Strata Critical Medical, Inc. (SRTA) FY 2022 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with other sections of this Annual Report on Form 10-K, including our consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K.

In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. For important information regarding these forward-looking statements, please see the discussion above under the caption “Note Regarding Forward-Looking Statements.”

On February 1, 2022, the Board of Directors approved a change of the Company's fiscal year-end from September 30 to December 31. The Company's 2022 fiscal year began on January 1, 2022 and ended on December 31, 2022.

Overview

Blade is a technology-powered, global air mobility platform committed to reducing travel friction by providing cost-effective air transportation alternatives to some of the most congested ground routes in the U.S. and abroad. Today, we predominantly use helicopters and amphibious aircraft for our passenger routes and are also one of the largest air medical transporters of human organs for transplant in the world. Our asset-light model, coupled with our exclusive passenger terminal infrastructure, is designed to facilitate a seamless transition to Electric Vertical Aircraft (“EVA” or “eVTOL”), which is expected to enable lower cost air mobility to the public that is both quiet and emission-free. Blade operates in three key product lines across two segments (see Note 9 to the consolidated financial statements included herein for further information on reportable segments):

Passenger segment

•Short Distance – Consisting primarily of helicopter and amphibious seaplane flights in the United States, Canada and Europe between 10 and 100 miles in distance. Flights are available for purchase both by-the-seat and on a full aircraft charter basis.

•Jet and Other –  Consists principally of revenues from non-medical jet charter and by-the-seat jet flights between New York and South Florida, revenue from brand partners for exposure to Blade fliers and certain ground transportation services.

Medical segment

•MediMobility Organ Transport – Consisting of transportation of human organs for transplant and/or the medical teams supporting these services.

Seats Flown

The following table reflects the key operating metric we use to evaluate the Passenger segment:

__________

(1) Prior period amounts have been updated to conform to current period presentation.

We define “Seats flown — all passenger flights” as the total number of seats purchased by paying passengers on all flights, whether sold by-the-seat or within a charter arrangement. Our long-term consumer-facing strategy is primarily focused on growth in by-the-seat products, and we believe that “Seats flown — all passenger flights” is an important indicator of our progress in executing on this growth strategy. This metric is not always directly correlated with revenue given the significant variability in the price we charge per seat flown across our various products and routes. For products and routes sold by-the-seat, we fly significantly more passengers at a low price per seat; growth in these areas is captured by “Seats flown — all passenger flights,” but has less impact on revenue, which is heavily influenced by the Jet and Other product

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lines where we typically fly fewer passengers over long distances at a high price. We believe the “Seats flown — all passenger flights” metric is useful to investors in understanding the overall scale of our Passenger segment and trends in the number of passengers paying to use our service.

Developments for 2021

Acquisitions

On September 15, 2021, the Company completed its acquisition of 100% of Trinity Air Medical, Inc. (“Trinity”) shares. Trinity is an asset-light, multi-modal organ transport business working with transplant centers, organ procurement organizations and hospitals. The transaction complimented Blade’s existing MediMobility Organ Transport business in the Northeast by expanding the operational footprint across the United States. The results of Trinity are reported in the MediMobility Organ Transport product line (part of the Medical segment). See also Note 4 - “Acquisitions” to the consolidated financial statements included herein.

On November 30, 2021, the Company through its wholly-owned subsidiaries Blade Urban Air Mobility, Inc. and Blade Urban Air Mobility (Canada) Inc. (“Blade Canada”) entered into an agreement with Helijet International, Inc. ("Helijet"), a British Columbia-based aviation solutions company and with Pacific Heliport Services Ltd. (“PHS”), a wholly-owned subsidiary of Helijet. Pursuant to this agreement, Blade Canada has acquired exclusive rights to offer scheduled helicopter flights operated by Helijet and to utilize passenger terminals at heliports controlled by PHS. The agreement has an initial term of five years and will be automatically renewed for successive two-year periods. Helijet is the largest operator of scheduled passenger helicopter services in the Vancouver market. This transaction gave Blade access to the Canadian urban air mobility market, which launched as Blade Canada in December 2021. The results of Blade Canada are reported in the Short Distance product line (part of the Passenger segment).

Developments for 2022

Acquisitions

On September 1, 2022, Blade acquired, through Blade Europe SAS, a wholly-owned French société par actions simplifiée subsidiary (“Blade Europe”), 100% of the share capital and voting rights of Héli Tickets France SAS (“Héli Tickets France”), a French société par actions simplifiée, which was then renamed “Blade France SAS” (“Blade France”) and of Helicopter Monaco SARL (“Helicopter Monaco”), a Monegasque société à responsabilité limitée, which was then renamed “Blade Monaco SARL” (“Blade Monaco”). We refer to the three European legal entities (Blade Europe, Blade France and Blade Monaco) collectively as “Blade Europe”. These acquisitions are part of Blade’s growth strategy of leveraging its asset-light model, technology and recognized brand to aggregate the best use cases for urban air mobility. The routes in Southern France, Monaco, Italy and Switzerland, meet the criteria given the geography, short distances and large addressable markets. In addition these markets have connectivity to our existing service areas where the Blade brand enjoys recognition, creating the opportunity for cross pollination between our North American and European customer base. As a result of this acquisition and an Aircraft Operator Agreement Blade Europe entered into in connection with the acquisition, Blade gained the right to act as the exclusive air charter broker and/or reseller of air transportation services to be operated and provided by the operator partners at pre-negotiated fixed hourly rates and with a minimum number of annual flight hours guaranteed to the operators by Blade. The initial term of the Aircraft Operator Agreement ends on December 31, 2032 and it will automatically renew for successive three year periods.

