Strata Critical Medical, Inc. (SRTA) Q2 2026 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Strata Critical Medical Fiscal Second Quarter 2026 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, CFO of Clinical Services and Vice President of Finance and Investor Relations. Matt, you may begin.

Thank you for standing by, and welcome to Strata's conference call and webcast for the quarter ended June 30, 2026. 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, may be 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 and our quarterly report on Form 10-Q, each as filed with the SEC for a more detailed discussion of the risk factors that could cause these differences. Any forward-looking statements provided during this conference call are made only as of the date of this call. As stated in our SEC filings, Strata 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 Form 10-Q and 10-K filings are available on the Investor Relations section of our website at ir.stratacritical.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 our co-CEOs, Will Heyburn and Melissa Tomkiel. I'll now turn the call over to Melissa.

Thank you, Matt, and good morning, everyone. We are pleased to report strong results for the second quarter of 2026, highlighted by accelerating growth in our clinical business, increased cash flow generation and great progress on our capital deployment plan. On an organic basis, excluding acquisitions made during Q2, clinical revenue increased 15.1% sequentially in Q2 2026, driven by 23.8% growth in Transplant Clinical revenue, while Clinical gross margins rose to 26.1% in Q2 2026, up from 25% in Q1. We generated $5.7 million of operating cash flow and $2.9 million of free cash flow in the quarter, our second consecutive quarter of cash generation, and we expect even stronger cash generation in the second half of the year. This strength was partially offset by a softer result in Logistics this quarter, driven largely by significantly reduced flying with one nonexclusive customer towards the end of the period. We expect the customers' lower flying levels to persist, which are specific to just one of the customer's transplant program and involve a unique set of circumstances that we don't expect to be replicated elsewhere. In Q3, we will see the full period impact of the volume reduction, which represents about 3% of our logistics revenue before we expect it to be largely mitigated through organic growth and new customer wins during Q4. Though this is an unfortunate bump in the road, we view the impact as simply a delay in our Logistics growth plan for 1 or 2 quarters, and our long-term outlook for Logistics and the business as a whole remains very positive. Our capital deployment plan is running well ahead of schedule. We closed 3 bolt-on acquisitions during Q2, all of which fit squarely within our capital allocation framework at mid-single-digit acquisition multiples and are highly strategic in nature. Within our other Clinical business line, we completed the acquisitions of Louisville Perfusion Services and Ohio Valley Perfusion Associates, both regional providers of perfusion services to cardiac surgery programs that together will strengthen our competitive positioning and enable further organic growth through new customer wins. In addition, these acquisitions serve to expand our national footprint of staff and equipment available to support organ transplant customers. In our Transplant Clinical business, we completed the acquisition of Heart and Lung Transplant National Recovery Program, a provider of surgical organ recovery services. This acquisition strengthens and adds scale to our platform by increasing our network of experienced surgeons available to complete