#96 | TransMedics (Free) Premium Deep Dive | w/ Joep Dikken from Tresor Capital

There are roughly 100,000 people on organ transplant waiting lists in the United States right now. About 20 of them die every single day. Not because there aren't enough willing donors but because of how we transport and preserve organs.

Traditionally, when a donor organ becomes available, it gets put on ice in a cooler and rushed to the recipient hospital. Ice. Like your groceries. And the problem is that this method called static cold storage gives surgeons very little time. A donated heart, for example, starts deteriorating about 4 hours after retrieval. If you can't get it to the patient in time, it's unusable. Organs from donors far away often get rejected simply because the logistics are too difficult.

TransMedics built the solution to that. 

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Transcript

SPEAKER_00 0:05

Every year in the United States, about twenty people die per day waiting for an organ transplant. Not because there aren't enough donors, but because of how we transport organs. We put them on ice like groceries, and for decades that was just accepted. It was the only way. Now imagine you're a heart surgeon and it's late, 2 a.m. You have a window of maybe four hours to get a donor's heart across the country into a chest and beating again. And if anything goes wrong, the logistics break down, the organ goes in the bin, and the person waiting for the transplant might die. That was the reality for decades, until one surgeon decided to fix it. Today Yup and I are talking about transmedics, ticker TMDX, and the question of whether they've built one of the most unusual businesses in the stock market today, or whether the whole thing is more fragile than it looks. Let's dive in. Thank you very much. In our uh previous podcast episode, you actually pitched this company, and that uh intrigued me so much that we decided to do a full deep dive on the company. So thank you for taking the time to jump on and uh discuss transmetics. Yeah, thank you for having me. Absolutely. So, Transmedics, I'll tell you right now, Yup. When I started the company uh analyzing the company, I was like, okay, so they sell machines and they do a little bit here and there, and the and the and what they offer is unique. But man, going deeper and deeper into the company, I felt very stupid along the way. So many difficult difficult words and jargon and what they do is very difficult.

SPEAKER_01 2:21

Yeah, yeah, it is, and it's not only what they do, but it's like the machine itself, like understanding how it works, what the benefits are? You really have to be like almost like a medical student to understand this. Like, well, I was researching the company myself. I also had to explain my medical uh studying girlfriend about some of the terms, and she was like, What why do you even need to know this? I'm like, don't worry about it.

SPEAKER_00 2:50

Do you think it's um mandatory for someone to really know a lot about the industry and the company, or is this a company you can just rely on management and uh and own it?

SPEAKER_01 3:02

I think you definitely need to know what they're selling. Um, and especially I don't know if we'll we'll touch upon it in in today's deep dive, but especially when there's a lot of um misinformation coming from an activist side as well. Like you need to know, okay, so what claims are true, what claims are false. Um and especially as we're gonna talk about later as well, like you need to understand the mode. And to understand the mode, it comes back to the first point, you need to understand what they're selling. Um, I don't think you need to know the ins and outs of how organs work, but um I think you understanding the basics is is is is a first thing, yeah.

SPEAKER_00 3:47

Yeah, and understanding the basics. Uh let me take you through some of the company background because I think for this company it matters, and then we'll get into the business model uh where you will uh take us through how they make their money. But it's uh it's a founderla company, it's uh it's already pretty old, actually. It's uh founded in 1998. I I wouldn't have thought that before analyzing the company just because of how complex and I haven't heard of the company before. It was founded by Walid Hassanain. I I'm sorry for the pronunciation, but it he was an Egyptian cardiac surgeon. I think that's how you say it, but um he was frustrated with how primitive organ preservation was. Um Ischemia, which is a difficult word for uh tissue damage from oxygen deprivation, um, basically destroyed and killed many organs before they were ever used. Uh, and like I said before, they still use, but they used to have cold storage, uh, which helps. It slows the cell death pretty good, but it doesn't stop it. Uh, and a heart on ice maybe has four hours max, so it wasn't the best way. And if you need to go from A to B and it's more than four hours, you basically have no way, you had no way to transfer the organs uh on long distances. So Hasa 9 wanted to keep the organ alive outside the body uh and not just slow its death uh on ice. And after two decades of spending millions on RD and clinical trials uh before any meaningful revenue, um yeah, they they managed to to to build something with transmatics. Um in 2018 they got the FDA approval for their lung device in 2021. They got FDA approval for their heart and liver devices. Uh, you don't get approval very easily, so they are definitely doing something right there. And they IPO'd in 2019. Um it's been all over the place, it went very high, it it declined over 40% over a three-year period. It's been all over the place. And then um, in January 2025, and maybe Yup can touch on this a little bit, a short seller report came out from Scorpion Capital. 342 pages of basically bad news for transmetics. Uh, walk like an Egyptian. What was that all about?

