Paid subscribers to Jonah’s Growth Stock Deep Dives receive 2-3 deep dives per month (8,000+ words), 1-2 mini deep dives per month (2,000+ words) and 15-20 quarterly earnings writeups plus access to my investment models and investment portfolio spreadsheet with real-time activity, notes/commentary, charts and much more.
My investment portfolio is up +168% in 2024, after being up +134% in 2023 and now up +2,700% since January 2020 when I got back into investing full-time.
My investment strategy is as follow… I own 15-20 high-quality growth stocks (core holdings) plus 10-20 swing trades, with the best fundamentals at the most reasonable valuations. If the fundamentals remain strong and valuation remains reasonable then I’ll add on pullbacks. I only want to own stocks that have at least 50% upside within the next 1-2 years and at least 100% upside within the next 3-4 years. My objective is to maximize upside in good markets and minimize downside in bad markets which I accomplish by being very selective in what I own but also using technical analysis and hedges to protect my portfolio gains.
TMDX Q2 earnings report: https://investors.transmedics.com/news-releases/news-release-details/transmedics-reports-second-quarter-2024-financial-results
TMDX Q2 earnings webcast: https://event.choruscall.com/mediaframe/webcast.html?webcastid=OHlb6ZkM
Transmedics (TMDX) — 21.2% position
Back in October 2023, I was adding aggressively to my TMDX position when the stock dipped into the $30s. I was also adding aggressively before Q1 earnings. Back in March/April as I was trimming 90-95% of my CELH and SMCI positions, I was using that cash to add to many of my holdings including TMDX became my largest position and it’s been that way for approximately 3 months. Even though TMDX is up more than 300% from the October lows, I remain very bullish and actually added to my TMDX position today which all paid subscribers should know because it’s on my spreadsheet in the activity section.
Over the past few months you’ve heard me say the “easy money has been made” on stocks like CELH, SMCI, UBER, NVDA, META and several others. I don’t think that is the case with TMDX because we’re only in the 3rd or 4th inning of growth plus lots of margin expansion.
When TMDX reported Q1 earnings on April 30th, they reported $96.8M in revenues which was 133% YoY growth and 19.2% QoQ growth. After Q1 earnings the stock gapped higher and rallied a little more than 40% over the next few days.
Coming into Q2 earnings the bar was very high for TMDX which is one reason why I did a small trim earlier in the week. With the stock up 51% since Q1 earnings, I was a little worried if we didn’t get a big beat & raise then the stock would sell off.
Analysts were looking for just 2% QoQ revenue growth but as you probably know, TMDX crushed it.
TMDX reported $114.3M in revenues vs $98M estimates and they raised full year guidance from $395M midpoint to $435M midpoint.
So, not only did they grow revenues by 18% QoQ and 117.9% YoY but they raised full year guidance by another $40M which follows the $30M bump from Q1.
Personally, I think there’s a good chance that TMDX is still being being conservative with guidance and might have another $30-60M left in the tank. We’ll talk more about this below.
Introduction
TransMedics is a leader in the field of organ transplants, with a significant first-mover advantage, particularly as it holds FDA approvals for heart, lung, and liver transplantation (kidney is set to get approved in the next couple of years) — the only FDA-approved device for multiple organs.
Its Organ Care System (OCS) technology is critical to meeting the accelerating demand for organ transplants, a space where supply and utilization are highly mismatched, and most of the organ transportation is still done in a plastic bag placed inside an iced cooler.
The company now also owns its own fleet of aircraft (after the acquisition of Summit Aviation in August 2023) and is in the process of building out the largest transplant logistics network in the US, further widening its moat.
TransMedics is poised for multi-year growth with a plan to get to 10,000 transplants per year (from around 2,000 in 2023) in the US alone by 2028. By then, I expect TransMedics to be a $400+ stock, which is one reason why it’s still the top position in my investment portfolio with no plans to trim anytime soon.
Q2 2024 Analysis
TransMedics had a fantastic Q1 earnings report, which I thought would be hard to top but Q2 might have been even better. The bar was high and they cleared it like an Olympic Gold Medalist.
TMDX reported $114.3 million in the quarter of which $109.6 million (95.9% of total revenue) was in the US and $4.7 million (4.1% of total revenue) was outside the US. Total revenues were a 117.9% increase from Q2 2023.
TMDX beat the estimates by approximately 15% and as I mentioned above, the analysts were looking for TransMedics to grow revenue by 2% sequentially (QoQ), but they ended up doing 18% QoQ.