Blade paid an aggregate cash purchase price for the Shares of Héli Tickets France and Helicopter Monaco of €47.8 million ($48.1 million). Acquisition costs of $3.0 million were expensed as incurred and are included in general and administrative expenses in the consolidated statement of operations for the year ended December 31, 2022.

The results of Blade Europe for the period from the September 1, 2022 to December 31, 2022 are included in the Short Distance product line (part of the Passenger segment). See also Note 4 - “Acquisitions” to the consolidated financial statements included herein.

Other Developments

Beginning in June 2021, Blade reintroduced by-the-seat helicopter transfer service between Manhattan and both JFK and Newark airports (“Blade Airport”), which had been paused since March 2020 due to the impacts of the COVID-19 pandemic. Given our fliers’ desire for broad service availability coupled with a gradual ramp in customer awareness, as expected, average seat utilization per flight has remained below breakeven levels since the re-launch. This has resulted in a

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negative impact to profitability, both in the Passenger segment (see Note 9 - “Segment and Geographic Information” to the consolidated financial statements included herein) and for the Company as a whole. We are encouraged by continued revenue and passenger volume growth in Blade Airport, which we believe serves a large addressable market. We expect that continued passenger growth will lead to improved seat utilization for Blade Airport, eventually resulting in profitability, but we may not be successful in pursuing this growth strategy.

Recent Developments — Impact of COVID-19

The COVID-19 Pandemic

COVID-19, which was declared a global health pandemic by the World Health Organization in March 2020, drove the implementation and continuation of significant government-imposed measures to prevent or reduce its spread, including travel restrictions, “shelter in place” orders, and business closures. At the onset of the pandemic, we experienced a substantial decline in the demand for our Short Distance passenger services due to travel restrictions that significantly reduced the number of commercial airline passengers and office closures that required many people to work from home, lowering commuter demand. However, we continued to see increasing demand for our MediMobility Organ Transport and Jet and Other services throughout the pandemic.

As a result of the decline in Short Distance demand, we paused our New York airport service from March 2020 through June 2021. Additionally, we implemented new measures to focus on the personal safety of our air and ground passengers during the pandemic, which did not materially increase our costs, and significantly reduced the number of Short Distance flights we offered in the typically high-demand summer season during 2020.

We began to see a recovery in Short Distance demand in Summer 2021 that continued throughout 2022. However, future adverse developments related to the pandemic, such as the emergence of new viral strains that are not responsive to a vaccine, a sustained or increased reduction in business travel in favor of virtual meetings, or a decrease in demand for air travel from the public, could slow the recovery of our Short Distance products and postpone our ability to launch planned route expansions.

Our Business Model

Blade leverages an asset-light business model: we neither own nor operate aircraft. Pilots, maintenance, hangar, insurance, and fuel are all costs borne by our network of operators, which provide aircraft flight time to Blade at fixed hourly rates. This enables our operator partners to focus on training pilots, maintaining aircraft and flying, while we maintain the relationship with the client from booking through flight arrival. For flights offered for sale by-the-seat, Blade schedules flights based on demand analysis and takes the economic risk of aggregating fliers to optimize flight profitability, providing predictable margins for our operators.

We typically pre-negotiate fixed hourly rates and flight times with our aircraft operators, paying only for flights actually flown, creating a predictable and flexible cost structure. Blade will sometimes provide guaranteed flight commitments to our aircraft operators.

Blade’s proprietary “customer-to-cockpit” technology stack enables us to manage fliers and organ transports across numerous simultaneous flights, coordinating multiple operators flying between terminals across our route network. We believe that this technology, which provides us with enhanced logistics capabilities and information from our fliers signaling their interest in new routes, will enable us to continue to scale our business. This technology stack was built with future growth in mind and is designed to allow our platform to be easily scaled to accommodate, among other things, rapid increases in flier volume, new routes, new operators, broader flight schedules, international expansion, next-generation verticraft and ancillary services (e.g., last/first-mile ground connections, trip cancellation insurance, baggage delivery) through our mobile apps, website and cloud-based tools.

Our asset-light business model was developed to be scalable and profitable using conventional aircraft today while enabling a seamless transition to EVA, once they are certified for public use. We intend to leverage the expected lower operating costs of EVA versus helicopters to reduce the consumer’s price for our flights. Additionally, we expect the reduced noise footprint and zero carbon emission characteristics of EVA to allow for the development of new, vertical landing infrastructure (“vertiports”) in our existing and new markets. In the interim, we purchase offsets to counteract the carbon emissions generated by our urban air mobility services.

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Factors Affecting our Performance

Ability to attract and retain fliers in our Short Distance product line

Our success depends in part on our ability to cost-effectively attract new fliers, retain existing fliers and increase utilization of our services by current fliers. We plan to continue making significant investments and implementing strategic initiatives in order to attract new fliers, such as flier acquisition campaigns and the launching of new scheduled routes. These investments and initiatives may not be effective in generating sales growth or profits. Moreover, if fliers do not perceive our urban air mobility services to be reliable, safe, and cost-effective, or if we fail to offer new and relevant services and features on our platform, we may not be able to attract or retain fliers or increase their utilization of our platform.

Ability to attract and retain customers in our MediMobility Organ Transport and Jet and Other product line

Our MediMobility Organ Transport product line primarily serves transplant centers, organ procurement organizations and hospitals. Transportation for the hearts, lungs and livers that make up the vast majority of this product line is typically requested only hours before the required departure time. Our ability to successfully fulfill these requests with consistent pricing on the requested aircraft type, be it jet, turboprop or helicopter, is the primary metric by which MediMobility Organ Transport Customers evaluate our performance.