recoveries, especially in key markets such as Florida and California. In addition to these deals, we signed an agreement to take over Statline's transplant center organ placement customer relationships on a rolling basis over the next year. Though this is not material to our financial picture today, it's a great example of how we can be creative to help industry participants continue the life-saving work they do while creating opportunities to win additional business in the future. In this situation, Statline's parent company was seeking to exit organ placement, which is noncore to their broader mission. We worked hand-in-hand with the Statline team and their customers to develop a structure that prioritizes continuity for both transplant centers and Statline employees during the transition of this mission-critical service. We landed on a rolling transition structure over the next 12 months, where we will pay Statline a fee per contract when and if customers and employees sign on our paper with unit economics that are consistent with our current business. Operationally, this is just like onboarding a new customer rather than making an acquisition. The maximum aggregate potential fee, which approximates a low single-digit multiple of the contract's contribution margin is under $1 million. But what we're really excited about is that this arrangement brings long-term contracted attachment points with up to 8 new customers that could lead to incremental clinical or logistics business over time. Following these acquisitions, Strata has a more attractive growth, margin and cash generation profile. We're also more diversified with increased exposure to the fastest-growing parts of the transplant ecosystem. We expect our business mix in the back half of the year to be roughly 40% clinical on a revenue basis versus 30% in Q1 2026 and nearly 50% clinical on a gross profit basis versus 35% in Q1. As a reminder, our clinical business is less capital intensive and has higher gross margins compared to Logistics in the mid- to high 20% range overall with Transplant Clinical in the 30% range. In addition, these acquisitions have made us a stronger, more capable and more cost-effective partner to the hospitals, transplant centers and organ procurement organizations we serve. Our broader geographic footprint means our clinicians spend more time in operating rooms and less time on airplanes, reducing the bill for customers and maximizing the productivity of our surgeons and perfusionists. Our captive transplant logistics services are highly differentiated versus competitors that are primarily brokers of nonexclusive aircraft. Our captive fleet of 35 aircraft includes 10 that are owned and 25 that are contractually 100% dedicated to Strata across approximately 20 air bases. We have a network of 55 ground vehicles across approximately 11 hubs and a 24/7 logistics operations center staffed with highly trained coordinators, leveraging our purpose-built technology platform. What's more, our integrated offering is compatible with a growing list of machine perfusion devices that have been recently approved and that we work with every day and even more that are expected to be approved over the coming years. Today, no one machine perfusion device represents more than a mid-single-digit percentage of our overall air trips, highlighting the importance of our equipment-agnostic strategy. Altogether, we believe the actions we've taken this quarter, expanding our clinical footprint, executing on our M&A strategy and continuing to generate cash flow puts Strata in a much stronger position with a more diversified business, setting us up for even more success in the long term. With that, I'll turn the call over to Will.