SPEAKER_01 6:42

Uh well this short report was was very aggressive. Um, the language that they used was uh proposing that the company was one big scam, it wasn't doing anything right. Um it was making money. Um, it was it was making very high costs. Uh just under the flag of, oh, Medicare will take care of it, the the insurance system in the United States, because it's organ transplantation, it's vital, like they don't really care how much it costs. So we just integrate all these high um high uh value chain costs, and Medicare will just will just pay it. That was basically one of the I mean there were many arguments of the short seller, um, but by just l reading through a couple of pages, you would already see that it it the seller was just trying to bring the stock down like very, very aggressively. That's what short sellers do, obviously, but some of the arguments also didn't really make sense, in my opinion. I think one that stood out for me is that um the short seller was arguing that um these machines they prolong the life of an organ outside of the body. They don't keep it alive forever, obviously, but they prolong the the time that you have for the organ outside of the body. So the short seller was arguing that because of the prolonged life of the organ um due to the machine, um, they weren't uh the the focus was shifting towards not really what is best for the patient, so get the organ into the patient's body as fast as possible, but more creating like this comfortable lifestyle for the surgeons. And their argument was that this is not the right way of thinking when you're doing an organ transplant. But in my opinion, the first thing I thought was okay, so if we can avoid surgeons um needing to wake up at 2 a.m., a team gathering at and in all hurry just because the organ is out there for three hours already. I think you can argue for for for a case where you can say that it's actually it's actually better because then we have like scheduled um surgeons, uh scheduled uh operations, and surgeons are fresh and everyone's prepared. And so there are some of the arguments in that short report that have maybe even like a vice versa effect on on the other end of it.

SPEAKER_00 9:25

You know, there are definitely things in there that if they are true, they are highly disturbing, but they paint this narrative that that it's basically like a mafia company. And after reading it, I was like, if you were to build a company and uh do fraudulent things and make money from other people's backs, wouldn't you choose some industry that isn't so highly regulated? I mean, just to get approval for a single machine, it can take decades. And I mean, the FDA approved it. That means something to me, and um I I I I wasn't convinced it was like a a bad news show, and uh, I think they definitely made some money from it. Uh, they were short on the company and uh it declined significantly. But um I just couldn't believe most of the things that they were saying, and uh what I do like about Transmatics is they very briefly commented on it, uh saying whatever they're saying, it's it's not true, we're doing we're doing good, we're focusing on the company, and they just ignored the rest of it. So instead of just um letting it drag them down, they just focused on uh the fundamentals and uh yeah, I think I think if they wanna I think they really had to react on this one because it was it was so aggressive.

SPEAKER_01 10:56

So them putting out a statement is actually a good thing, in my opinion, in this case, because normally when you have like a short report, then I don't think management needs to worry about any of that and just execute as normal. But in this specific case, I think the allegations were so serious that I really appreciate um them putting a statement out in um about this, yeah.

SPEAKER_00 11:20

Yeah, yeah, and it's an industry most people don't really have a grip on or uh information on, so they uh they needed to say something about it. But um let's continue to the business model of this company. It's uh it's pretty unique. Um can you walk us through what Transmedics actually sells and how they make money from it?

SPEAKER_01 11:43

Yeah, so Transmedics' main product, as we already said, are the actual machines where they install the organs onto once an organ leaves the body. That's their main, that's their product. That's the product that they make, but that's not a product that they sell, and because of the sale of the machine, they make the their money. That's not really how it works. It's like uh a razor, razor blade um business model where they rent out the machine basically for free or like a very small uh very small sum towards the uh hospitals. And then every single time that a machine is used, even if like if they do it themselves or Transmedics picks it up, um, they need to change the packaging and all the um installments um installment devices, and because it's obviously a one-use thing, and everything needs to be sterile. Um, so that's how they make the money by selling those packages after it has been used, and those packages can be very expensive, like tens of thousands of dollars per package, because it's obviously so specialized and so niche. So that's the first part of their business model, and then the second part is where they actually take over the transplantation themselves. So that is not only okay, here you have the machine, and here you have a package, uh, you can do it yourself, but that's also okay, you have a transplantation, a plant. Um, let me come in there with my specialized team with my own machine, we'll take up the cost of the packaging, we'll take up the cost of the transportation, we'll take up the cost of um even uh a surgeon if if if it's needed, and then they basically move from a razor blade system more towards a um uh more towards a transplant as a service, where you basically say, okay, we need a transplantation. Uh here you do it, and then afterwards you give me the the cost that what it's uh what it uh what it was. And um that last part is basically what stands out for the company, I would say, because you would think that, oh, okay, there's nothing really unique about having the machine, having the knowledge, and then moving from A to B, but it's that they have their own planes, their own pilots, their own surgeons, they have an old uh software that manages all the planes in in the United States. Like, where are they now? Where do they need to go? And that is the really interesting part um about the business, and that's the main two ways of how they uh how they make money.

SPEAKER_00 14:35

They call this the national OCS program, uh, short for NOP. I think this is the real innovation. Um, yeah, it's basically think of it as a full service subscription, but for organ transplant and to end, um, you basically just outsource the need for transplants to transmetics, and I didn't even know such a thing existed, and it's very unique. Uh, no one else does this, they are vertically integrated, they have their own um aircrafts, uh, specialized uh airplanes. Um, they currently mostly operate in the United States, but they're expanding internationally into Europe, for example. They have a 24-7 command center specialized tech built by MIT. Um they have full-time employees, about 100, that just regulate this in the in the command center. So it's yeah, it's like a bundle. And I keep going back to my favorite word of this entire deep dive, uh, transplant as a service. Is it's such a good way to explain this this company because the devices themselves, obviously, they're very high-tech. I yeah, I probably couldn't build one myself, but uh it's just a product, right? And uh, if you have enough money and RD and you have the time, someone else can probably eventually build something similar. Uh, but definitely this vertical integration program is very unique. And um, yeah, just to give you an idea of what uh they give this machine, it's a very expensive machine, they basically give it to for free, but um the disposable sets they use are about seventy thousand dollars a piece, yeah. And they're not reusable, so I mean, insane.