We utilize the same aircraft and aircraft operators in our Passenger segment. Historically, the combination of our Passenger and MediMobility Organ Transport demand, has been enough to incentivize operators to provide dedicated aircraft and crews for our use. However, there is no guarantee that we will continue to be able to secure dedicated aircraft at favorable rates, particularly given significant increases in demand for private jet aircraft in the United States in recent years. Recent increased demand for private jets has led to increased charter costs and more limited availability in the spot jet charter market, but has not limited our ability to maintain or increase our access to dedicated jet aircraft at fixed prices.

Impact of inflation to our business

We generally pay a fixed hourly rate to our third-party operators, based on flight hours flown. These rates are susceptible to inflation and are typically renegotiated on a yearly basis, with the exception of certain aircraft utilized primarily for organ transportation, which can be on two to three year contracts. Some contracts with operators allow for pass-through of fuel price increases above a set threshold. We have historically passed through cost inflation to customers and most contracts with our MediMobility Organ Transport Customers automatically pass through any fuel surcharges, but there is no guarantee this will continue in the future.

Passenger Expansion into New Geographic Markets

Our Passenger segment growth plan is focused on dense urban areas, primarily those with existing air transportation infrastructure that are facing increasing ground congestion. In these areas, our urban air mobility services can provide the most time savings for our fliers, and given the short distances involved, costs for our services can be comparable to luxury, private car services. In addition, EVA may be commercially viable sooner in these markets given that battery technology constraints may limit the range of early models. Large urban markets with existing heliport infrastructure should be able to accommodate EVA while other cities may need several years to permit and build such infrastructure. The number of potential fliers using our urban air mobility services in any market cannot be predicted with any degree of certainty, and we cannot provide assurance that we will be able to operate in a profitable manner in any of our current or targeted future markets.

Growth of our business will require significant investments in our infrastructure, technology, and marketing and sales efforts. Historically, cash flow from operations has not been sufficient to support these needs. If our business does not generate the level of available cash flow required to support these investments, our results of operations will be negatively affected. Further, our ability to effectively manage growth and expansion of our operations will also require us to enhance our operational systems, internal controls and infrastructure, human resources policies, and reporting systems. These enhancements will require significant capital expenditures and allocation of valuable management and employee resources.

Development, approval and acceptance of EVA for commercial service

We intend to leverage the expected lower operating costs of EVA versus helicopters to reduce the price for our flights. Additionally, we expect the reduced noise footprint and zero carbon emission characteristics of EVA to allow for the development of new, vertiports in our existing and new markets. However, manufacturers, individual operators that will

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purchase EVA, and pilots must receive requisite approvals from federal transportation authorities before EVA can fly passengers. No EVA aircraft are currently certified by the FAA for commercial operations in the United States, and there is no assurance that research and development will result in government certified aircraft that are market-viable or commercially successful in a timely manner, or at all.

We believe that Blade is well positioned to introduce EVA into commercial service, once available, for a number of reasons. In our Passenger segment, we believe our existing Short Distance routes will be compatible with EVA, which are initially expected to have a limited range, and our existing terminal space will accommodate EVA. Additionally, we believe that the last-mile transports we perform using helicopters or ground vehicles in our Medical segment may be compatible with EVA, reducing organ transport time and cost for our customers. Blade’s unit economics are designed to be profitable using either conventional helicopters or EVA, even if early EVA do not deliver significant cost savings relative to helicopters. Moreover, Blade’s asset-light business model and technology platform are operator and aircraft agnostic, enabling a seamless transition to EVA.

Seasonality

Passenger segment

Historically, we have experienced significant seasonality in our Short Distance product line with flight volume peaking during the quarters ended June 30 (Q2) and September 30 (Q3) of each fiscal year due to the busy summer travel season, with lower volume during the quarters ended March 31 (Q1) and December 31 (Q4).

Jet and Other revenue has historically been stronger in the first and fourth quarter (Q1 and Q4) given that our by-the-seat jet service has historically operated only between November and April.

Medical segment

Historically, MediMobility Organ Transport demand has not been seasonal.

Key Components of the Company’s Results of Operations

Revenue

For Short Distance revenue, seats or monthly or annual flight passes are typically purchased using the Blade App and paid for principally via credit card transactions, wire, check, customer credit, and gift cards, with payments principally collected by the Company in advance of the performance of related services. The revenue is recognized as the service is completed.

Jet products are typically purchased through our Flier Relations associates and our app and are paid for principally via checks, wires and credit card. Jet payments are typically collected at the time of booking before the performance of the related service. The revenue is recognized as the service is completed.

MediMobility Organ Transport products are typically purchased through our medical logistics coordinators and are paid for principally via checks and wires. Payments are generally collected after the performance of the related service in accordance with the client's payment terms. The revenue is recognized as the service is completed.

Cost of Revenue

Cost of revenue consists of flight costs paid to operators of aircraft and cars, landing fees and internal costs incurred in generating ground transportation revenue using the Company's owned cars.

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Software Development

Software development expenses consist primarily of staff costs and stock-based compensation costs. Software development costs are expensed as incurred.

General and Administrative

General and administrative expenses principally include staff costs including stock-based compensation, depreciation and amortization, directors and officers insurance costs, professional fees, credit card processing fees and establishment costs. We expect that general and administrative expenses will increase for the foreseeable future as we expand our service offerings to additional cities and increase flight volumes on existing routes.

Selling and Marketing

Selling and marketing expenses consist primarily of advertising costs, staff costs including stock-based compensation, marketing expenses, sales commissions and promotion costs. We expect that selling and marketing expenses will increase for the foreseeable future as they represent a key component of our initiatives to expand into new markets. The trend and timing of our brand marketing expenses will depend in part on the timing of our expansion into new markets and other marketing campaigns.

