade’s growth, both in terms of trip volumes and in terms of revenues, continues to exceed that market growth, given new client additions and strong trip growth within our existing client base. We continue to see growth related to our client’s use of multiple new perfusion and organ preservation technologies, which have expanded the transport market by enabling organs to travel over longer distances and by increasing the pool of viable organs for transplantation.

Market growth and company initiatives are evident in the commercial momentum we’re seeing in the business. Medical segment revenue rose 34.6% year-over-year in the first quarter to $36 million and rose 12.6% sequentially versus Q4 2023. New clients represented approximately half of the growth in the quarter, and we continue to drive strong revenue growth with our existing clients. We are pleased with the sales pipeline and expect to onboard several new clients, both for logistics and for TOPS, our organ matching service, over the coming quarters. We also wanted to highlight how our ground strategy is allowing us to build a deeper, more integrated, and more cost-effective relationship with our clients. Blade now directly operates more than 30 medical vehicles, with many more available through our growing network of third-party drivers, all deployed in our densest markets.

Ground represented more than 10% of medical revenue this quarter at above average margins, and it grew more than 70% versus the prior year. Several factors are contributing to improved profitability in the medical segment. Our increased use of dedicated aircraft and ground vehicles provides a mutual benefit to our clients and Blade. We also continue to see an increase in average trip distance, which all translates into improved profitability metrics within our medical business. Medical flight profit rose 84.5% year-over-year to $8 million in Q1 2024. Medical flight margin increased six points to 22.3% in the quarter versus the comparable period last year and two points versus Q4 2023. Medical segment adjusted EBITDA rose 134.5% year-over-year to $4.4 million in Q1 2024 as margins rose over 500 basis points to 12.2%.

Going forward in medical, we expect to average single-digit sequential quarter-over-quarter revenue growth for the remainder of the year. As always, the timing of new client onboarding and other factors influences sequential growth rate in any quarter and can result in some quarter-to-quarter lumpiness. Our next quarter, ending June 30, 2024, is a particularly tough year-over-year comp given our support of a large hospital on a temporary basis during the 2023 period, which we have discussed on our prior earnings calls. For medical SG&A, we continue to expect single-digit sequential quarter-over-quarter growth for the remainder of the year as we ramp-up our organ placement and ground offerings. As Rob mentioned, we closed on seven of the eight previously announced aircraft acquisitions.

While these closings happened after quarter end, we’re pleased with the free cash flow benefits we’ve seen in these early days, and we look forward to providing a more thorough update once we’ve closed on all the aircraft and have accumulated more operating data. Turning to the passenger business, in short distance, 26% growth in airport this quarter was more than offset by poor flying weather for European ski routes and lower passenger volume in Canada, leading to a 5.9% revenue decrease year-over-year. In Europe, where travel to and from the Alps is the primary driver in the first quarter, weather-related cancellations approximately doubled compared with last year. In jet and other areas, revenues decreased 29.7% year-over-year, driven by our decision to discontinue Blade 1 at the end of the 2023 winter season, which had generated losses and $2.9 million of revenue in Q1 2023.

Excluding Blade 1, yet another revenue rose 9.4% year-over-year, driven by increased jet charter activity and growing brand partner revenues. Q2 will be our last quarter for this Blade 1 revenue headwind, expected to be in the range of $1 million. We are delivering on the profitability improvements we promised in passenger, cutting loss-making products like Blade 1 and optimizing the cost structure. Importantly, passenger segment adjusted EBITDA improved by $0.4 million year-over-year, even in the face of disappointing weather in Europe. Going forward in passenger, we expect continued year-over-year improvement in passenger segment adjusted EBITDA, driven by SG&A cost efficiencies. On the corporate cost side, we once again reduced our adjusted unallocated corporate expenses with a 19% decline in Q1 2024 versus the prior year period.

This combined with our improvement in both passenger and medical segment adjusted EBITDA led to a $4.2 million improvement in adjusted EBITDA versus the prior year period to negative $3.5 million in Q1 2024. For the remainder of the year, we expect adjusted unallocated corporate expenses to be flat to down. On the cash flow front, cash from operations was a $15.6 million usage in the quarter. The difference between adjusted EBITDA and cash from operations in the quarter was primarily driven by a $2.6 million increase in accounts receivable and a $10.2 million reduction in accounts payable and accrued expenses, which was driven by cash payments for the Trinity contingent consideration resulting from our acquisition and by our 2023 short-term incentive plan.