SPEAKER_01 16:34

I mean, it makes sense. Yeah, I mean the the number sounds crazy, but if you think about what's needed to get um FDA approved and sterile um packaging like that, I can imagine that it's very complex and it can really run up the cost. So, like I'm like like this is one of those examples where I don't think you need to know exactly like how expensive this normally is and how much margin is exactly on the disposal kit disposable kits and know about the sector, but it does make sense from someone that's not really knowledgeable about it that it's that it's that expensive, don't you think?

SPEAKER_00 17:13

I think just for anyone that doesn't live in the in this in this world of transplants and uh hospitals, things are just expensive. And uh the everything has gotta be clean, it's gotta be perfect, one mistake and can cost someone's life. So you probably don't wanna save on uh getting cheaper items either. So, you know? Yeah, yeah. Um what I did find interesting is that livers transplants make up almost 75% of revenue, then 23% comes from heart transplants, and just 3% from lungs. Um, with the majority of revenue, about 90% coming from the United States currently, but they are expanding into Europe, like I said before. Um, anything to add here on the business model? Anything we missed?

SPEAKER_01 18:08

Um, no, I don't think so. I think there's also a lot uh a lot we can say about the business model towards the future, but uh we'll cover that later as well.

SPEAKER_00 18:18

Let's um jump into the uh competitive advantage of this company. Uh, I think we briefly touched on the vertical integration already. Uh maybe I'll just start off and uh if I miss anything, uh please uh I think this company basically has two meaningful competitive advantages. The first one being intangible assets, uh, probably the biggest one. I mean, only FDA approved, portable, warm perfusion platforms for three different organs and are getting into uh new organs as well. Um you don't get these FDA approvals very easily. They have uh many different patterns, they have performed thousands of transplants already, uh, most of them highly successful. This alone is very hard to achieve, and uh it just getting FDA approval for class 3 medical devices, for example, can take up to 10 years and millions of dollars. I mean, and have three organs for a single company, uh, I've asked around, a couple surgeons, is extraordinary. Like competitors usually have only a single device. Like Organ Ox only has a liver device, uh, XVivo only has a lung device, they just are focused on a single device. So the fact that Transmedics has several and there's more coming, is very, very unique. Um, and they pro the data is published, but whatever they do, it's peer-reviewed, um, it shapes clinical guidelines actually. So they are doing things very well there. Then another big mode, which is the economies of skills mode, and I think the NOP network um comes into play here. To replicate their program, you would need to buy aircrafts, uh, trained coordinators, a surgical team, logistics software, you need the special relationships, you need clinical protocols, you need approval, you need you need all kinds of things we don't even we can't even think of, which is incredibly hard. Um, and their scale, plus their data, actually, like they track all kinds of things when monitoring these these organs and when flying and the best routes and whatever they uh they want to track. Over time, this makes them more efficient, which will result in even more successful transplants, which is basically what it's all about, right? Saving people.

SPEAKER_01 21:08

Yeah, and I think the the second mode of uh economies of skills also about intangible assets, right? Because it's also about like knowledge um on how to do this properly.

SPEAKER_00 21:20

So obviously, this is a very complex company. Um when analyzing this company, I had to ask around a lot. Uh, my father-in-law actually works at a um hospital in the northern part of the Netherlands. Uh, so he has a lot of contacts and brought me in contact with people. I I asked around. Uh so I talked to this surgeon, and um I think it's always good to look at both sides of the competitive advantage. So I call I called the transmedics, uh, I gave them two several different modes, but this is all related basically to their NOP support. Surface. When you look at their devices, actually, this surgeon told me that it's not that unique, actually. You wouldn't think so, uh, because we don't work there. I thought this would be very unique, but hospitals basically develop their own machines. Um work on hypothermia, which is cold, uh, which has advantages over um normothermic perfusion, which is uh body temperature, which is what transmetics does. Um, but you also have different kinds of techniques, so you don't always need a device, you also have normothermic regional perfusion, uh, which is uh a technique for only like a thousand dollars to circulate blood through the organs uh while it's still inside the donor's body, for example.

SPEAKER_01 22:52

Um and I know it's not fancy, but it's cheap and it's yeah, I think there's also a mode in in their geographical location a little bit, because that's I think also one of the threats at the same time, also the opportunity, obviously, the expansion towards Europe, but uh in general, like a mode um being in the US market is that the insurance system there is obviously very different, and like I already said, that everything goes through Medicare, and that is not really like they don't seem to really care about the costs of these types of things. Well, I think here in Europe we're very more stringent on on the cost, and obviously, because we're not like one big continent or one big nation, we have cross-border procedures and regulation, so I can imagine that here in Europe that's uh a device and especially like the costs of the um the economies of scale with their own uh planes and stuff like that is different, but I do think that it is some some sort of mode in in the United States, and coming back to the uh machines and the FD FDA approval and what you're saying with the hospitals um um making their own device. I didn't really know that even smaller hospitals, even in the Netherlands, make their own devices. I didn't really know that. That's that's that's a new thing for me. Um, but I do think like the the um the transmedics devices, they obviously have FDA approval, which gives basically a stamp of quality. But the question does remain a little bit, I would say, is that that's also what you're going towards with the with um with your story, is that is it really needed, right? If you have a shorter distance to cover, is an OCS or a um a warmer transplant uh transportation and needed compared to a cold cold one, cold storage one? Um and that's also what Transmatics is trying to show. It's trying to show to the outer world, like, look, we're very convinced of our own product, of our own OCS, um, and we want to test it against the global market, the cold storage. Um, however, they they've recently like I think that's also one of the main reasons why it's it's down a lot, is because trials of different types of tests also got pushed back because they're basically saying that competitors are not wanting to compete. And we don't really know the exact reason, obviously, from the competitors. And I think management of Transmatics really likes to put it out there that that's due because they know they have a uh a product that's worse quality than theirs. Um, but I mean if that's true, then obviously that's that's really nice to hear. But that's one of the things where I think, like, okay, this if this comes out in the future where we can have an actual like a good test on cold compared to warm in the current state of the market, so the current devices of transmetics compared to the current uh high-tech cold storages, then that's mode can can expand, I think. Okay, so I think that um if these tests actually happen with the current devices of of transmetics and the current devices, cold storage devices of the competitors, and what they're saying is true, and and and and they they they uh the tests come out positive for transmetics, then it can actually expand uh the mode. And I think that's also what they're trying to do now, and we'll cover that as uh in one of the opportunities as well later on. I will give a little bit more body on what they're trying to do to solve that problem of competitors not wanting to compete. But that's something to look out for.

