This looks like a really impressive report as the aviation business is way ahead of where they expected on profitability and gross margins. TransMedics also had their first GAAP operating profit with 2.6M of operating profit and 4M of net profit.
They are such a roll competitively that is attracted the attention of a Congressman who put out a lot of disinformation about TransMedics from one of their competitors in the aviation business. I’m guessing they are displacing some of these legacy aviation businesses so fast, their competition is in panic mode. I like how TransMedics has handled it so far, put out a bullet by bullet letter on their website while using lawyers and legal experts on how to proceed best.
The CEO Waleed sounds like he’s on a roll, and is aggressively putting the TransMedic case and business model forward. I liked that a large portion of his statement was addressing questions around margin and the purpose of the aviation business, in addition to refuting the Congressman’s letter. He’s not backing down, but doing everything in a highly professional manner. I’m finding the narrative of this company pretty compelling and the numbers look to back it up too,
Some notes from the earnings conference call,
- “We ended the year on a very strong note”
- Thrilled to report on the early successes of the logistical services
- 159% revenue growth yoy, 22% sequential growth
- Logistics services revenue was 9.2M up from 2.1M (Logistics only ran part of Q3)
- “Extremely confident and bullish” on the positive impact of logistics to grow NOP platform
- Overall gross margin was 59%, down from 66% yoy… Waleed then goes into great detail about the gross margins
- There are several leverage points for both product and service revenue that are not fully reflected in our models yet
- “Extremely confident” will ramp gross margin over next 12-18 months
- Achieved 35% gross margin for services business [logistics] faster than expected
- Services revenue exceeded our early expectations, and “it is just the beginning”
- GAAP operating profit of 2.6M, and 4M net profit for Q4
- OCS (Organ Care System) Liver case volume grew 199%, Heart 82%, and Lung 11% (Liver is the most important category by volume, heart next, lung is still tiny portion of business)
- For full year had ~2,300 OCS transplants compared to ~1000 year ago
- Adding 37 new clinical specialists and 4 procurement surgeons
- For the first time in nearly 8-plus years, both liver and heart transplant volumes grew by 12% nationally in the US
- Confident OCS technology and NOP services were primary drivers for this annual transplant volume growth
- OCS case volume is now 17% for liver nationally, 16% heart, and 4% lung
- Waleed then goes in depth on the reasoning behind investing in the aviation business
- Lack of charter planes resulted in the loss of roughly 20-30% of donor receivable missions for NOP in 22 and early 23
- Multiple middleman were in the aviation business, and they would sometimes get overcharged
- New aviation business is dedicated to transplant missions and not charter flights, using newer model aircraft which use less fuel
- “Our goal was to maximize operational efficiency”
- Now own 11 aircraft total
- Approximately 98 transplant programs in the US used TransMedics logistics service in Q4 compared to 36 in Q3 (Note again, Q3 only had a portion of live services revenue)
- “Unequivocally showed” cost efficiency, operational availability, and safety standards have enables us to “disrupt the the inefficient historical model and take market share relatively quickly”
- Only 35% of their NOP flights used their own aircraft this quarter, and they project these to get up to 80% (They are basically saying, the services revenue is going to double in the near term)
- We are hoping to have 15 to 20 aircraft operational by end of 2024 or early 2025
- Extremely confident and bullish on the potential positive impact of transplant logistics services on the growth of NOP case volume
- Waleed then has a section of discussing the Congressmen’s letter about their business and references their rebuttal to the letter is on their investor relations page
- Modest sequential decline in lung revenue (Note lung is their smallest and most inconsistent category)
- Liver and heart continued strong sequential growth in Q4
- Product margin was 73%, service margin [logistics] 35%
- Service revenue is comprised of the NOP clinical services as well as air and ground logistics
- Operating expense grew 65% while revenue was +150% which allowed for the GAAP operating profit of 2.6M and net income of 4M
- Breakdown of revenue by category: 151M Liver, 59M heart, 10M lung
- Full year product margin was 77% and service margin was 29% (Note this Q is 35% service margin, so can see how fast this is progressing)
- Aggressive against congressman, “But what they’re not counting on or what you should expect is TransMedics is not going stand still. We are going to defend our practice, our success – our goal to grow transplant volumes”
- Calls out the misinformation from the Congressman
- Liver procedures were probably up about 20% sequentially and almost triple yoy
- Liver will always lead the way just because of the sheer number of procedures
- Originally thought service revenue may be 30%, but now currently at 35% and still improving
- The first aspect we hope to be fully operational at the scale of doing 75%, 80% of the transplant missions with our own fleet (Interesting to me why they aren’t projecting to reach 100%)
- Analysts says that 34.5% of sales comes from logistics, and further points out you are only covering about 35% of your own cases