To The Moon

Here's why I doubled my $TransMedics Group, Inc.(TMDX)$ position in the past 24 hours 👇

The growing demand for organ transplants has created a critical need in healthcare, and TransMedics is addressing it with its cutting-edge Organ Care System (OCS). This platform overcomes the limitations of traditional preservation methods by maintaining organs outside the body for extended periods. By simulating the body’s natural environment, the OCS keeps hearts, lungs, and livers viable longer, improving organ quality, expanding donor-recipient matches, and ultimately increasing transplant success rates. Its impact is significant --reducing wait times and saving more lives.

Expanding with New Milestones

TransMedics isn't just keeping up with growth -- it’s leading the charge by scaling its operations and expanding its reach. The company has a clear path toward its goal of 10,000 transplants by 2028, up from 4,000 projected this year -- here’s how TransMedics is achieving it:

• Fleet Expansion: TransMedics’ fleet grew from 15 aircraft in Q2 to 18 in Q3, with plans to have 22 by Q1 2025 -- this is critical for meeting higher transplant volumes, improving logistics, and delivering operational leverage.

• Increasing Volumes: Transplant volumes have nearly doubled YoY, with 3,500 to 4,000 projected for 2024 alone. This trajectory aligns with management's 30% CAGR target.

• Profitability Targets: Management aims for 30% EBIT margins by the end of 2025. With current margins already improving due to scale -- the company is on track to deliver robust earnings growth.

Network Effect Moat

TransMedics is not just innovating in organ preservation -- it’s also building a powerful network effect through strategic acquisitions, specifically targeting logistics and aviation. The recent acquisition of a specialized aviation company, now called TransMedics Aviation, gives TransMedics full control over the transport process, creating a seamless, end-to-end solution for organ retrieval and delivery. By owning the logistics network, TransMedics ensures faster and more reliable delivery of organs, which is crucial for patient outcomes. This level of integration not only enhances the overall efficacy of the OCS platform but also differentiates TransMedics from competitors that rely on third-party logistics.

The acquisition creates a network effect -- more hospitals and transplant centers are likely to adopt the OCS platform, knowing that TransMedics can guarantee timely organ delivery. As more centers join, the network strengthens, making it harder for competitors to replicate this model. This not only drives adoption but also increases customer stickiness -- creating a lasting moat around the business.

Why I Doubled Down

The recent 30% drawdown in TransMedics’ stock this past week creates a compelling buying opportunity -- driven by three key factors:

• Strong Long-Term Fundamentals: Despite the sequential decline in Q3, management reaffirmed full-year guidance and indicated that Q4 volumes have already returned to normal trends.

• Operational Leverage: As transplant volumes rise, TransMedics’ fixed costs (e.g., aircraft ownership) remain relatively stable, leading to margin expansion. This dynamic supports sustained profitability growth over the coming years.

• Growing Moat: TransMedics’ proprietary technology, logistics network, and first-mover advantage create a network effect that distances it from competitors -- establishing a nearly unbreakable moat.

Addressing Q3 Weakness

TransMedics faced a challenging Q3, with revenue falling short of estimates by $6.2 million and EPS missing by $0.19. Margins also took a hit, with gross margins dropping from 61% to 56%. However, the company’s reliance on third-party logistics during fleet maintenance, along with expected seasonality, contributed to the decline.

Management’s transparent communication -- highlighting fleet maintenance and other temporary headwinds -- reassures that these are short-term issues rather than systemic problems. Looking ahead, TransMedics’ guidance remains intact, and management has signaled that early Q4 volumes are already back to normal levels.

Final Thoughts

TransMedics OCS platform is uniquely designed to scale as transplant demand rises, supported by a growing fleet, optionality in kidney and international markets, and a resilient business model. Despite the recent quarter's challenges, TransMedics has demonstrated the ability to deliver on its long-term goals, making this an opportune moment to increase exposure.

Over the past few years, we’ve seen many high-quality companies get overly punished when they take a hit from significant capex spending in a single year that sets them up for years of margin expansion opportunities. TransMedics fits this mold, with its aggressive fleet buildout laying the groundwork for substantial long-term profitability as higher volumes drive operating leverage.

TransMedics has built one of the strongest moats in the organ transplant market with its innovative Organ Care System and integrated logistics approach. It’s rare to find this level of competitive edge in a company with a market cap under $5B. Add in 80% top-line growth and GAAP profitability, and you’ve got a unique opportunity. This is why I doubled my position -- TransMedics’ potential is simply too compelling to ignore.

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