SPEAKER_00 26:47

Yeah, and it's and you know it's a sensitive industry, right? Yeah, at the end of the day, it's it's about saving someone's life. And um I I don't see a reason why a hospital wouldn't have two or three different kinds of options for transplants, where if you can just do it on cold storage because the the donor lives nearby, sure. Uh, but let's say someone needs uh a heart transplant and that person lives in Poland, right? Then Transmedics comes is basically the only one that can do it. Uh so I think there's a there's a there's a world that both or several solutions can live next to each other. Obviously, transmedics would like to be the only one. Um but for the hospital, I think they uh they wouldn't mind having different solutions. Um, you know, looking at the sector and industry, I'll keep this one pretty short because it's pretty complex, but maybe just to give you a rough idea of what's going on and where the opportunities lie here. In the United States alone, approximately 45,000 organs transplants are performed each year, which includes heart, lung, kidney, liver, uh, and other organs. Um, transmedics only focuses on heart, lung, and liver currently. Um, and collectively they are roughly 18,000 transplants in the United States alone. In 2025, Transmedics completed over 5,000 United States OCS cases, meaning they touch about 28 to 30 percent of the relevant uh transplant volume. And they target about 10,000 NLP transplants per year by 2028, so about 55 to 60 percent penetration of their current market. I mean, if we just look a little bit beyond that, obviously I have no idea how big the European or Asian market uh could be, but I can imagine it must be just as big, if not bigger. Um so growth is not going to be an issue, I think. I think the uh the market, the TAM for this specific industry will grow for a long time. It's an essential service they provide. Um, and this will not go away anytime soon. The only reason this will disappear is either people will all of a sudden start living a lot healthier, but even then, or we build some kind of artificial lungs and libers that we don't need to do this anymore.

SPEAKER_01 29:50

Um I think to to to um to talk about that, uh I think it's also like tech disruption could also be um could also be one of the things where there's like a new device that's even superior to it, right? So that's that's what I would say. Yes, the organ transplants will will continue, and even if we live longer, people will would want to live even longer than that, right? So like you would still need organ transplantations even if we're gonna live longer. But it's like you never know what type of technology uh technological disruption will take place in the next 20 years in this sector, right? But yeah, that's that's basically what everything I would also say. Like he is the he's the the the heart surgeon himself, he's the one that came up with the problem, he's the one that obviously with a team of research did the research and then eventually invented the problem. He is really um the face of the company, uh Walid Hassanain, his name is again. Um, and he's also the one that's like he's a very prominent figure, I would say, in his earning calls, in his presentations, in his communication. He is um almost like a little bit passive aggressive, I would say. Um, and sometimes it seems like he's a little bit too excited about trying to bring the competitors down, like too passionate almost about his own product, that which can be good and bad. Um, for example, like uh before they reported the earnings of Q4 2025, like he was at a um at a conference, a healthcare conference of JP Morgan, if I'm not mistaken, and there he was already saying, like, I can't wait to show you the results. Like, you've seen the flight tracking data, and it's gonna be it's gonna be nice and you you guys will enjoy it. And at the same time, like um he's also like really passionate about like trying to communicate that the competitors are are wrong and they are right, which which can be good, obviously, like being confident, but sometimes it feels like the the CEO is could be a little bit too confident in that sense.

SPEAKER_00 33:01

Yeah, it's he he reminds me sometimes a little bit of Musk in a way, where he's very ambitious, but he can almost be a little aggressive to competitors and just almost rude, or if you disagree with him, he'll just uh has his own views and beliefs in a way, uh, which is one of the characteristics you probably need as a as a visionary, right? I mean, what he's doing is unique, and if if you don't believe in the product and service, who who will, right?

SPEAKER_01 33:31

I mean, he's also a very knowledgeable person on the on the topic, obviously, uh having worked in the field himself. So you can take it for granted a little bit, I would say. Like he's at least a credible person to be saying, like, uh, look at our product, it's superior. If this was just a regular businessman coming in from a different company, taking over the CEO just to manage the company, it will be a different story, in my opinion. Then it becomes more of a sales pitch rather than a confident quality pitch.