Change in Fiscal Year End

On February 1, 2022, the Board of Directors approved a change of our fiscal year-end from September 30 to December 31. Our 2022 fiscal year began on January 1, 2022 and ended on December 31, 2022. We have recast the income statement and statement of cash flows for the year ended December 31, 2021 and have provided a comparison to the year ended December 31, 2022. We have also provided a comparison of the three months ended December 31, 2021 (the “Transition Period”) to the three months ended December 31, 2020. The recast income statement was derived as follows:

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Results of Operations

The following table presents our consolidated statements of operations for the periods indicated (in thousands, except percentages):

__________

(1) Prior period amounts have been updated to conform to current period presentation.

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Comparison of the Year Ended December 31, 2022 and 2021

Revenue

Disaggregated revenue by product line was as follows:

__________

(1) Prior period amounts have been updated to conform to current period presentation.

For the years ended December 31, 2022 and 2021, revenue increased by $79.0 million or 118%, from $67.2 million in 2021 to $146.1 million in 2022.

Short Distance revenue increased by $18.5 million or 70% from $26.5 million in 2021 to $45.0 million in 2022. Growth in Short Distance revenue was driven by: the acquisition of Helijet’s passenger business in December 2021 (“Blade Canada”); increased US passenger volumes driven primarily by the reintroduction of our by-the-seat airport transfer products in June 2021; higher seat and charter prices, implemented during the 2022 period; and the acquisition of Blade Europe in September 2022.

Jet and Other revenue increased by $3.7 million or 14% from $25.7 million in 2021 to $29.4 million in 2022. Growth in Jet was driven primarily by an increase in the average price per jet charter trip and increased flight volumes on our seasonal by-the-seat jet service between New York and South Florida, partially offset by lower revenues from brand partners and ground transportation services.

MediMobility Organ Transport revenue increased by $56.8 million or 380% from $15.0 million in 2021 to $71.8 million in 2022. Growth in MediMobility Organ Transport was driven by the acquisition of Trinity completed in mid-September 2021, the addition of new hospital clients and growth within existing clients, both in terms of trip volume and average price per trip as hospitals accepted more organs for transplant involving longer travel distances.

Cost of Revenue

__________

(1) Prior period amounts have been updated to conform to current period presentation.

For the years ended December 31, 2022 and 2021, cost of revenue increased by $69.5 million or 128%, from $54.3 million during 2021 to $123.8 million in 2022 driven by increased flight volume and an increase in the average price per trip.

Cost of revenue as a percentage of revenues increased by 4 percentage points from 81% to 85%, attributable primarily to (i) a shift in revenue mix towards MediMobility Organ Transport, which has higher cost of revenue as a percentage of revenue compared with our Short Distance products, in the current year MediMobility Organ Transport represents 49% of revenue, compared to approximately 22% in the prior year period; (ii) the impact of the COVID-19 Omicron variant on demand for travel in Vancouver, Canada, where significant public health restrictions were in effect during the current year period, and as a result Blade Canada operated below breakeven during the early part of the year. Blade Canada results were included for the full year in the current year period, while only one month was included in the prior year period; and (iii) the reintroduction of our by-the-seat airport

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transfer service in June 2021, which is currently operating below breakeven during the ramp period, as expected. Those impacts were partially offset by a year over year reduction in cost of revenue as a percentage of revenue for US Short Distance (excluding Blade Airport) attributable to price increases implemented in the 2022 period.

Software Development

__________

(1) Prior period amounts have been updated to conform to current period presentation.

For the years ended December 31, 2022 and 2021, software development costs increased $3.4 million, or 157%, from $2.2 million during 2021 to $5.5 million in 2022, attributable primarily to: (i) a $1.3 million increase in staff costs; (ii) a $0.8 million increase in consulting costs related to improvements to our software following our expansion to Europe and Canada; (iii) a $0.6 million increase in professional fees in connection with a user experience re-design project; (iv) a $0.3 million increase due to a short term incentive plan for the year 2022; and (v) a $0.1 million increase in stock based compensation.

General and Administrative

__________

(1) Prior period amounts have been updated to conform to current period presentation.

For the years ended December 31, 2022 and 2021, general and administrative expense increased by $23.4 million, or 60%, from $39.1 million in 2021 to $62.5 million in 2022.

The primary drivers for the increase were: (i) a $9.6 million increase in staff costs attributable to new hires in order to support our significant growth, both organically and through our acquisition of Trinity (September 2021) and Blade Europe (September 2022), as well as the requirement for additional roles following the Company becoming public in May 2021; (ii) a $6.3 million increase attributable to contingent consideration compensation in connection with the Trinity acquisition calculated based on 2022 performance, which will be paid in 2023 in cash and in equity (see Note 4- “Acquisitions” to the consolidated financial statements included herein); (iii) a $4.2 million increase in intangibles amortization costs as a result of the accounting for the acquisitions of Trinity, Blade Canada and Blade Europe; (iv) a $4.1 million increase in legal and regulatory advocacy fees and M&A transaction fees, which we do not expect to reoccur at this level. The legal and regulatory advocacy fees were in connection with the proposed flight volume restrictions at East Hampton Airport, potential operational restrictions on large jet aircraft at Westchester Airport and our settlement of the Shoreline matter, the M&A transaction costs are attributable to the Blade Europe transaction; (v) a $2.1 million increase due to a short term incentive plan for the year 2022; and (vi) a $4.7 million increase across various general and administrative items in line with the company’s growth and geographical expansion (including a $1.3 million increase in IT costs, a $1.3 million increase in travel and office costs and a $1.0 million increase in rent and lease costs due to new leases); partially offset by a $4.4 million decrease in costs related to the initial public listing and $3.2 million decrease in stock-based compensation costs.

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Selling and Marketing

__________

(1) Prior period amounts have been updated to conform to current period presentation.