Thank you. As Melissa highlighted, our strategic expansion into clinical services is running well ahead of schedule after our accelerated progress on both organic growth and M&A execution in Q2. Year-to-date, we've completed 3 acquisitions that have significantly expanded our footprint and operational efficiency while adding more than $20 million of revenue and $6.3 million of projected annualized adjusted EBITDA at our targeted mid-single-digit acquisition multiples. We're well ahead of the capital deployment pace we targeted in our value creation plan, and we have even more great opportunities in the pipeline, though we do expect the pace of acquisition activity to slow in the second half of the year. We expect our cash balance to build into year-end, driven by free cash flow generation and the Joby performance earn-out of $17.5 million that we believe we are on track to receive in full by year-end. On the industry front, we've seen a continued recovery in DCD donors versus the low point in Q3 2025, with a low single-digit sequential increase in Q2 2026. While still down year-over-year due to a tough comp, we should start to see year-over-year industry donor growth in the second half of the year. Heart, liver and lung transplants continue to grow, thanks in large part to rising penetration rates of NRP, which, as a reminder, has been shown to result in approximately 50% more usable organs per DCD donor on average. In fact, NRP penetration continued its march forward this quarter, rising to approximately 59% of DCD donors in Q2 2026 versus 57% in Q1 2026. I'll now turn to the second quarter financial results, starting with Logistics, where year-over-year revenue growth moderated to 6.9% as we lapped 2 new large customer wins that started in Q2 2025. Logistics revenue increased approximately 1% sequentially versus Q1 2026, which was somewhat below our expectations. The dynamic of shorter trips that we called out last quarter continued into Q2 2026, driven by strength in our organ procurement organization customers, along with some softness in transplant centers. As Melissa highlighted earlier, we're expecting a roughly 3% Logistics revenue headwind driven by a nonexclusive customer that significantly reduced their flying with us for one organ type starting in June. We believe that the circumstances around this situation are unique and that the high customer retention rate we've experienced historically will persist moving forward. Our pipeline of new logistics customers remains strong, and we expect contributions from new customers as well as growth from existing customers to largely bridge the gap by the end of the year. On the profit front, Logistics gross margin fell to 18.4% in Q2 '26 versus 19.3% in Q1 2026 and our expectation of approximately 20%. There were several factors driving the lower-than-expected logistics gross margin, including a higher fuel surcharge. As a reminder, our Logistics contracts typically contain a fuel surcharge provision where we pass through fuel costs above an agreed-upon threshold, usually in the low $4 per gallon range. The fuel surcharge increases our revenue, but has no impact on our gross profit dollars, reducing our gross margin. Our gross margin, excluding fuel surcharge revenue and cost was 19% in Q2 2026. While we have fuel surcharge provisions in all of our logistics contracts, we have a small number of contracts, too, where the pass-through mechanism either kicks in at a higher price above current levels or is capped. This lowered gross margin by approximately 30 basis points. Lastly, customer mix shift remained unfavorable with a larger concentration of short lower-margin trips this quarter. We also experienced lower profitability on our owned fleet, driven in part by higher-than-average unscheduled maintenance expenses and lower ground margins compared to the year ago period due to a mix shift to lower-margin third-party vehicles, which we expect to correct in the coming quarters. We now expect gross margin to be in the 18.5% to 20% range in the second half of the year, but we are confident in our ability to restore Logistics gross margin solidly to our 20% target for 2027. We'll always see some volatility in Logistics margin, particularly given the inherently unpredictable nature of unscheduled maintenance. However, we have several initiatives underway to structurally increase Logistics gross margins back to our target, largely driven by the elimination of less efficient, higher cost operators and favorable changes to our supply contracts as we allocate more hours to better performing providers. I'll now turn to the Clinical segment and the company's overall performance. Total revenue increased 60.7% to $72.5 million in Q2 2026 versus $45.1 million in the prior year period, driven by organic growth in logistics, the addition of our clinical business through the acquisition of Keystone in Q3 2025 and the contribution from Clinical acquisitions completed during Q2 2026. Clinical revenue rose 22.6% sequentially to $24.3 million in Q2 2026 versus $19.8 million in Q1 2026. Excluding clinical acquisitions completed during the quarter, clinical revenue rose 15.1% sequentially in Q2 '26 versus Q1 '26, driven primarily by Transplant Clinical revenue, which rose 23.8% and other clinical revenue that rose 6.5%. Gross profit increased 68.9% to $15.2 million in Q2 2026 versus $9 million in the prior year period, driven by the addition of our Clinical business and the contribution from Clinical acquisitions completed during Q2 2026. This was partially offset by a modest decline in Logistics gross profit, as previously discussed. Gross