TransMedics Stock Plunged in October: A Closer Look

TransMedics Group, Inc. (TMDX) stock experienced a significant decline in October 2024, following the release of its third-quarter financial results. The company reported earnings per share (EPS) of 12 cents, missing the Zacks Consensus Estimate of 28 cents by 57.1%. Revenue also fell short, with $108.8 million in sales, a 4.8% miss against the estimate. Despite a 63.9% year-over-year increase in revenue, driven by higher Organ Care System (OCS) utilization and logistics services, investors were disappointed by the lower-than-expected top and bottom-line performances.



The miss in earnings and revenue was driven by lower-than-expected utilization of the Organ Care System (OCS) and logistics services. Gross margin contracted by 500 basis points (bps) to 56% in the third quarter of 2024, primarily due to a higher proportion of service revenues in total sales. This shift led to a decrease in overall profitability, as service revenues carry lower margins than product revenues. Despite this, the company's gross profit improved by 49.6% to $60.8 million.

Operating expenses increased in the third quarter of 2024 primarily due to increased research and development investment and organizational growth. The company invested in its National OCS Program (NOP) network to prepare for future growth, which contributed to the increase in operating expenses. Additionally, stock compensation expense rose to $7.6 million, up from $5.1 million in the third quarter of 2023, further driving the increase in operating expenses.



TransMedics maintained its full-year revenue outlook, expecting revenues to be in the range of $425-$445 million, reflecting growth of 76-84% from the 2023 level. However, the market reacted negatively to the guidance, suggesting that investors were anticipating even stronger results. The company's stock fell 27% during after-hours trading on Oct. 28, likely due to lower-than-expected top and bottom-line performances.

In conclusion, TransMedics' stock plunged in October due to disappointing third-quarter earnings and revenue misses. Despite strong year-over-year revenue growth, the company's stock fell due to lower-than-expected utilization of the Organ Care System (OCS) and logistics services, as well as a contraction in gross margin and an increase in operating expenses. While the company maintained its full-year revenue outlook, the market reacted negatively to the guidance, contributing to the stock's significant decline.