TransMedics presented at the Canaccord Geniuty conference on August 14. The CFO Stephen Gordon gave a ten minute presentation, followed by a question and answer session with a med-tech analyst and the CCO for TransMedics Tamir Khayal.
Some points from the presentation,
There are about 16,000 donors in the USA yearly but roughly only 3,000 to 6,000 of these donors actually give a viable organ, most organs never get transplanted
Organs that are stored on ice begin to decay rapidly and most are turned down for transplantation
TransMedics did 1,000 transplants in 2022 and 2,300 in 2023, on track in 2024 for “significant growth”
Heart and liver transplants as categories grew 12% yoy, but prior 10 years or so it was 1-2% growth in the same categories, OCS is driving growth in the entire transplant categories
Complication rates from transplant surgeries are going down
TransMedics is removing the burden on the transplant system
Livers that get stored on ice have to do procedures in the middle of the night and this accounts for 60% of ice stored livers
Working overnight is double time pay, added complexity, and surgeons cannot operate on other patients the next day
OCS standardizes procedures, and multiple can be done in one day
70% of the market for actually transplanting was previously transported via private charter airplane via fragmented brokers
The CFO described a video presentation of how the whole process works, command center in Andover, coordinator on call 24/7 who logs everything, finds location and the most efficient route from donor to recipient
Example continues Seattle → Boston could not be done on ice only OCS, donor hospital in Seattle, meet with the doctor there, procurement doctor calls the transplant doctor to confirm all details, organ goes on the plane with the technician who runs tests on the organ throughout the flight to confirm viability
Q&A session revealed these details,
Analyst suggests, lung is an up and down market right now
CFO says planes needing maintenance is a headwind for the company
Continued momentum in heart and liver
Growing both the liver share and the total number of transplants (they are growing the category themselves)
Gross margin with the service revenue depends on depreciation of planes, fuel, pilots, crew support, training of pilots
CFO suggests they want to do all this training of pilots ahead of time before planes come online
Most efficient way for the planes is to run them as often as possible and would rather invest in more pilots than more planes
A lot of opportunity exists for server margin to grow
Targeting service margin in the high mid-30s and overall margin in the mid-60s over next year and a half
Onboarding people this quarter and training them impacted margins
The key is to run the planes as often as possible and that will have improvements in margin
Fuel prices are a variable cost for the business
NOP is basically equal to their sales org, it’s not like traditional sales
Not scaling up the business on hiring from here, mostly incremental
Now the company has enough resources in each NOP center hub to have the resources to onboard more transplants
Onboarding hospitals involves hand holding and educating on the clinical front, then have to work with reimbursement team and administrative front
Now looking to get new business from existing centers rather than reaching out to new ones, centers already coming to TransMedics, all about how many times they come back
There will be more investment in headcount but not at the same pace as the last two years, hiring will now be at a much lower pace
Hiring low on sales will help with operating profit
TransMedics is not like other med-tech companies which have to go out and sell with a large sales force
Looking to get some more mid-range planes that can go coast to coast or to Hawaii, Alaska, and Puerto Rico
These mid range planes cost more than Embraers they have now
Most are new planes built from 2021 and then onwards, so will not have a huge maintenance bill soon, but will become a bigger expense on maintenance/repairs in later years
Looking to create their own plane maintenance hub which would be 5-6 mechanics and controller, currently TransMedics relies on third parties and switching to their own shop will improve margins even more
Both the donation and the transplantation operations are done by Transmedics doctors according to the CCO, some cases are done on contract to Transmedics though and this applies across all three organs
No big changes that TransMedics made in the heart category, the transplant outcomes are driving results, old modalities are going to the wayside
In other med-tech companies the doctor will wait for good outcomes, and this is the case with TransMedics
We can expect huge changes in volume for NOP in heart and lung
Cold profusion will not be at the same price point, lesser value and different market segment, will still get paid for the trial
The company is standalone in the market
Not running the company to be an acquisition target, only dedicated to the mission and growing the company
I thought this conference gave some solid insights into how the CFO views the business. They seem to have the market dominated and are growing the category single-handedly. I also like that the CFO seems to have thought of every aspect for how to improve the margins on the service side with the planes. It seems they are taking the planes business very seriously to grow it in scale and capability. The slowdown on hiring will be boosting profitability on future quarters.
The other highlight for me was just how quickly customers adopted TMDX for the harvesting surgeries. The Chief Commercial Officer stated customer clinics were at first very reluctant to use TMDX’s surgeons for the initial harvesting but now use TMDX’s surgeons on roughly 98% of harvesting procedures across all organs:
I do not think part of this is accurate. The transplantation operation is not done by TMDX, it is done by hospital surgeons. I believe TMDX has some hospital surgeons that also double as “contract employees” for TMDX to do some of the organ removals, so I guess technically those people are also doing some transplant operations as well, but the full time staff that TMDX has for doing most of the organ removal operations do not do the transplant operations on those same organs. If I am wrong about this, please point me to the specific point in the interview where this was stated.