margin increased 100 basis points to 21% in Q2 2026 versus 20% in the prior year period, driven primarily by the positive mix impact from the addition of our Clinical business and the contribution from Clinical acquisitions completed during the quarter, partially offset by the decline in Logistics gross margin. Clinical gross profit increased 27.8% sequentially to $6.3 million in Q2 2026 versus $5 million in Q1 2026. Clinical gross margin increased to 26.1% in Q2 2026 versus 25% in Q1 2026. As we noted in recent quarters, given the noise associated with last year's transactions, year-over-year comparisons of SG&A and adjusted EBITDA are not particularly meaningful. So we'll discuss those results on a sequential basis. Adjusted SG&A decreased approximately $100,000 to $9.1 million in Q2 2026 versus $9.2 million in Q1 2026, primarily driven by the timing of expenses in each period. Adjusted EBITDA was $7.9 million in Q2 2026 versus $6.4 million in Q1 2026. Adjusted EBITDA margin rose to 10.9% in Q2 2026 versus 9.5% in Q1 '26. The 140 basis point sequential increase in adjusted EBITDA margin was driven by the increase in Clinical gross margin and the mix shift to Clinical, partially offset by the reduction in Logistics gross margin. Operating cash flow was $5.7 million in Q2 '26. The $2.2 million difference between adjusted EBITDA and operating cash flow was driven primarily by a $1.7 million increase in working capital, given the accelerated growth in Clinical and nonrecurring transaction-related cash costs. Capital expenditures of $2.8 million in Q2 2026 were driven primarily by aircraft capitalized maintenance, which was elevated this quarter given the completion of 2 sets of engine overhauls, the only scheduled engine overhauls for 2026. Free cash flow was $2.9 million in Q2 2026, and there were no aircraft or engine acquisitions this quarter. As mentioned, we're encouraged by the second consecutive quarter of cash generation, especially considering the timing of expenses and nonrecurring transaction-related cash costs that burdened cash flow. Moving to the outlook. We are increasing our 2026 revenue guidance to a range of $285 million to $295 million, up from $260 million to $275 million previously. We are also increasing our 2026 adjusted EBITDA guidance to a range of $33 million to $35 million, up from $29 million to $33 million previously. At a high level, we're seeing the benefit of accelerated clinical growth and our acquisitions and a significantly increased revenue guide, while given the timing of the short-term margin headwinds we're seeing in Logistics, the profit benefits of the same are partially offset in our EBITDA guide for 2026. As discussed, the Logistics gross margin is expected to improve in the second half of the year and return to our 20% target in 2027, restoring the full underlying earnings power of the business moving into next year. Assuming the recent Clinical acquisitions closed on January 1, 2026, our 2026 revenue range would be $295 million to $305 million, and our adjusted EBITDA range would be $36 million to $38 million. We continue to expect free cash flow before aircraft acquisitions of $15 million to $22 million in 2026 as the increase in adjusted EBITDA is offset by higher nonrecurring cash costs related to the accelerated pace of acquisition activity during the year as well as anticipated working capital build associated with the faster pace of growth in Transplant Clinical. In Logistics, we expect revenue to decrease high single digits sequentially in Q3 versus Q2, driven by the 3% revenue headwind we discussed earlier as well as the expected summer seasonality that is typical in Q3. Over the last 3 years, heart, liver and lung industry transplant volumes fell between 3% and 6% between Q2 and Q3. As we've said before, our customer base could perform better or worse than the industry in any given quarter. From July to date, we have seen fewer organs being accepted for transplant at several of our centers. By Q4, we expect Logistics revenue to recover to near Q2 2026 levels. As discussed, Logistics gross margin is expected to gradually improve to the 18.5% to 20% range over the balance of the year. As we mentioned earlier, we've already put in place several initiatives to structurally drive Logistics gross margins back to our 20% target for 2027. Clinical revenue is expected to grow approximately 20% sequentially from Q2 to Q3, driven by continued growth in the base business, along with a full quarter contribution from the recent clinical acquisitions that closed during Q2 2026. In Q4, we expect mid-single-digit clinical sequential revenue growth versus Q3. We expect clinical gross margins to increase to the 27% to 28% range in the second half of the year, driven by mix shift to the higher-margin Transplant Clinical business. Our adjusted SG&A is expected to remain in the low $9 million range for the balance of the year. In summary, we're excited about the growth potential of our integrated service offering in Transplant, the performance of our Clinical business and the increasing cash generation that has started to come through in the first half of the year despite some short-term headwinds in Logistics that we're proactively addressing. The best is yet to come, and we look forward to seeing more and more of the financial benefits of our strategic plan shine through in the coming quarters. We're participating in several investor conferences over the next few weeks, including Needham's Healthcare Conference and the Lake Street Investor Conference. We hope to see many of you there. With that, I'll turn it back to the operator for Q&A.