SPEAKER_00 34:03

Yeah, and when looking into management, uh, me personally, like obviously, I am no expert in this industry. Uh, I'm no surgeon. So if I ever were to invest in a company like this, I would need to have trust in the management team and the incentives, right? Like Mungar always said, show me the incentive and I'll show you the outcome. This is actually the first red flag in this company. Uh, so far it's been pretty good. Uh, I really like the business model, it's visionary, but the incentive scheme and compensation structure is somewhat it raises a red flag for me personally. Um, the things I like is that his pay is variable, so he doesn't get paid if the company doesn't do well. But the incentives are tied to revenue growth and Abida. And uh, first of all, revenue growth can be bought, it's the easiest number to buy, it basically motivates aggressive acquisitions, like buying the entire airline they just did, and just pushing volume regardless of the underlying cost, right? And uh Abida is basically, I mean, it works, um, but it it does ignore depreciation. And since Transmedics is vertically integrated, they are not just a software business. Uh, this can definitely hurt them. And the incentives are not hard, and they're also a little bit hard to audit. Like, for example, they have a few non-financial criteria, like uh new architectural designs completed, whatever that means, right? They don't explain it. So, this is my first orange or red flag, and uh, I would have liked to see a per share-based financial criteria, like uh earnings per share growth, so you can't just dilute shareholders and grow revenue, or like uh a return on capital. How well are you doing? Um, and you don't ignore the cost or the or uh or what capital is needed to fund that growth. What are your uh thoughts on this?

SPEAKER_01 36:28

No, I like I completely agree. I don't think there's there's there's anything to to argue against that. Um yeah.

SPEAKER_00 36:37

Yeah. I mean a green flag is they have a ton of skin in the game, which is something we look for, right? He owns almost 2% of the company. I would love to see if he bought stock when uh Transmatics declined. Uh like uh what was it, 30 30 percent ish order?

SPEAKER_01 36:55

I mean he he did buy stock in December, if I'm not mistaken. Yeah. Um he and the the CEO himself, but obviously with with with drops like this, like just for the listeners, I think it's now down 50% from more than 50%, maybe even from the recent top that it's set uh after the last earnings. Um so that was in February, I I think. Um so it went really fast. So obviously, like if he's not buying himself at this price, then then yeah, that tells you that tells you enough, almost some argues, some some investors would say. So you would really love to see that the CEO would would buy at this price price. Yeah. And as you said, to 2%, it doesn't sound like a lot, but obviously if you calculate it from how much money that in is an absolute value, then I would say that's uh that's relatively significant.

SPEAKER_00 37:50

Yeah, yeah, it's more than I have in my pocket right now.

SPEAKER_01 37:53

So uh well both our pockets is you have big pockets, so that must be massive, massive. Yeah, it's like roughly 70 times uh his his his base salary, something like that. So yeah, we always say like uh we would like the um the CEO to have like 10 times his his his annual salary, um so 70 times is uh more than sufficient, I would say. So hopefully like um after like these earnings, um we would see some some some buybacks from from from insiders that would really uh would be really nice.

SPEAKER_00 38:26

Yeah, agreed. Yeah, just uh taking you through the financials real quick. It's hard to follow in audio format, so I'll just uh keep it very short. But revenue is growing fast from just uh 7 million in 2017 to over 635 million in the last 12 months, uh, which is a 70% kegger. Uh so they are growing rapidly, they are doing something right. Operational expenses have uh grown about 16, 60 kegger. Uh so revenue outpacing that, which is good. Uh, I would say tracking eBIT margins, operating margins, is probably the most reliable margin to track for this company. It's uh the best way to evaluate the scalability of this business because Transmedics has transitioned into an aviation and logistics network as well. It carries massive fixed costs now, including pilot series, uh, aircraft depreciation, uh, a command center. So uh I think uh operating margins are a good one to track. They currently sit at about 70% operating margins, which is pretty good so far. And uh historically, Transmedics has diluted shareholders uh for their employee compensation, but this is pretty standard for uh early founder startup business, yeah, that still grow fast. But it is uh like stock based compensation compared to revenue is declining, so that is a good trend.

SPEAKER_01 40:05

Yeah. To continue on your point on the margin, I think the underlying is also really tracking like the operating expenses compared to the revenue. Um, like you said, they've out outpaced revenue has outpaced the um the operational expenses uh historically, but in most recent earnings, I think this was vice versa. Um so that's like one of the KPIs that that's really important. That's basically the underlying KPI of the margin, right? To dive a little bit more deeper into that, because like you said, it's a it's a real expensive operation that they're running, and if that runs out of control compared to to growth, then uh that's that's that's a red flag towards the future.

SPEAKER_00 40:49

Yeah, and on debt levels, uh I think there are if you had to check any company like in a in three key areas, it's probably going to be like incentives and uh debt, because if you don't have debt, it's very hard to go out of business. And historically, uh Transmatics had more cash than debt, but this was the first time ever that they are now exceeding their cash bow. So this is something to monitor.

SPEAKER_01 41:17

Uh, because of their leases, uh, they are leasing airplanes and um yeah, I think that there's there's a there's a big note here though, that because they mentioned that the lease, that there's a massive lease increase this quarter or this last 12 months because of their new headquarters that they have. And that is not really a direct debt for the very long term, but it's more of an accounting measure. Um, so it's like 335 million on their balance sheet that's that's put on as as debt because of accounting, but it's not really cash debt. It's like the cash will leave every quarter to pay like the rent because they're leasing their headquarters. So that's it's it's a really big note that you have to put look at um when you're looking at these debt numbers from the last quarters. But um obviously like you don't want to exceed a lot more than than than than that, even if it's an uh like an accounting measure is fine, but like real debt that's obviously a negative, yeah.

SPEAKER_00 42:19

I think that for such a young company is normal, especially for what they're doing, right? But uh you just don't want this to get out of hand.