This tremendous increase in revenue was driven by not only significant growth in volume across lung ($4.3 million), heart ($27.2 million), and liver ($77 million) but also by the continued growth of TransMedics' transplant logistics services. Approximately $19.1 million of total revenue was transplant logistics service revenue, up from $14.5 million in Q1 2024, a 32% increase QoQ.
The service revenue, which also includes the NOP (National OCS Program) clinical service of surgical procurement and organ management, and the flight school revenue, was $42.6 million, 37.3% of total revenue. Most of the revenue came from the product revenue, which was $71.7 million.
The product margin remains exceptionally high: 80% in Q2 2024, up from 77% in Q1 2024. The service side has a much lower margin: 28% in the quarter, down from the quarter prior. The overall margin in the quarter was 61%, slightly down from 62% in Q1 2024 but up from 59% in Q4 2023. The overall gross margin in Q2 2023 was 70%, but the company did not include logistics revenue then.
As the company continues to build the foundation of its business (like making significant investments in pilot hiring and training, as well as spending on aviation maintenance), margins will continue to fluctuate, but on the scale of both product and service operations, they should stabilize (management expects somewhere by early 2026) and return to 70% going forward.
The last time I wrote about TransMedics (at the end of Q3 2023), the company was still unprofitable. In Q4 2023, it delivered its first quarter with positive earnings, posting $4 million in net income. It has remained profitable since then, posting a net income of $12.2 million in the quarter, compared to a net loss of $1 million in Q2 2023, representing a 10.66% net income margin. Net income margins have been expanding faster than anyone expected and I think we could see 20% net income margins in the next 3-4 years and 25% net income margins in the next 4-5 years.
SWAV which was recently acquired by JNJ for more than 13x sales, was tracking to do 27% net income margins in CY2024, on pace to get to 30% net income margins in CY2025. I think TMDX could follow a similar path however the margins related to services and logistics might slow down my margin goals by 1-2 years.
This quarter, TMDX also achieved its first-ever quarter with positive free cash flow, generating approximately $2 million despite purchasing a new aircraft during the quarter. While I don't expect positive free cash flow in Q3 and Q4, the company is strong financially, finishing the second quarter with $362.8 million in total cash. However, with the stock up more than 300% from the October lows it’s always possible that TMDX capitalizes on this move with a $200-250M stock offering. I certainly have no idea if that happens but it’s one reason I wasn’t more aggressive with my adds today on the morning pullback. If they did a stock offering, I would not expect the stock to drop by more than 3-5%.
As much as I loved the Q2 revenue and earnings beat, my favorite part was the updated full-year guidance, raising revenues from the previous range of $390-400 million to $425-445 million, which represents a whopping 76% to 84% YoY growth. This is happening at the same time as the company puts down several of its aircraft for routine scheduled maintenance, which will slow down the logistics revenue in the second half of the year. Otherwise, the revenue guidance would be higher.
We just saw them grow revenues by 18% QoQ after doing 19.2% QoQ in Q1, when trying to forecast full year revenues we could assume sequential growth decelerates by 3-4% per quarter which would take Q3 revenues to $130.8M and Q4 revenues to $145.1M which would take full year revenues to $487M.
Another way to try and forecast full year revenues is to look at the QoQ increase meaning TMDX did $66.3M in 2023 Q3, $81.1M in 2023 Q4, $96.8M in 2024 Q1 and $114.3M in 2024 Q2 which means they’ve increased revenues by an average of $16M per quarter over the past three quarters.
If we assume TMDX continues to increase QoQ revenues by $16M, it would put Q3 revenues at $130.3M and Q4 revenues at $146.3M — add it all up and we’d end the year at $487.7M in revenues.
I’m just taking recent data and trying to extrapolate it but I’ve also been a TMDX shareholder for 3+ years and I know how the CEO likes to approach guidance. He certainly prefers to be conservative and wants to continue with the beat & raise quarters which means he would not have raised full year guidance by $40M unless he knew they were going to clear it easily. He raised by $30M after Q1 so he easily could have done $30M again and the markets still would have cheered.
The new midpoint is $435M and I think $465-495M is very likely, so I’m expecting another $20-30M raise with Q3 earnings and then they end up beating that number in Q4 by another $20-30M. If they end up doing $487M in CY2024, that would be 102% YoY revenue growth for the full year.