TMDX - Earnings Report

1Q23 Earnings Report

Revenue $41.6MM: +162% YoY / +32.5% QoQ
Net Loss only $2.6MM – down from a net loss of 10.6 last year and a loss of 6.8 last quarter. They are almost profitable.
Gross Margin 69%: down from 76% last year and up from 66% last quarter.

• The CEO is a major sandbagger.
• The QoQ revenue improvement is the best they have had in the last year. 29%, 18%, 29%, 32%. Fabulous. Much better than I expected.
• Gross margin is down from last year because they make a lower margin on the National OCS Program (NOP). Last year, the NOP was just getting started so the margin was still pretty high at that time.
• They said gross margin is up from last quarter because in the last quarter they were capacity constrained and had a lot of extra expense from shipping OCS units around the US to wherever they were needed.
• Liver and heart numbers continue to improve, and lung continues to lag. They said they are continuing to focus efforts on improving lung utilization and they are starting to see some positive signs in Q2 - but they said it would take 12 to 18 months to really get traction.
• They were able to increase capacity of the disposable kits through better utilization of their second shift in Q1. This is what allowed them to have higher revenue than they previously estimated. They thought that their capacity constraints would limit their growth, but they were able to generate enough production output to keep up with demand.
• The additional capacity expansion they are working on is on track to be operational by late Q2. It has already received FDA certification. They have secured more space in their facility to facilitate the capacity expansion and the extra room they will need for inventory.
• The capacity expansion will 4X their overall capacity for the OCS consumable kits. The workflow optimization referenced below will be additive to that 4x.
• They have hired an outside consulting firm to assist with revamping their workflow for efficiency. They believe this will even further enhance their capacity expansion.
• They have recently put in place a dedicated raw material team to proactively track and plan for all of the growth they anticipate in the coming years.
• They plan to add an additional 2-3 launch points later this year for the NOP. This will make the NOP overall more efficient and will enable them to reach certain geographical areas more quickly than they can today.
• This is probably one of the most interesting things - they said that they recruited a senior logistical manager from Amazon to assist with managing the delivery network going forward. (I guess they were meaning it literally when they said they wanted to become the Amazon of organ delivery.)
• They are planning to create a digital central command and dispatch center for the operations related to the NOP. They are going to digitize everything. This will enable tracking of the organ delivery through an app that both patients and clinicians will be able to access. I think they said they were going to call it “OCS Connect”.
• They talked quite a bit about their intention to eventually fully control their air and ground transport system for organ collection and delivery. They expect to launch this in 2H23. That is faster than I expected. The CEO went into a lot more of an explanation around some of the history of the transportation network for the legacy system. He talked at length about how it has massive cost inefficiencies that TMDX will be able to disrupt. He also said that the transportation piece is really critical for TMDX to take over because they are already running into constraints related to airplane availability based on their current number of transplants.
• Regarding the buildout of the transportation network, they are looking at either acquiring an existing operator or creating a joint venture. They are exploring different financing modalities and working with advisors with the goal of minimizing any potential dilution.
• The CFO stated that the revenue per flight is around $20 - $30k depending on distance and other factors. This flight revenue would be in addition to what they are already getting for the NOP service and the OCS unit itself.
• The CEO talked a little bit about the ways they are working on improving OCS lung usage. He was pretty generic but said he would be providing more details later in the year on things that they are specifically doing.
• He was challenged on the guide for the rest of this year and stated again (as usual) that they are being conservative and prudent and allowing for possible surprises.

Really great progress on all fronts. I find nothing to be disappointed with in this report. Holding all shares and happy to be invested in this company. They have a long runway of opportunity ahead of them.

Future TAM Expansion Possibilities:

  1. Taking over more of the existing (legacy) US organ recovery
  2. Expanding the US total number of transplants by enabling more organs to be used (because of the OCS technology)
  3. Growth in OCS Lung - which is barely bringing in any revenue at this point
  4. International OCS - which is barely bringing in any revenue at this point
  5. National OCS Program expansion in the US
  6. Possible NOP in other countries
  7. Distribution network in the US
  8. Possible distribution network and other countries
  9. possibly taking over management of the process that is currently managed in the US by governmental Organ Procurement Organizations (OPOs)
  10. Expansion into other types of organs.
  11. Improvements on the OCS technology to enable more treatments of organs while they are being stored prior to transplant.

Thank you for the wonderfully laid out summary. I listened to the report. I re-started TMDX AH at about 6-6.5%. I do not intend to grow it any further due to being a niche company but I really like the numbers and the tone. And I really like the vibe in the space as a whole relative to SaaS.


I see the opportunities with improving organ transplant methods to be wonderful…

… but I’m losing enthusiasm for TMDX as an investment.


I’m NOT saying their approach is WRONG by developing a transportation network. But I DO NOT want them investing in one. It would be a huge capital “hole” that would require constant feeding and it’ll reduce the potential returns for investors like me. No doubt management will be well compensated, but… alas… that’s not my role.

I think I’ll listen to how the CEO explains the plan. Perhaps I’ll wait for resolution of the build-out vs JV vs acquisition decision. Only the JV would work for me.

Too bad. Cool company… but I’m not married to it. Might have to take it out back and shoot it for the good of my portfolio… currently a 12% stake in it.

He is no fool who gives what he cannot keep to gain what he cannot lose.