Please note that this will be the last Trinity contingent consideration payment. Capital expenditures of $1.1 million were driven primarily by leasehold improvements related to the build-out of larger office space in Tempe, Arizona for our growing medical business, along with investments in software development. We ended the quarter with no debt and $151 million of cash in short-term investments, providing flexibility for strategic investments, acquisitions, and opportunistic share repurchases. On the guidance front, we are reiterating the 2024 and 2025 guidance we introduced last quarter, most notably for positive adjusted EBITDA in 2024 and double-digit adjusted EBITDA in 2025. And we believe this quarter’s results represent an important first step in achieving those goals.

Last but not least, I’d like to take this opportunity to welcome Matt Schneider to the team as VP of Investor Relations and Strategic Finance. Matt has had a long career spanning sell-side research and public equity investing with a focus on aerospace. We’re lucky to have him on board, and I look forward to introducing many of you to him in the coming weeks. With that, I’ll turn it back over to Rob.

Rob Wiesenthal: Thank you, Will. I just have a few catch-up items to review. From time to time, we receive questions regarding quarterly stock sales by senior executives. Please note that these sales represent a sell-to-cover mechanism whereby the company transfers vested RSUs to executives, net of shares sold to pay taxes owed and due at the time of vesting. This program is clearly noted in our form 4 filings. With respect to our corporate SEC disclosure and investor materials, given the intense interest in a rapidly growing medical business, Blade Metamobility, we are refocusing these materials to provide greater clarity and insight into this business, which is now the largest in our company. In closing, we are off to a great start to the year, and we’re increasingly confident in the improving profitability outlook for our businesses. And now, I’ll turn it over to Matt for questions.

Matt Schneider: Thanks, Rob. We’ll start by taking questions from the analyst community, and we’ll follow with a few questions from the Say Q&A platform. I’ll now turn it over to the operator for analyst questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] And our first question is going to come from the line of Jason Helfstein with Oppenheimer. Your line is open. Please go ahead.

Jason Helfstein:

’:

Will Heyburn: Thanks for the questions, Jason. Will speaking. On the Medical side, yes. do believe we can continue to outpace the market growth in Medical. Because remember, when you think about the unit of an organ, our unit is a flight block hour, and then we have a lot of ancillary revenues that we can make on a trip as well, particularly the growth in our ground business and the introduction of the top service. So if you still see that high single-digit growth in the number of organs that are being transplanted in America because of some of the new technology and centers getting more aggressive, that incremental organ is often coming from farther away. So there’s a multiplier on the growth for us. And then we hope to be able to continue to go deeper with all of our customers, help them on the ground, and help them with organ matching as well. So I think there’s multiple ways to exceed that market growth in medical.

Rob Wiesenthal: Let me talk about Passenger for a second. I think in terms of the margins, obviously Q1 is historically the lightest quarter, and it’s very easy to have noise in those numbers. As I mentioned previously, Europe had a really difficult ski season in terms of cancellations of flights due to weather. And the best way we look at that is to take a look at bookings versus revenue. And when you look at bookings versus revenue, you see a much stronger picture in terms of flights that would have happened if it were not for weather. And so, overall – and then on the U.S. side, we saw a really solid improvement in the performance there. So I think we remain confident on the passenger side. I’d really look at this as kind of the – it’s really just kind of an enlargement of the performance, of any kind of performance that you notice for Q1, just because it’s such a small quarter historically, and just for the business in general. Anything else, Jason?

Jason Helfstein: I mean, just any thoughts about how you think Passenger margins trend the rest of the year?

Will Heyburn: You’re always going to see better margins once you get into our summer season. Those are our highest gross margin products. And it’s also our opportunity on growing products like Blade Airport to get the highest load factor in terms of number of seats that are full on the aircraft. So you should see improvement, particularly going into Q2 and Q3. And, of course, when you think about something like Europe, almost half of the revenue comes through in Q3. So that’s really the most important quarter. And we do expect to see pretty significant year-over-year segment-adjusted EBITDA improvement in passenger this year.

