Adding some notes from the conference call,
CEO - Waleed Hassanein
- Laser focused on scaling business in terms of revenue and operations while investing in future product pipeline and infrastructure
- Three main initiatives for the business, 1) aviation fleet and logistics 2) drive transplant volume and growth with market share expansion 3) launch new clinical programs to expand lung transplant adoption and expand OCS heart franchise
- Achieved first positive free cash flow quarter of 2M which is milestone
- 114M revenue, +118% yoy, +18% qoq
- Significant volume growth across lung, heart & liver
- Logistics revenue was up 32% qoq, from 14.5M last quarter to 19.1M this quarter
- Overall gross margin 61%, slightly down from last quarter of 62% and down from last year of 70% (explained later that last year has no logistics revenue and there will be large fluctuations)
- Extremely confident that gross margins will improve on the next 12-18 months from further scale and service revenue
- GAAP operating profit of 12.5M, 11% of revenue (vs -0.9M last year)
- Net income 12.2M (vs -1M last year)
- First positive free cash flow quarter is still despite purchasing a new aircraft in the quarter
- 17 total aircraft owned now and two were added in July
- Significant investment in pilots, “nearly doubling” number of pilots over Q1
- Daily active number of average planes is 11 compared to nine last quarter
- On track to own 20 planes by year end
- Owned aircraft covered 59% of own NOP operations, compared to 49% in previous Q, long term goal still 80%
- Goal of getting to 10,000 transplants by 2028
- “Long greenfield of growth ahead”
- 126 US Transplant programs used Logistics in the quarter compared to 105 last quarter
- Significant progress in new OCS perfusion solution and new circuit designs both for Lung and Heart clinical programs
- Cold perfusion heart program is underway, very encouraging results for new concept
- Guide of new yearly revenue of 425-445M up from 390-400M
CFO - Stephen Gordon
- Organ breakdown by revenue, 77M liver, 27.2M heart, 4.3M lung (last quarter was 20.2M heart)
- Outside US revenue of 4.7M, up 34% yoy, 4.3M heart, 0.4M lung (curious there is no liver transplants internationally)
- Service revenue is 37% of total revenue at 42.6M
- Service revenue includes: surgical procurement and organ management, logistics revenue, flight school revenue
- Product margin is 80% up from 77% last quarter
- Service margin is 28% declining from last quarter due to investment in pilot hiring and training, and aviation maintenance
- OpEx 56.8M up 51% yoy, 67% growth in R&D, SG&A 46% higher from headcount costs
- Cash 362M
Q&A
- Very strong in heart this quarter
- OCS remains only FDA approved heart perfusion technology
- Community is voting with adoption
- Analyst mentions guide implies 112M per quarter for next two quarters or sequential decline, and response is Transmedics issues conservative guidance to “avoid significant surprises”
- Maintenance, training, hiring on flights all lead to uncertainty in forecasting
- Working with FDA on warm and cold heart perfusion, designs are already set, will be presenting at scientific conferences
- All trial programs through NOP are revenue generating
- Looking to get heart and lung in a spot where majority of operations can be done in morning hours
- 63% of liver operations through NOP are done in morning which is a significant accomplishment
- Hires have been made for the European opportunity, revenue likely coming towards end of 2025 (Would be interested to find out what countries they are targetting)
- Transmedics is generating significant interest and excitement globally, for all or parts of the NOP program to come to their country (This could open a lot of new TAM)
- Increased pilot hiring is for double shifting planes to run more than 12 hours and get to point where the planes are in continual use, with proper maintenance
- Data will dictate how many pilots to hire and how many planes to purchase
- Momentum in heart is durable and sustainable
- OCS Heart is able to salvage donors hearts that no other system is capable of
- Company still in investing mode but will have operating profit going forward
- NOP organization has already gotten to a critical mass
- The 21 extra adds for Logistics services driven by three factors, 1) word of mouth, peers 2) seeing growth and reach 3) delivering organs to far locations, becoming last minute logistics partner in critical cases
- NOP is the same program across the whole country, same cost efficiency everywhere
- Going after the 20-25% of the heart transplant market for the sub 3-4 hours of heart preservation, this was always in the plan (cold perfusion solution targets this segment)
- Will solidify position in “heart franchise”
- “We are going to take the heart and lung market by a storm” with new circuit design, new perfusion solution, and new therapeutic agents
- Cold storage for hearts is now considered a historical standard of care by medical establishments
- Some sites have account for multiple of the 126 programs and the range of programs is very diverse in terms of where they are in the journey
- Participants in NOP program see great value
- Focusing on growing national transplant volumes, want to be a trusted partner and will not engage in price gouging
- Kidney will be the fourth organ
- Most economical way to manage organ transplants is what Transmedics does
- Improving quality of life for transplants surgeons, CEO noted that other surgeons like brain and cardiac bypass are never done in the middle of the night like organ transplant is
- Transmedics staff is well rested and work in multiple shifts, have group of experienced surgeons and low turnover, want fresh team to avoid burn out
I thought this was a really strong quarter with the volumes on heart increasing significantly. The company got to their first free cash flow positive quarter and Logistics is ramping up well. Earnings per share was flat sequentially on higher revenue but this was explained by additional hirings, investments in clinical research, and larger R&D. The guidance going forward appears to be the typical sandbagging this company does where they will easily beat the numbers.