Hi Rob,

I have the same thoughts too. I will consider increasing my holdings when the plan becomes more definite.

However, the management also mentioned that achieving this goal without diluting equity or increasing the burden on the balance sheet would be a significant boost to revenue.



I agree with both @XMFRob and @ChangHsieh’s points. I’m not really interested in owning a travel company but management was quite clear it has a chance to improve both revenue and efficiency. I have no problem keeping this a full position until we get the details of the plan.


I see the transportation structure as solidifying their moat for the long-term.

They already have a huge lead with the patents and FDA approvals on the OCS technology. That in itself is a very large barrier to entry to any potential competitors.

The next layer of moat is the network of the NOP launch sites and the medical staff in them. They have a nation-wide network of highly specialized medical professionals combined with proven processes, combined with relationships with the transplant centers. Once transplant centers get used to having organs delivered to them (instead of having to send their own staff to go get the organs), any potential competitor is going to have to offer a similar service - and that is going to be very difficult to replicate.

The third layer of moats would be the transportation network. If TMDX takes it over, any potential competitor is going to be very limited in their ability to scale a similar delivery network. TMDX has been able to co-opt the legacy transport network so far. If TMDX takes over transport, there won’t be a legacy transport network for any future competitors to use to get started with.

TMDX is becoming a fortress with 3 layers of very difficult moats for competitors to get through.

They will also have leverage over transplant hospitals. Any hospital that decides to work on testing/qualifying a competing product would put the TMDX relationship at risk. If TMDX is delivering 50% of the organs in 4 or 5 years, hospitals would need to think long and hard about whether or not they would want to risk that relationship by working with a competitor.

The 4th layer of moat will be if TMDX eventually takes over the OPO responsibilities in the US. IF TMDX eventually takes this over, then they own the market. Game over.

If you are looking for a short term trade, then maybe the transport network is a problem. If you are looking for a long term investment that can compound for years, then I think you want them to own the transport network.



Thanks, Analog Kid for the very extensive summary of the call. Really appreciate it!

For those who couldn’t listen to the call or prefer to read, there’s a transcript on Yahoo Finance: Q1 2023 Transmedics Group Inc Earnings Call

Yes, we don’t know the plan for the transportation network, but this is just a logistics problem that has been solved by countless other companies. It’s nothing new and it would be an epic failure if they stumbled on this, so for me it’s not a barrier to making TMDX a full position. I don’t even mind if share dilution is needed in order to develop this network as it will secure what will probably be a monopoly (or in the CEO’s words, “the lion’s share of transplants”) for years to come. Balking at TMDX developing a transportation network is like saying you don’t mind owning Amazon as long as they leave the delivery to USPS/Fedex/UPS.

Think of it this way: organ transplants are even better than subscription revenue. Subscriptions can be cancelled, but organ transplants will never stop (absent another pandemic).

My final note is the part of the call that I found the most interesting. With the transportation network, TMDX is filling a huge hole that was created 5-6 years ago and from which they are uniquely positioned to benefit. This is a problem that is just begging to be solved.

Historically, when organ transport was limited to a short distance within the donor service area or DSA, of the involved Organ Procurement Organization or OPO, the OPOs were the main flight coordinators for the transplant programs. Consequentially, a few OPOs purchased their own short-range aircraft to manage local travel. Back then, more than 90% of donor organ allocation came from the transplant programs local OPO DSA, literally less than 250 miles. And only less than 10% came from outside of their local DSA. Today, the reality is the complete opposite. Let me explain why and how.

Approximately 5 or 6 years ago, organ allocation for lungs, hearts and liver transplants shifted from regional to national allocation in the United States. This effectively means that a donor in San Francisco can and should be allocated to the matched recipient in Boston or New York, or Raleigh-Durham, North Carolina. With that change, the rate of organ acceptance by nearly all the leading transplant centers flipped overnight to more than 90% national or distant allocation and only less than 10% local allocation. This led to many OPOs selling their jets and shifting most of the responsibility, if not all the responsibility of air transport coordination back to the transplant programs.
To make this more interesting, between 2020 and 2022, the OCS technology became FDA approved in the United States, and the NOP was established. This shift led to a very important shift in the United States organ placements because the OCS enables safe, longer distance procurement across the entire country and from outside the Continental U.S. like Hawaii, Alaska, Puerto Rico and Canada.

So how do transplant programs coordinate their organ transport charter flights today? They rely exclusively on a few regional charter flight brokers who owns no jets or even have the license to operate a charter flight. They rely – those charter flight brokers rely exclusively on the third-party owners and operators of charter flights. This is a very cost and operationally inefficient way of running organ transplant – transportation and will become a major bottleneck for NOP growth going forward. This antiquated, fragmented approach is not geared to the distances that we are now covering, the volume of donor organ missions that we do on a daily basis using NOP or the volume expected in the near and long-term future. Importantly, many of the jets used today are older vintage with very limited flight range and lacks Wi-Fi communication capabilities.

We saw firsthand in 2022, the massive cost inefficiencies that exist in the current model, and we believe TransMedics managing our own logistical network will create value for our clinical users, their patients and other critical stakeholders in organ transplantation in the United States. We believe strongly that securing this dedicated national network of charter flights under TransMedics aviation, would act as an additional significant catalyst for the growth of NOP and TransMedics business in the United States.