Rob Wiesenthal: And if you take a look at the market also taking on the U.S. side increases in perceived prices, that’s something that’s held really well. We expect that to continue. And I think now that we have a new management team in place in Europe, you’re going to see stronger pricing in terms of per seat basis because we’re starting to introduce fair classes. like we have in the U.S., which has been a huge driver of incremental pricing for passengers. So they have the choice to get a kind of low-cost opportunity to fly Blade safe from between East and Monaco, but then also can pay for flexibility that can add 20%, 30% to the price of its seat. So that’s starting to be adopted into Europe. So a lot of the strategies in the U.S. are starting to move to Europe with this new management team that we have in place.

So I’m pretty confident about that flowing over the Atlantic and enjoying continued improvement, especially, as Will said, in our most important quarter, which is Q3.

Jason Helfstein: Thank you.

Operator: Thank you. [Operator Instructions]. Our next question is going to come from the line of Edison Yu with Deutsche Bank. Your line is open. Please go ahead.

Edison Yu: Great. Thanks for taking our questions. One, to maybe get your thoughts on the buyback. Obviously, you do have a lot of cash and you launched it, which I think is very encouraging. What were the, I guess, thoughts into the quantity and the timing, the potential timing of it going forward?

Will Heyburn: I’ll take that. We have not purchased any stock yet. We did authorize a repurchase program, so we have that tool in our toolbox to further enhance shareholder value when we see major disconnects between the trading value of our company and the intrinsic value. But at the same time, we need to evaluate that option in the context of organic growth investments and accretive acquisitions that we’re focusing on finding and analyzing, considering almost every day. And that’s the right way to supercharge the growth of the company. And to create the most value for shareholders in the long-term. And clearly right now, when you take a look where interest rates right now being so high, we’re at a huge competitive advantage versus our competition in terms of evaluating acquisitions because we don’t have that need to lever up any kind of deal given our cash balance makes a lot more competitive versus private equity or any kind of management LBO.

So again, to have another tool in our toolbox, and whatever number we would ever use in terms of buying back stock, it would be prudent in the context of our overall capital structure.

Edison Yu: Understood. And a separate follow-up. I’m curious if you looked at some other areas of expansion on the ground side. I saw you recently have this partnership with the Jet. I’m just curious if there’s more kind of – niche opportunities there you maybe actually could tap into?

Rob Wiesenthal: Sure. Look, I think there are two things. Just to mention about the partnership with the Jet, that really was driven by marketing. As you saw, I think we even announced that we had strong performance in our brand partnership revenues. Tons of brands on a global basis want to get in front of our passengers and are willing to pay for that privilege. So that product, while not incredibly meaningful in terms of scale, gives what our brand partners want, which is another canvas to get in front of passengers, in this time for a longer period of time than by air. And it’s something they want and it’s something they’re willing to pay for and we’re happy to oblige. But in terms of kind of – what you said, the kind of expansion in terms of movements and such, we view ourselves as a company that moves critical cargo, whether passengers or surgeons with organs.

So we are hard at work looking at everything from moving, blood samples, tissue samples, other types of critical cargo, AOG parts for aircraft and anything that needs to get someplace quickly, have a good chain, a kind of very visible chain of custody and a really strong logistics background. And I think we’re really well equipped. because of our logistics strength on the passenger and especially on the medical side to move a lot of other critical cargo besides organs. And I think you’ll probably see more to come in the coming year.

Edison Yu: Great. Thank you.

Operator: Thank you. [Operator Instructions]. Our next question is going to come from the line of Jon Hickman with Ladenburg Thalmann. Your line is open. Please go ahead.

Jon Hickman: Hi. I just have two questions. Could you just talk about why Canada was weak for a minute? And also, what are we supposed to expect from depreciation as you now own seven, well, potentially eight aircraft?

Will Heyburn: Thanks for the question, Jon. Canada, we’re still seeing some weakness in terms of overall seats flown that we believe is driven by a shift towards still more remote meetings with government officials and the provincial capital of British Columbia versus what we saw in the pre-COVID period. So we think that’s the major driver there. In terms of what we expect to see on the new aircraft that we own, it’s early days we closed on 7 in 8 aircraft after the quarter end. but we’re already seeing an overall free cash flow benefit. And we still expect to see, on a free cash flow margin basis, a 5 to 10-point increase in the performance for those owned aircraft versus aircraft that we’d use under a capacity purchase agreement.

