Transmedics presents at 42nd Annual JP Morgan Healthcare Conference

TMDX surged 8.07% today, which is unusual for this stock. I couldn’t find any news but then remembered about the JP Morgan Healthcare conference on Monday. I listen to the webcast this evening to see if there were any tidbits.

Some mentions of the company not pre-announcing, but we have the guide of 140%. Not sure why it was phrased that way. Is a pre-announcement coming?

Waleed also mentioned they did north of 2000 transplants.

I am on my phone so a check of my spreadsheets for the trend will have to wait till morning.

Profitability in 2024 and end-stage profitability in 2025. By 2026 revenue should be well ahead of investment.

Lots of colour given around increased efficiencies due to Transmedics Aviation. Interesting that previously they had difficulty obtaining charter flights during major events like the Kentucky Derby. Pilot timeouts added cost. Sometimes charged for return flights when it should have been one way. Lots of unexpected costs had to be eaten.

Planes are an average of 2 years old and all the same type (Phenom 300E), simplifying their operation/maintenance.

11 planes, 7 to 8 are operational. 20 by year-end.

Expect lung program to be back on track in 2H24 and contributing to growth at least at the level of heart.

Next-gen OCS is for the growth beyond the 10000 transplant target (2028).

More than 45 centres converted for heart and liver (80% of total volume). Remaining transplant centres that have not converted to NOP/OCS, it’s either just a matter of time or they will eventually end up not doing transplants at all. These remaining centers each do less than 20 transplants a year.

That’s all I have for now.

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Thanks for that! I just listened to the call and would recommend a listen if you’re new to TMDX and looking to take a position, and if you are already invested. Some additional points:

  • This is the webcast
  • This is the new presentation (updated this month) which is what Waleed talked to at the conference.

→ there are a lot of new slides on Aviation from slide 11 onwards.

Waleed talks through the slide deck for the first 27 mins and he sounded extremely calm and confident. He gave a lot of colour on the aviation business which sounded like it is doing very well.

Q&A starts at 27 mins.

The pre-announcement wording mentioned above was part of a leading question from the analyst who used those words, not Waleed’s. Waleed actually said he cannot comment on that as much as he would like to. He said he can’t talk about granularity until they announce end Feb.

The CFO had an interesting answer to a question about the gross margin impact of the aviation addition:

“Overall margin of the company is going to be lower […] but the revenue opportunity and the pace of revenue attainment is much faster by surrounding the device sales with these services.”

He also stated that the service margin will improve due to efficiencies from the aviation business.

I thought it was a very good call; they have their tails up.

-wsm

(long 10%)

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Great writeups, @5thhorseman and @wsm007.

I thought about that CFO quote as well:

That was part of what made sense to me about the plane purchases in the first place as long as the volume supports it. Under the old model, they kept all the high margin transplant revenue while subtracting out transportation. Under this one, they keep everything. Even if it lowers overall margins, the revenue impact is accretive as long as the flight itself isn’t operated at a loss. I’m thinking something like this hypothetically:

Pre-Summit: $100K transplant revenue - $20K staff/supplies - $10K flight = $70K net/$100K gross (70% margin, which is about where they’ve been the last few Q’s)

Post-Summit: $100K transplant revenue + $30K flight revenue - $20K staff/supplies - $30K flight = $80K net/$130K gross (61% margin)

So, even if they operate the flight at breakeven (0% margin), it’s accretive to TMDX’s share of the overall revenue pie (which is what management promised when making the move). Again, this is all reliant on enough volume to make the math work, but that’s how I’m viewing the new operation. Even at breakeven, it keeps the money sloshing around in-house rather than having a portion go out to a third vendor. That will only improve if they are able to create additional margin efficiency in the flight portion.

The fact owning the transportation might help win additional contracts as well is just icing on the cake.

What am I missing in that thought process?

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Regarding the statement of the CEO about not pre-announcing - some companies pre-announce their 2023 earnings before the start of this conference every year so that they can talk about their performance in the Q&A. If you were around for the Livongo days they were a notable pre-announce at this same conference. TMDX does not ever pre-announce and they usually make some statement about that at the beginning of their presentations at this conference.

I listened to the presentation and did not pick up on anything that I thought was significantly new info. I am unsure why the market reacted the next day by boosting the stock 8%. For those who observe such things, with the jump up on Tuesday it did close the gap from the drop after the 8/3 ER.

stocknovice - I agree with your thought process. TMDX management has been saying this for a while. Both NOP and now airplanes/flights are negative with respect to gross margin. However, revenue would have ramped MUCH more slowly if TMDX did not implement both of these things. So, it would have been nice if they could have kept the juicy GM and not had to invest in NOP and planes, but its just not reality. They still have a very strong GM, and they now have a more durable moat.

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