SPEAKER_01 42:26

Yeah. I think right now, um one of the more important ones, uh, which you actually touched upon already is the margin, because that's the big if story in the market right now, because the margin compressed relatively very significantly this last quarter compared to historic levels. And they're saying that this is due to massive investments that they're doing into Europe, um, into new trials of new machines. Um, and while the explanation is fine, if you're compressing margins right now because you're investing, you would expect this to correct over time. And that is very crucial because um when you're obviously you want to see an increase of revenue, but if that comes hand in hand with a decrease of margin, that's not really what you want to see. So I think the um general margins of the company um are the most important KPIs to track over the upcoming quarters, and then in general, what you want to see is um is their transplants, the number of transplants increasing, and also that compared to the global markets, so you don't want them to see. You don't want to see that they are losing uh market share in the um in the general markets, especially because they have set a very ambitious goal of 10,000 transplants in 2028. Um to me, if you look at the current numbers, it sounds really ambitious and it's heavily dependent on whether some trials go well, uh whether the new devices for um for kidneys um are gonna start off well. So I would also keep a great look on to on that because that's a very specific KPI that management has communicated themselves as their guidance. Um and it will show like how eventually in the future in or like in in a year's time how credible management actually is for the long term.

SPEAKER_00 44:49

Talking about kidneys, I think that will be a great segue towards the opportunities. I think uh the kidneys are probably one of the biggest opportunities, but what sort of opportunities do you see for um transmetics?

SPEAKER_01 45:04

Yeah, well, kidneys, that's obviously like a new organ, and a whole new market that they can um that they that they can enter. And they have also, yeah, like I said, the the the CEO really likes to hype up their own products, and they're also saying like that the um the regulators um are asking them like when are you coming with a new kidney device? Um and they're saying that the new kidney device is gonna be very good and it's gonna increase uh the temps and stuff like that. So obviously, like I don't know the ins and outs um exactly, but it's a massive market. Um so kidneys is uh definitely one of the key um opportunities for them. And then um it's they're about to give it a little bit more like body to that, there are about like two thousand twenty thousand kidney transplants a year in the US alone, uh, versus roughly like 5,000 for livers, uh, which is the biggest market of transmetics right now, and like uh 4,600 for hearts. Um so right now they're saying that they're in the final design uh for the device and that they're gonna reveal the device, I believe, in a couple weeks' time at a new conference um in the US. So yeah, that's that's the biggest opportunity of them all, I would say, because um a lot a big opportunity is also Europe, but as we already discussed a little bit, um Europe is a different story. And while the total addressable market can increase significantly because Europe is probably as big, the market of organ transplant is probably as big as the United States, or maybe a little bit smaller, but due to regulation, cross-borders, maybe more stringent on costs, not like the same insurance systems, uh smaller distances as well. I think that the same business model would not work immediately in Europe. So while it is a massive opportunity, I do think that it needs to be uh a little bit different. What do you think?

SPEAKER_00 47:23

You know, currently they have certain unit economics, and I think these will change uh in Europe. Um whether they're for the for worse or for the better, I I I don't know. I would probably say worse. Yeah, and the danger is if if you're looking into transmatics right now and you're estimating certain margins and stuff, if they decide to go all in on Europe and the margin profile I don't know, declines halves, then your entire investment thesis becomes a lot more uh uncertain. Um but I think this the business model will probably work if they if you know if if you start operating in the European Union, for example, it's a lot easier.

SPEAKER_01 48:12

It's just curious. I'm curious how that will work, and also because it's it's so new, and they don't really release a lot of information on how well that they're doing in Europe. Um they're currently only in Italy, and they're saying that I believe Netherlands and Belgium are next, maybe, and that they also um heard positive sounds from neighboring countries in Italy that would want to um would want to in install systems there and hubs there. But it's it's a little bit of a black box, so to say, on on on how that's how that's gonna go and how that's that's gonna work. I'm I'm specifically like talking about like the the airplanes, obviously, because of the shorter distance, like I'm not entirely sure how that will look like in no, but obviously I can imagine that if you were to move a tra an organ from Italy to the Netherlands, that would be done by airplane.

SPEAKER_00 49:09

But let's say in a perfect world, Transmatics operates in Europe, in uh the Netherlands, Belgium, Germany. If they I don't know, work together with Mercedes and uh the instead of airplanes, they have they have uh very fast cars and uh I don't know. Uh one can dream, right?

SPEAKER_01 49:29

I mean they do they do collaborate with Mercedes on on buses in Italy. I'm not sure how fast the buses are, but it would be excellent questions on like uh an earnings call.

SPEAKER_00 49:40

Instead of asking for what the earnings per share will be, ask certain logistical questions and stuff.

SPEAKER_01 49:46

How much is your Mercedes bus?

SPEAKER_00 49:50

Yeah, I know, right?

SPEAKER_01 49:52

No, I and uh on top of that, I think one of the opportunities is also their um their CHOPS model. Um the CHOPS is um is their their cold storage device that they're um that they're releasing. It's it stands for controlled hypothermic organ preservation system. And over here, it's it's kind of interesting, uh, the story behind this new product, I would say. It's not FDA approved just yet, but one thing I find really interesting as a shareholder is that the CEO has constantly said, like, oh, cold storage is is is is outdated. Um you should not go there, it's it's really bad. We have warm perfusion devices, they are much more superior. And then next thing you know, oh yeah, we're releasing a cold storage device. So then I'm like, okay, that's a bit weird. Um the reason that they're doing this, uh is at least what what they're saying is that obviously it's uh it's an extra market, they're saying it won't cannibalize their own business, but it's also because, like I already said previously, like competitors apparently don't want to uh don't want to compete against them in tests. So management is basically saying, okay, then we'll create our own cold storage device, and then we'll basically prove ourselves that our own cold storage device is worse than our warm storage device. I believe that's a little bit how how they how they communicated it, right?