For the years ended December 31, 2022 and 2021, selling and marketing expense increased by $3.9 million, or 103%, from $3.8 million in 2021 to $7.7 million in 2022. The increase is attributable primarily to: (i) a $2.3 million increase in media spending, primarily attributable to the re-launched Blade Airport in June 2021; (ii) a $0.8 million increase in sales commissions attributable mainly to high MediMobility Organ Transport revenue growth from new clients; and (iii) a $0.5 million increase in staff costs due to increased headcount.

Other non-operating income (expense)

__________

(1) Percentage not meaningful

For the year ended December 31, 2022, other non-operating income consists of: (i) $24.2 million non-cash income due to fair value revaluation of warrant liabilities as the value of the warrant liabilities fluctuates with the warrants’ market price; (ii) a $2.2 million realized loss from sale of short-term investments; and (iii) $3.4 million interest income, net of interest expense. We earn interest income on our money market and short-term investments, the increase over the prior year period is attributable to higher interest rates in the current year period.

Segment Results of Operations

We operate our business as two reportable segments - Passenger and Medical. For additional information about our segments, see Note 9 - “Segment and Geographic Information” in the notes to the consolidated financial statements of this Annual Report on Form 10-K.

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Segment Revenue, Flight Profit and Flight Margin

The following table presents our segment results for the years ended December 31, 2022 and December 31, 2021 (in thousands, except percentages):

__________

(1) See section titled “Reconciliation of Non-GAAP Financial Measures” for more information.

Passenger segment

For the year ended December 31, 2022 compared to the same period in 2021, Passenger revenue increased by $22.1 million or 42%, Passenger Flight Profit increased by $1.0 million or 10%, with Flight Margin at 15.2% versus 19.7% in the prior year period.

Passenger revenue increased by $22.1 million attributable to $18.5 million increase in Short Distance and $3.7 million increase in Jet and Other. Refer to the disaggregated revenue discussion above under “—Comparison of the Year Ended December 31, 2022 and 2021—Revenue” for more details.

Passenger Flight Margin declined to 15.2% versus 19.7% in the prior year period, with the decrease attributable to the impact of the reintroduction of Blade Airport in June 2021, which is currently operating below breakeven during the ramp up period, as expected, and the impact of the COVID-19 Omicron variant on demand for travel in Vancouver, Canada, where significant public health restrictions were in effect, and as a result, Blade Canada operated below breakeven during the early part of the year (Blade Canada results were included for the full year in the 2022 year period, while only one month was included in the prior year period).

Those negative impacts were partially offset by a positive impact on Flight Margin attributable to U.S. Short Distance (excluding Blade Airport) driven by price increases implemented in the 2022 period.

Medical segment

For the year ended December 31, 2022 compared to the same period in 2021, Medical revenue increased by $56.8 million or 380%, Medical Flight Profit increased by $9.0 million or 354%, with Flight Margins at 16.1% versus 17.1%.

Medical revenue increased by $56.8 million, with the increase attributable to MediMobility Organ Transport. Refer to the disaggregated revenue discussion above under “—Comparison of the Year Ended December 31, 2022 and 2021—Revenue” for more details.

Medical Flight Margin declined to 16.1% from 17.1% in the prior year period, attributable primarily to an increase in the amount of medical missions completed utilizing non-dedicated aircraft, and the acquisition of Trinity in September 2021, which had a lower Flight Margin than our legacy MediMobility Organ Transport business.

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Segment Adjusted EBITDA

Segment Adjusted EBITDA is defined as revenue less the following expenses: cost of revenue, software development, general and administrative and selling and marketing expenses associated with the segment, excluding non-cash items or certain transactions that management does not believe are reflective of our ongoing core operations.

__________

(1) See section titled “Reconciliations of Non-GAAP Financial Measures” for more information and reconciliations to the most directly

comparable GAAP financial measure.

(2) Percentage not meaningful.

Passenger segment

For the year ended December 31, 2022 compared to the same period in 2021, Passenger net loss increased by $12.7 million from $(1.3) million in 2021 to $(14.0) million in 2022. Passenger Adjusted EBITDA decreased by $7.7 million from $1.3 million in 2021 to $(6.4) million in 2022.

The $12.7 million increase in net loss is primarily attributable to: (i) a $3.3 million increase in intangibles amortization; (ii) a $1.9 million increase in legal and regulatory advocacy fees; (iii) Blade Airport service, which was reintroduced in June 2021, where average seat utilization per flight has remained below breakeven levels since the re-launch; (iv) increases in marketing costs; and (v) the timing of the acquisition of Blade Europe in September, after its summer peak season which resulted in a negative impact to net income, given seasonally low revenue that did not cover the fixed costs during this period, as expected.

The $7.7 million decrease in Passenger Adjusted EBITDA is primarily attributable to (i) Blade Airport service, which was reintroduced in June 2021, where average seat utilization per flight has remained below breakeven levels since the re-launch; (ii) an increase in marketing costs, primarily in connection with Blade Airport; and (iii) the timing of the acquisition of Blade Europe in September, after its summer peak season which resulted in a negative impact to Adjusted EBITDA given seasonally low revenue that did not cover the fixed costs during this period, as expected.

Medical segment

For the year ended December 31, 2022 compared to the same period in 2021, Medical net income decreased by $3.5 million from $0.5 million in 2021 to $(2.9) million in 2022. Medical Adjusted EBITDA increased by $4.0 million or 358% from $1.1 in 2021 to $5.1 million in 2022.

The $3.5 million decrease in Medical net income is primarily attributable to: a $6.3 million decrease in net income due a contingent consideration expense incurred in 2022 (versus nil in 2021) in connection with the acquisition of Trinity; partially offset by approximately $2.8 million increase in net income attributable to the inclusion of Trinity for the full year in 2022 versus four months in 2021 as well as to increase in MediMobility Organ Transport revenue with the addition of new clients, growth within existing clients and organ transplant market growth.