@AnalogKid70 Here’s the part of the transcript where this topic came up. The CCO refers to the doctors doing the removal as “our surgeons”. I was surprised by that comment too because I wasn’t under the impression the removal aspect is done by doctors affiliated with TransMedics. The contractors mentioned “are not full time employees”, which seemed to imply the other doctors are full time employees.
It’s not really that important, but what I was clarifying is that the surgeons employed by TMDX to do the removal of the organs from the donors are not doing the transplant surgery into the recipient. The wording of your original post made it sound like that was the case. I think we are both agreeing that TMDX employed surgeons are not doing the transplant surgery - only the removal.
FWIW, that is my interpretation of the comments as well. TMDX’s surgeons are being used to harvest the organ before handing it off the customer clinic. The clinic staff handles any procedures from there.
Regardless, the increase in numbers is surprising. It shows TMDX is not only revolutionizing the storage and transportation of organs, but even how they are harvested in the first place. I hadn’t fully considered that angle to this extent before, though it certainly helps explain some of the continued outperformance. Based on these comments, it sounds like the rapid growth in surgical revenues has surprised even management. I can see why they now want to double shift planes where they can.
I see this as an unexpected development which only reinforces the early strength of the new model TMDX has established.
My understanding is that kidneys last much longer on ice so the value add from TMDX’s products would be much less. That’s why it hasn’t been a priority. According to various sources, kidneys can last 24-36 hours on ice.
Kidneys don’t usually have to travel as far either. There are so many kidney transplants that there is higher probability of a match that is closer in distance. Also, many kidney donations are live-donor donations where the donor is in the same hospital as the recipient.
Transmedics has said many times that they plan to launch a kidney product, but it seems to keep being delayed. I think they will eventually do kidneys also, but I don’t think it will be a huge revenue growth area.
While reviewing the TMDX 2024Q2 earnings call, I noticed that in Waleed Hassanein’s prepared remarks, he stated “we expect the overall OCS NOP volume to grow significantly over the next several years as we move closer to achieving our stated target of 10,000 transplants per year in the US by 2028.” According to their July 2024 investor presentation (and what wpr101 cited above), the number of transplants performed using the OCS or with NOP was about 2,300 in 2023. Assuming that Waleed means 10,000 transplants by the end of 2028 (not the beginning), this implies an annual growth rate of about 34% over the 5-year period. Given that total revenue increased 118% from 2023Q2 to 2024Q2, an annual growth rate of 34% over the period from 2024 to 2028 seems to imply a dramatic slowdown in growth going forward - significantly larger than what I’ve seen for most companies discussed here. I was wondering if anyone could weigh in on this.
A 34% annual growth rate on the transplant would mean the transplant numbers going from 2022-2024 would be 1000 → 2300 → 3082. I would be surprised if they are going to come in that low for this year.
Also keep in mind this company is now getting revenue for the transportation of the organs as well and that’s used for only 59% of the transplants in the current quarter. The other caveat in their statement it is a goal for US only, “stated target of 10,000 transplants per year in the U.S. by 2028”. They have minimal international revenue currently but that could change by four years from now.
Personally I see this as a low bar they are setting which they may reach by 2026 or 2027, but I could be wrong about that. If the year really does end at only ~3000 transplants that would be a red flag, but I’m betting that are going to blow past that target.
wpr101, thanks for providing more clarity. I’m not implying a 34% growth rate this year. The company is currently guiding for 76% to 84% growth. If TMDX achieves their stated goal of 10,000 transplants in the US by the end of 2028, that implies a 34% CAGR over the period. If they achieve the goal by the beginning of 2028, that implies a 44% CAGR. Waleed wasn’t clear in that regard. If we take the optimistic scenario of achieving the goal by the beginning of 2028, this implies a slowdown in growth from 80%+ this year (based on the company’s forecast) to something perhaps in the neighborhood of 30% by 2027 - allowing for a modest buildup in non-US revenue which still has many regulatory hurdles to clear. Given that 2024Q2 YoY growth was 118%, the guidance that the company is providing seems to imply a significant slowdown in growth over the next few years. Of course, one would expect growth to decelerate from such a high level, but the question I was posing is if the rate of deceleration over the next few years is in line with current investor expectations. The link above that Bear provided was very helpful in this regard.
The company is currently guiding for 76% to 84% growth.
That’s their projected revenue growth rate, but I don’t believe TransMedics gives guides for the number of transplants other than this long term target they introduced in April 2024. The overall revenue projection includes service revenue. Since they are using more of their planes and not paying third parties as much for the transport, both revenue and earnings are increasing more per transplant.
It would be interesting to know if 10,000 organ transplants by 2028 includes kidney or not. Kidney still makes up the majority of transplants done which is a market TransMedics is planning to get into. Just getting 10% of the kidney market from 2023 would have been an additional 2400+ transplants.
Since TransMedics provided a large round number many years away I do not really view this as a guide they are giving. For example, if they had guided to 9,500 transplants or 10,800 transplants that would indicate a specific guide. This sounds more like a long term goal to get to 10,000+ transplants in the coming years.