SPEAKER_00 51:25

Yeah, it's a bit it's a bit strange, but um I don't know.

SPEAKER_01 51:30

I I I mean if that really works, if their cold storage, let's say, is even even if this cold storage is is is superior to to all the other cold storages that are out there, like something like that, I can imagine that uh uh it's a smaller uh machine, but something like that I can see work a lot better in Europe for shorter distances, for example. Right? So I think there's a lot of opportunities here, but I think there's also threats for these opportunities because it's all in such a regulated sector. Um, you're dependent on trials, you're dependent on successful tests, and it's a little bit the same. In I mean, you get this a lot in in pharma, healthcare, and biotech, where you have like, for example, Nova Nordisk, where they have a new new pill. Um, it's all dependent on like how good is is the actual device or the actual thing that they're making compared to others as well. Yeah, exactly. Yeah, yeah, yeah. And and that's hard to say.

SPEAKER_00 52:36

And I think your uh black box description is perfect here. Uh it's so much going on, right? Um, that it's hard to really figure it out. Now, where there's opportunities, there's risks. Um, I think uh I'll go through the ones I found. Um the first one being Medicare. Uh like the systems the United States and the U and Europe operate in um funding and and and insurance is vastly different. So uh obviously I could be wrong here, but um, from what I found is that Transmedics charges up to almost 118k per procedure, but hospitals don't pay this themselves, they pass this directly to Medicare via the um organ acquisition cost center, uh, which currently has no cap. You want to save someone's life, so there's no limit. Um, obviously, if Medicare gets removed or hospitals have to pay this partially themselves or whatever political decision is being made, this will hurt transmetics. So transmetics is heavily reliant on regulation and the political climate. And we all know the current political climate is pretty unstable, uh, so you never know what Trump is going to do. But it it is almost a loophole for transmetics. There is just no cap, so they can just charge whatever they want.

SPEAKER_01 54:13

Um it's but this again is a little bit of a black box as well. Exactly. Because obviously, like we do know what they're charging per transplant, roughly, but we don't know whether a cap is gonna come. That's the first thing, obviously, and where that cap is gonna be. Because it can also be that um there the the regulators are saying, yeah, we see that this this technology of transmatics is is is really the better option. So our cap is gonna be above that, you know, just because why would you cap a disruptive technology that's seemed to be one of the superior technologies that saves someone's life? I mean, it also seems I'm just thinking out loud here, it seems almost unethical to cap that. Fair, yeah. But I mean that's that's again like a black box. Like if it's gonna come, like I can't imagine that it's gonna be like very, very low the cap, obviously, because we're still talking about human lives and and stuff like that. So you want like you want the best, but I obviously can't imagine, especially with current debt levels in the United States, that um that it's it's it's a it's a significant risk.

SPEAKER_00 55:34

It's maybe far-fetched, but uh, you know, it's just something to consider. Um yeah, no, I think it's highly unlikely, but it will probably kill their revenue growth and their margins instantly if this uh does affect their business or a massive cap gets implemented somehow. A more relatable risk is probably this disruption here. Um obviously, technology is going through a rapid phase, especially now with AI. Uh this also applies to healthcare and to uh hospitals. You know, transmedics historically enjoyed like almost a monopoly-like position in warm perfusion, but it's facing a tsunami of alternatives slowly over time, um, from uh NRP, like normothermic regional perfusion to cold storage, to surgical techniques, um maybe in the future, artificial organs, you name it, uh they still would have to be transplanted, obviously, but um disruption is is it goes fast, and uh, if anything happens that will uh disrupt them, that will definitely hurt. And uh lastly, like a supply chain failure, Transmedics is very reliant on uh on several suppliers, they have a pretty severe bottleneck. Um, they rely on, for example, Frasenius, uh, and they manufacture um the proprietary OCS solutions with vital nutrient nutrient fluids uh that keep the organs alive. So they are they are dependent on this single source vendor, and obviously there could be other providers as well. Uh so they are dependent on their um bottleneck uh supply chain. This is pretty clear for our listeners, our risks and opportunities. I hope so. I hope so. It's very complex. If if we missed anything, or if you're if you work in this field, definitely email us and uh tell us whatever you think of uh of the risks and opportunities. Maybe we missed something or you want to expand on something. Um let's head on over to the valuation, our our last chapter before we maybe give our thoughts and conclusion on this company.

SPEAKER_01 58:03

For sure.

SPEAKER_00 58:04

Obviously, this valuation depends on your beliefs in this company. I think if you think this company has a very bright future, that the technology is one of a kind, they can expand into Europe, this company can grow 30% annually for the next decade. No problem, I would say. Um and if you believe so, you will probably get a 30% IRR over that period. Um, but let's say something happens and Europe is a disaster and margins decline and uh new competitors arise. It's not hard to think that would be possible. If you assume 10% revenue growth and maybe a 5% margin if a lot of competitors come up, or maybe cheaper Chinese alternatives, you probably will only get a negative return from at this point. Uh, how do you think about a value valuing a company like this? How would anyone decide to get in or uh wait for this company? When is it cheap enough? How do you think about valuing transmetics?