The $4.0 million increase in Medical Adjusted EBITDA is attributable primarily to the inclusion of Trinity for the full year in 2022 versus four months in 2021 as well as to increase in MediMobility Organ Transport revenue with the addition of new clients, growth within existing clients and organ transplant market growth.

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Reconciliation of Non-GAAP Financial Measures

Certain non-GAAP measures included in this segment results of operations review have been derived from amounts calculated in accordance with GAAP but are not themselves GAAP measures. Blade believes that the non-GAAP measures discussed below, viewed in addition to and not in lieu of our reported U.S. GAAP results, provide useful information to investors by providing a more focused measure of operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making. The non-GAAP measures presented herein may not be comparable to similarly titled measures presented by other companies. These include Flight Profit, Flight Margin, and Adjusted EBITDA, which we define, explain the use of and reconcile to the nearest GAAP financial measure below.

Segment Flight Profit and Flight Margin

Flight Profit is calculated as revenue less cost of revenue excluding non-cash timing of ROU asset amortization. Cost of revenue consists of flight costs paid to operators or aircraft and cars, landing fees and internal costs incurred in generating organ ground transportation revenue using the Company’s owned cars. Flight Margin is calculated as Flight Profit divided by revenue.

Flight Profit and Flight Margin are measures that management uses to assess the performance of the business. Blade believes that Flight Profit and Flight Margin provide a more accurate measure of the profitability of the Company's flight and ground operations, as they focus solely on the direct costs associated with those operations. Blade believes the exclusion of the ROU asset amortization from Flight Profit and Flight Margin is helpful as it better represents the Company's actual payable expenses in exchange for the flights served by the operators in the fourth quarter. We also believe that excluding this non-cash ROU amortization expense will aid comparable to prior and future periods as we do not expect it to re-occur after the fourth quarter of 2022.

The following table shows a reconciliation of segment revenue to segment Flight Profit and segment net income (loss):

__________

(1) Prior period amounts have been updated to conform to current period presentation.

(2) All other operating expenses refer to the total of software development, general and administrative and selling and marketing expense.

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Segment Adjusted EBITDA

Segment Adjusted EBITDA is defined as revenue less the following expenses: cost of revenue, software development, general and administrative and selling and marketing expenses associated with the segment, excluding non-cash items or certain transactions that management does not believe are reflective of our ongoing core operations (as shown in the table below).

__________

(1) Represents certain legal and regulatory advocacy fees for specific matters (the proposed flight volume restrictions at East Hampton

Airport, potential operational restrictions on large jet aircraft at Westchester Airport) that we do not consider representative of legal and regulatory advocacy costs that we will incur from time to time in the ordinary course of our business.

(2) Represents contingent consideration compensation in connection with the Trinity acquisition calculated based on 2022 performance, we adjust for it in order to allow a better year over comparison.

(3) We believe that excluding this non-cash ROU amortization expense will aid in comparing to prior and future periods as we do not expect it to re-occur after the fourth quarter of 2022.

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Quarterly Disaggregated Revenue

The following table sets forth our unaudited quarterly disaggregated revenue by product line for each of the eight quarters leading up to the period ended December 31, 2022. These unaudited quarterly disaggregated revenue by product line have been prepared on the same basis as our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

__________

(1) Disaggregated revenue by product line for each of the eight quarters leading up to the period ended December 31, 2022 reflects the changes in the Company's reportable product lines principally to include Jet products with Other, which was previously combined with MediMobility Organ Transport. The change was made as our MediMobility Organ Transport product line has become a larger portion of total revenue. Prior period amounts have been updated to conform to current period presentation.

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Results of Operations - Transition Period Comparison

The following table presents our consolidated statements of operations for the periods indicated (in thousands, except percentages):

__________

(1) Both periods amounts have been updated to conform to current period presentation.

Revenues for the three months ended December 31, 2021 and 2020 increased by $16.6 million or 208%, from $8.0 million in 2020 to $24.6 million in 2021. The increase in revenue was driven by growth across all product lines.

Total operating expenses for the three months ended December 31, 2021 and 2020 increased by $24.8 million or 240% from $10.4 million in 2020 to $35.2 million in 2021. Cost of revenue increased by $14.3 million or 224%, from $6.4 million during 2020 to $20.7 million in 2021, driven by increased flight volume. Software development costs increased $0.5 million, or 208%, attributable primarily to increased stock-based compensation of $0.3 million and increased staff costs of $0.2 million attributable to hiring. General and administrative expense increased by $9.0 million, or 265%, from $3.4 million during 2020 to $12.4 million in 2021, primarily due to increased staff costs attributable to higher flight activity, expenses related to our going public transaction, directors and officers insurance increased expense due to the Company becoming public, stock-based compensation expenses, professional fees in connection with the Company becoming public including legal, consulting and recruiting fees, intangibles amortization due to the Trinity and Helijet transactions and M&A related professional fees.

Total other non-operating income for the three months ended December 31, 2021 consists of $10.9 million non-cash income due to fair value revaluation of warrants liabilities which booked following the reverse merger and $0.3 million interest income.

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For more discussion regarding the three months ended December 31, 2021 compared to the three months ended December 31, 2020, see our December 31, 2021 Transition Report filed on Form 10-Q.