So irrespective of the depreciation, you’ll be trading some expense It was an hourly rate paid to a third party for some depreciation. But what we care about is the free cash flow, and that’s where we expect to see a 5 to 10-point expansion. And once we have a little more data, a quarter or so, we’ll come back to you with some more specific details about all the different line items. But we’re definitely seeing the performance benefit we expected so far in this early days.

Jon Hickman: So from a model point of view, the expense that would have been kind of a cost of goods sold, that should go down a little bit. And then on your upbringings, there’ll be higher depreciation from those. And you’ll have to pay for your own gas and stuff like that.

Will Heyburn: It’s sort of just moving into different buckets, but the overall bucket of the cash that we pay to get the lift that we need for our Medical customers, we’re going to spend less, we believe, on a per hour basis. And you’ll see that benefit in the cost of revenue line, correct?

Rob Wiesenthal: Just one thing I’d add. I mean, we’re looking still at a very small percentage of overall fleet being owned, but I have to admit that, I believe that you’re going to see very meaningful increase in margins that more than make up for any concern you might have on the free cash flow in terms of depreciation and – looking at depreciation or CapEx. So it really is a balancing act where we believe, we’re still asset light, but what we’re trying to do is just make sure that we have 24/7 access for all our customers and are able to accommodate them when needed. And when we see something opportunistic like this acquisition of these planes and to have them well-placed, we can just enjoy so much better margins than we could if we were not owning them.

And essentially what it works out to is when you’re operating a plane 24/7, you’re pretty much just giving money away if you’re not owning them. But again, we’ve just got to be very careful and we are being prudent and making sure that the vast majority of our lift is on an asset-life basis.

Jon Hickman: And just one more question there. On the pilot side, do you – is that still a cost of goods sold? I mean, paying the pilot…

Rob Wiesenthal: Remember, we’re not operating. Remember, we don’t own, we don’t operate these aircraft. We just own them. So we’re going to be benefiting from pass-through billing. But you’ll still see that come through on the COGS line for something like pilots.

Jon Hickman: Okay.

Rob Wiesenthal: So it will now get the fixed cost leverage of that. Instead of paying a fixed hourly rate per hour that we fly now you’re going to have the fixed cost leverage of the pilot salaries are what they are. And as we fly more, of course, we’re only acquiring aircraft in areas where we have multiple overlapping contracts with different hospitals and we are highly utilizing the aircraft in terms of hours flown per month. So, you will be able to get that incremental fixed cost leverage through the pass-through economics that we couldn’t get before when we were just paying X rate flat per hour flown.

Jon Hickman: And can I just ask, so I noticed you have started this like luxury bus service from Manhattan to the Hamptons, is that true?

Rob Wiesenthal: Yes. I think we just covered that real quick. That’s not going to be any type of, in the short-term, any kind of meaningful driver of revenues. But it’s not going to be any kind of drag on profit whatsoever. Again, this was really driven by our brand partnerships where our brand partners wanted an additional canvas to kind of to market their products. But also when you think about weather in the New York area in the summer, this gives us an opportunity to kind of keep the board on ecosystem. So, if there is a flight that’s canceled for weather, they can go on the streamliner. If people have excess luggage, which sometimes they do, we can easily move it to their destination on the streamliner and charge them for that. So, it does fit in nicely with our core leisure business as well. So, we got it, I think it’s a good thing to have on two prongs.

Jon Hickman: Okay. Thanks.

Operator: Thank you and one moment for our next question. And our next question comes from the line of Bill Peterson with JPMorgan. Your line is open. Please go ahead.

Bill Peterson: Hi. Good morning and thanks for taking the questions. I wanted to first start with medical and about the competition. So, I guess first of all, are you seeing any shifts in terms of the transplant center customers as a result of competition? For example, are most choosing a dual source for these services if they weren’t doing this prior? Are any new customers changing their contract lengths or sizes versus historical norms? And I guess the context is I guess there is around 250 transplant centers, one competitor now is talking about 105. So, I am just trying to get a sense of how to think about the growth of this business and how to think about it in the context of potential dual sourcing for these transplant centers.