SPEAKER_01 59:16

I think valuing transmetics is as you say, it's a lot um a lot is concentrated on execution, and a lot of execution is related to uh regulation risks. I hope that makes sense, but um, I think there's the risk towards execution is is uh are a lot of external factors that you can't really control. But um so valuing a company like this is thinking about okay, management is saying this. How realistic is this? What have we seen the last two quarters compared to what management said would happen last two quarters? Um, to give some sense of credibility, and then it's ultimately it can be very simple. I don't think uh a company like this needs a very, very complex valuation model, um, because it's all about it's it's an if story. If revenue growth is gonna be this, what do I think a realistic margin would be? And then what would I think a realistic multiple would be? And then obviously I think there's a you have to really think about especially the last one, because that's very, very uh the biggest factor basically in every valuation model, right? I see some people on X that just in their model use like a 35 or 40x exit multiple, that's very, very excessive. Um, so always be very realistic about like where this company is heading. If it's if it's performing very well, like you're saying, like 30% growth, then obviously it earns a higher exit multiple. But are you gonna model that the exit multiple in five to ten years is gonna be at 40? And also modeling a company like this is more like okay, what do I think is realistic when it comes to these three main main uh KPIs? I think I think it's not not really more than that. Just factor in the risks that we've talked about, and then do your own research on how how big of a risk this would be to the company if it's if it actually plays out, and then yeah, model accordingly, I think.

SPEAKER_00 1:01:47

If I were to buy this company, you would have to believe in management. That would be one of my um most important factors for this company. If I did believe in management, I think guidance is probably your best indicator here. Uh, if you believe management is uh ambitious, but they're so far they have achieved that what they said. I think going a little bit below guidance on your valuation models is probably a good way to do it, but it depends on uh how well they have given guidance before and uh and how much faith you have in this company and and its future. But I think that would be the way for me to do it personally, and then just being a little bit more conservative to uh build in a margin of safety. Give me your ending thoughts on this company, Yup.

SPEAKER_01 1:02:44

Yeah, it's uh it's a very complex one. Like just a disclaimer, maybe we've put it uh we need to put it at this at the front, but I do own the stock myself. I've owned it before it dropped significantly. Um, so I am I am down on it um for uh for full disclosure. So my final thoughts are basically it didn't really change in the sense of that this company is very complex and there's a lot of risk to it. It's a high risk, high reward play. Um, and that's not really for everyone, obviously. Um if you're not really uh if you're if you don't accept like drops of minus 20% um over or in a short period of time, then this is not the stock for you. Um uh it has been down like 50% like four times in the last five years. So concluding for myself, it has been an insightful deep dive, I think. I learned from you a little bit about more a little bit more about the industry, as you've also talked with with surgeons, that um it's not as straightforward as I would have thought um about the the technology and the machines, maybe. So, did anything change from my own perspective? I don't think not significantly to the point that I will make a significant sell decision at this price point. Um, that's obviously a little bit of a little bit of an anchoring bias that I've bought at a higher aid price. I have to admit that, obviously. Um but I do think that also looking at the past, that this stock is it's a high growth stock, and if there's something slowing it down, then it gets punished uh very hard and very fast. Um and a high growth stock like this also needs like one quarter or one good news, and then it can go the other way. So for me personally, I think the uh conclusion is that I've learned a lot, and um I've learned a lot more about the um the risk to to the thesis, I think. And they they are very real, they are very real, but they're also a lot of risk outside of um management's control, even.

SPEAKER_00 1:05:07

And you you know, there's there's so much to like about this company, the runway, uh some of the fundamentals, the mission, the ethical reasoning just for owning such a company. If they do well, it will save, they will save a lot of lives. Yeah, they are vertically integrated, so yeah, there's a lot to like. But you know, when I talk to this surgeon, he basically just confirmed my hesitation, my doubts. For me, this goes straight into the too hard pile. It's it's such a niche, it's such a small field with so much of the research coming from surgeons themselves. I had to look up so many words during this deep dive just to understand what I'm reading. So the question is whether um I would even want to own this company. And it's just uh what Charlie Munger always said. If something is too hard, just move on to something else. Um, what could be simpler than that, right? So yeah, it goes yeah, it goes on the too hard path for me, but I learned so much. So it's a fun company to follow. Makes sense. And um yeah, I'm curious to see how this company will do in five, ten years from now. And uh maybe you should come back and talk about transmetics then. It's a long time from now. You must be a surgeon after ten years following this company.

SPEAKER_01 1:06:35

Without with all the knowledge, I could basically do it. Definitely. No, no, no, no, no. Small disclaimer, I don't, I don't know.

SPEAKER_00 1:06:42

Hey Yupp, before we go, where can people uh find uh more about you, but also about the deep dives and the articles you write?

SPEAKER_01 1:06:50

Yeah, well, I am an uh I'm an investment analyst at uh Trezor Capital, that's T-R-E-S-O-R Capital. Um, and um while we don't really own companies like this in um in that mandate. Um we do write newsletters about other stocks and and market environments, and um you can find us on uh treasurecapitalnews.nl uh or treasurecapital.nl and then you go to the to the to the news website. That's where we write like weekly articles about mostly like family holdings and serial choirs. These are these are more our niches, so we have some overlap with the with the TDI guys as well. Um so yeah, if you're interested in that, you can uh you can find us there. I'm sure that Seam will put a link somewhere in the description if he's so kind.

SPEAKER_00 1:07:46

Only if you're kind.

unknown 1:07:48

Yeah, yeah, yeah.

SPEAKER_00 1:07:50

Hey, thank you so much, Yup, for coming on the show again. I'm sure we'll do this a lot many more times, at least I hope so. And uh we'll see you in the next one.

SPEAKER_01 1:07:59

Yeah, thank you very much.