Liquidity and Capital Resources

Sources of Liquidity

Since inception and until May 2021, Old Blade financed its operations primarily from sales of convertible preferred stock. On May 7, 2021 the Company raised $333.3 million in net proceeds upon the consummation of the merger with EIC and the sale of common stock through a private investment in public equity (“PIPE”) financing. As of December 31, 2022 and December 31, 2021, we had total liquidity of $194.0 million and $282.0 million, respectively, consisting of cash and cash equivalents of $43.3 million and $2.6 million, respectively, and short-term investments of $150.7 million and $279.4 million, respectively. In addition, as of December 31, 2022 and December 31, 2021, we had restricted cash of $1.1 million and $0.6 million, respectively. As of December 31, 2022 $150.7 million of short-term investments consisted of securities that are traded in highly liquid markets. With $194.0 million of total liquid funds as of December 31, 2022, we anticipate that those will be sufficient to meet our current operational needs for at least the next 12 months from the date of filing this Annual Report.

Liquidity Requirements

As of December 31, 2022, the Company had net working capital of $191.5 million, zero debt, cash and cash equivalents of $43.3 million and short-term investments of $150.7 million. The Company had net losses of $27.3 million and $36.9 million for the years ended December 31, 2022 and 2021, respectively.

In the course of our business, we have certain contractual relationships with third-party aircraft operators pursuant to which we may be contingently required to make payments in the future. As of December 31, 2022, we had commitments with various aircraft operators to purchase flights with the annual minimum guarantee of an aggregate value of $12.3 million and $18.0 million for the years ending December 31, 2023 and 2024, respectively. $1.4 million and $10.1 million, respectively of which may be cancelled by us immediately if a government authority enacts travel restrictions and $1.1 million and $9.0 million, respectively of which could be terminated by Blade for convenience upon 30 or 60 days’ notice with the annual minimum guarantee being pro-rated as of the termination date. See “—Capacity Purchase Agreements” within Note 13 to the consolidated financial statements for additional information and for information about future periods. Additionally, the Company has operating lease obligations related to real estate leases with expected annual minimum lease payments of $1.8 million and $1.3 million for the years ending December 31, 2023 and 2024, respectively. See Note 7 “Right-of-Use Asset and Operating Lease Liability” to the consolidated financial statements for additional information and for information about future periods.

We expect to incur net losses in the short term, as we continue to execute our strategic initiatives. Based on our current liquidity, we believe that no additional capital will be needed to execute our current business plan over the next 12 months. Our longer term liquidity requirement will depend on many factors including the pace of our expansion into new markets, our ability to attract and retain customers for our existing products, capital expenditures and acquisitions.

Cash Flows

The following table summarizes our cash flows for the years ended December 31, 2022 and December 31, 2021. See Item 8 for the complete consolidated statements of cash flows for the years ended December 31, 2022, September 30, 2021 and the transition period ended December 31, 2021.

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Cash Used In Operating Activities

For the year ended December 31, 2022, net cash used in operating activities was $37.1 million, primarily driven by a net loss of $27.3 million, $17 thousand cash used for working capital requirements and adjusted for non-cash items consisting of income from change in fair value of warrant liabilities of $24.2 million, stock-based compensation expense of $8.3 million, depreciation and amortization of $5.7 million, realized loss of $2.2 million from the sale of short-term investments, $1.1 million accretion of interest income on held-to-maturity securities and deferred tax benefit of $0.8 million. The $17 thousand cash used for working capital requirements was primarily driven by an increase in accounts receivable of $5.3 million (attributable to rapid growth in MediMobility Organ Transport), an increase in prepaid expenses and other current assets of $5.3 million (driven by prepayments to operators in connection with new capacity purchase agreements) and an increase in other non-current assets of $0.7 million (driven by an office lease deposit). Those increases were fully offset by: an increase in accounts payable and accrued expenses of $9.9 million driven by timing of accruing for the Trinity contingent consideration compensation payment and for the 2022 short term incentive plan; an increase in deferred revenue of $0.7 million (driven by client prepayments); and a $0.6 million increase in lease liabilities (attributable to new leases entered into in 2022).

For the year ended December 31, 2021, net cash used in operating activities was $21.6 million, primarily driven by a net loss of $36.9 million, $2.6 million cash used for working capital requirements and adjusted for non-cash items consisting of loss from change in fair value of warrant liabilities of $7.4 million, stock-based compensation expense of $11.3 million, $3.8 million deferred tax benefit, $1.7 million recapitalization costs attributable to warrant liabilities and depreciation and amortization of $1.2 million. The $2.6 million cash used for working capital requirements was primarily driven by: an increase in prepaid expenses and other current assets of $4.8 million (due to prepayment of D&O insurance premiums and to an increase in prepayments to operators in connection with new CPAs entered into in the last quarter of the year); and an increase in accounts receivable of $1.7 million attributable to Trinity (acquired in late 2021); partially offset by an increase in accounts payable and accrued expenses of $2.5 million (driven mainly by timing of payment to professional services providers) and an increase in deferred revenue of $1.6 million (driven by client prepayments including a large payment from one partnership client).

Cash Provided by (Used In) Investing Activities

For the year ended December 31, 2022, net cash provided by investing activities was $79.3 million, driven by $258.4 million of proceeds from the sale of other short-term investments, $98.0 million of proceeds from maturities of held-to-maturity investments, partially offset by $227.3 million in purchases of held-to-maturity securities, $48.1 million in consideration paid for the acquisition of Blade Europe, $0.7 million in purchases of other short-term investments, $0.7 million in purchases of property and equipment (leasehold improvements and vehicles) and $0.2 million additional investment in the joint venture in India.

For the year ended December 31, 2021, net cash used in investing activities was $316.2 million, driven by a $308.8 million purchase of other short-term investments, $23.1 million in consideration paid for the acquisition of Trinity, $12.4 million in consideration paid for the purchase of the exclusive rights to Helijet’s scheduled passenger routes in Canada and $0.5 million in purchases of property and equipment; partially offset by $28.5 million of proceeds from the sale of other short-term investments.