[Operator Instructions] Our first question comes from Yuan Zhi with B. Riley.

Congrats on a strong quarter. I think the industry-wide volume for machine perfusion was flat quarter-over-quarter in the second quarter. Excluding the recent acquisitions, can you comment if you are gaining market share in this segment? And what about the Logistics?

Thanks for the question. I think the best thing to look at is the growth sequentially in our clinical business, which was very strong. We do think that overall, the combination of our third-party surgical recovery and NRP services is gaining ground in the marketplace and the industry data supports that as you saw yet another quarter of sequential step-up in NRP as a percentage of the overall volume of donation after circulatory death. I would add that we're also seeing more customers take advantage even for brain dead recoveries of third-party surgical recovery because particularly when you're going long distances, we can make that more cost effective for them by sending our surgeons either on the ground or by a commercial flight and avoid turning on an airplane until you know that the organs are going to be accepted. So we're seeing a lot of folks take advantage of that and save a lot of money in the process.

Got it. Can you maybe expand a little bit on how you can see customer dollars on potential dry runs and which organs has the highest dry run rate?

On the dry run side of things, it's highly variable to the specifics of that donor. We're always working hand-in-hand with our customer to make that risk evaluation of whether or not it makes sense to pursue a donor based on the specific circumstances. The nice thing about our ability to deploy a surgeon locally is that you're taking much, much less risk in terms of the overall cost because, again, you try not to turn on that airplane until you know that it's not going to be a dry run. That's really where we can open up the aperture for our customers to attempt almost any organ, even if they see from the clinical data they're looking at a much higher risk of a dry run.

Our next question comes from Ben Haynor with Lake Street Capital Markets.

First off for me, can you maybe help us out and tease out the movements in guidance for the year? I mean what was Q2 outperformance, what was acquisition related, what is kind of factored into the general outlook that you have?

Sure, Ben. If you just take what we've disclosed on the acquisitions that we've made so far and kind of do the math, you're looking at a revenue contribution in 2026 of kind of $12 million -- $11.5 million to $12 million is what the math comes up with. Then on adjusted EBITDA, if you add it all up, you're at about 3.5%. That's the portion of the guidance change that's related to the acquisitions. Then the rest is just related to outperformance in the base business. As we walked through in detail there, there are a lot of puts and takes. But on the whole, you're seeing a benefit on both fronts in the guidance raise that we released today.

Okay. That's helpful. Then on the initiatives you have in Logistics to restore the gross margin to the 20% goal, is there any more you can kind of share on that? How lasting can those impacts be?

Yes. Structurally, we have some operators that are just operating at much lower margin, particularly smaller operators where maybe we only have one airplane with them. We've already proactively removed 1 or 2 of our lowest margin airplanes from the overall addressable fleet. Then we're replacing that with lift that we're getting on a dedicated basis from operators that are just performing much more efficiently. There's also some moving around of airplanes we have to do as customer mix shifts. We're addressing that proactively as well. That mostly has to do with our owned airplanes where obviously, the more we fly on those airplanes, the less it cost per hour because we're amortizing those fixed costs over more hours. We're putting both of those action plans in place, and a lot of this has already started to show up in terms of the changes we've made in July.

Ben, just the last piece. The ground margins did decline somewhat year-over-year, and we have actions in place to improve the utilization of the vehicles and the drivers. We should see the ground margin, which is higher than average in Logistics get back to where it was previously in the back half of the year.

Okay. Remind me, maybe I'm forgetting, have you ever split out the air versus ground mix?

We do have that disclosure in our investor presentation. You could see the approximate ground revenue that we have. So you can kind of break it out of the Logistics revenue in total.

Okay. I'll take a look at that. Then lastly for me on the potential cardiac perfusion acquisition targets. Now that you've made -- acquired assets here and presumably have folks that you can point to that are happy with their decision to sell to Strata, much like Keystone, the Keystone folks that you're able to point to on the broader side. Does that help you much with additional acquisition targets? Or is that kind of moved?

We think it helps a lot. As you can see, our teams that we've acquired, and it's really first when we think about these acquisition targets are very active in growing the business. They're very active in helping us to find new targets. I think the story that they can share with folks that might want to come over and join the Strata team is really compelling because there's a huge role for them to play in making the service that we provide more efficient, more cost effective for our customers and available in more places across the country. They're driving that, and we're looking for other targets out there where folks, as we like to say, have more gas in the tank and are ready to keep driving towards this really important mission that we have here. Absolutely, we think it's helpful on the sourcing front. We still have a lot of great opportunities in the pipeline, and we are very focused on those clinical opportunities just given how exciting the growth opportunity is in that part of the marketplace and given the market share shift we've seen to things like NRP and third-party recovery and particularly the benefits we can provide to our customers when we put all these things together.

[Operator Instructions] I'm not showing any further questions at this time. And as such, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.