Cash (Used In) Provided by Financing Activities

For the year ended December 31, 2022, net cash used in financing activities was $1.1 million, primarily reflecting $1.2 million cash paid for payroll tax payments made on behalf of employees in exchange for shares withheld by the Company (“net share settlement”), partially offset by $0.1 million proceeds from the exercise of stock options.

For the year ended December 31, 2021, net cash provided by financing activities was $330.7 million, primarily reflecting cash received of $215.1 million from the Merger with EIC, cash received of $119.6 million from the issuance of common stock under our PIPE financing and cash received of $0.3 million from the exercise of stock options. Partially offset by $3.2 million cash paid for payroll tax payments made on behalf of employees in net share settlement and $1.2 million repayment of a loan issued to Blade in 2020 pursuant to the Paycheck Protection under the Coronavirus Aid Relief and Economic Security Act.

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Off-Balance Sheet Arrangements

As of December 31, 2022, we were not a party to any off-balance sheet arrangements, as defined in Regulation S-K, that have or are reasonably likely to have a current or future material effect on our financial condition, results of operations, or cash flows.

Critical Accounting Policies and Significant Judgments and Estimates

This discussion and analysis of the Company’s financial condition and results of operations is based on the Company’s consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. In accordance with U.S. GAAP, the Company bases its estimates on historical experience and on various other assumptions the Company believes are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

We believe that of our significant accounting policies, which are described in the notes to the consolidated financial statements, the following accounting policies involve a greater degree of judgments, estimates and assumptions. Accordingly, these are the policies that we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. For information on the Company’s significant accounting policies and estimates refer to Note 2 “Summary of Significant Accounting Policies” and to “Use of Estimates” section of Note 1 “Business and Basis of Presentation” in the consolidated financial statements.

Revenue Recognition

The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods and services transferred to the customer. The Company does not have any significant contracts with customers requiring performance beyond delivery. We derive our revenues principally from air transportation services. Short Distance, Jet and MediMobility Organ Transport revenue is recognized as the service is completed.

Principal vs Agent considerations. Judgment is required in evaluating the presentation of revenue on a gross versus net basis based on whether we control the service provided to the end-user and are the principal in the transaction (gross), or we arrange for other parties to provide the service to the end-user and are the agent in the transaction (net). We have concluded that we are the principal in most product lines as we control the service to the end user in those transactions. The assessment of whether we are considered the principal or the agent in a transaction could impact the accounting for certain payments and incentives provided to end-users and the presentation of revenue in our Statement of Operations.

Business Combinations

We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired exclusive rights to air transportation services, customer list and trademark, based on expected future growth rates and margins, attrition rates, and royalty for similar brand licenses, useful lives, and discount rates.

Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Allocation of purchase consideration to identifiable assets and liabilities affects our amortization expense, as acquired finite-lived intangible assets are amortized over the useful life, whereas any indefinite lived intangible assets, including goodwill, are not amortized. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

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Goodwill Assessment

We review goodwill annually (in the fourth quarter) and whenever events or changes in circumstances indicate that goodwill might be impaired. We make certain judgments and assumptions to determine our reporting units and in allocating shared assets and liabilities to determine the carrying values for each of our reporting units. Determination of reporting units is based on a judgmental evaluation of the level at which senior management review financial results, evaluate performance, and allocate resources.

We assess the value of our goodwill under either a qualitative or quantitative approach.

Judgment in the assessment of qualitative factors of impairment include, among other factors: reviewing factors such as macroeconomic conditions, industry and market considerations, cost factors, entity-specific financial performance and other events, such as changes in the Company’s management, strategy and primary customer base, factors affecting the reporting unit. To the extent we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company performs a quantitative goodwill and indefinite-lived intangible asset impairment analysis by comparing the carrying amount to the fair value of the reporting unit.

Performing a quantitative goodwill impairment test includes the determination of the fair value of a reporting unit and involves significant estimates and assumptions. These estimates and assumptions include, among others, revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and the determination of appropriate market comparables.

Impairment of Finite-Lived Intangible Assets

We review finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. For purposes of assessing impairment, assets are grouped at the lowest levels for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. To determine whether impairment has occurred, an assessment of indicators include, among other factors, reviewing factors such as macroeconomic conditions, industry and market considerations, cost factors, financial performance and other events, such as changes in the Company’s management, strategy and primary customer base, factors affecting the cash flows of the asset (or asset group).

Income Tax

The Company periodically assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by considering, among other things, taxable income in carryback years, existing taxable temporary differences, prudent and feasible tax planning strategies and estimated future taxable profits. In evaluation the likelihood of utilizing our net deferred income tax assets, the significant factors that we consider include (1) strong earnings history exclusive of the loss that created the future deductible amount, coupled with evidence indicating loss is not an ongoing condition, (2) growth in the U.S. and global economies, (3) forecast of air transportation revenue trends, (4) impact of future taxable profits.

Leases

Blade’s operating leases consist of airport and heliport terminals, offices and aircraft leases that are embedded within certain capacity purchase agreements (“CPAs”). Judgements and assumptions that we apply in the accounting for leases:

•The determination of whether an arrangement is a lease at inception.

•Classifying leases as either operating or finance leases.

•Estimating the incremental borrowing rate - the Company calculates the present value of lease payments over the lease term, based on the incremental borrowing rate. Our incremental borrowing rate is an estimate based on an analysis of publicly traded debt securities of companies with credit and financial profiles similar to our own.

•Determining the lease term when a renewal option exists - some of the Company's leases include options to extend the lease, the Company uses judgement in determining whether a lease extension option would be exercised, this decision drives the ROU amortization period and the value of the ROU asset and the lease liability.

•In embedded leases under certain CPAs with third-party aircraft operators, we use estimates in determining what portion of the minimum guarantee represents a lease component.

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