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Small-Cap Confidential
Undiscovered stocks that can make you rich

May 2, 2023

Terex (TEX), TransMedics (TMDX) and Repligen (RGEN) Report

Terex (TEX)

Terex reported Q1 2023 results that beat expectations after the close yesterday. The company also raised full-year guidance by more than the Q1 beat. The result should quiet some of the concerns of a slowdown and help the stock do well today. Revenue was up 23% to $1.24 billion, beating by $105 million. Operating profit margin of 12% beat consensus of 9.3%, driving EPS to $1.60 and beating consensus by $0.56. By segment, Materials Processing revenue was up 22.3% to $553.8 million while Aerial Work Platforms was up 24.4%. Full-year revenue guidance was increased by $200 million at the midpoint (more than the Q1 beat) to a range of $4.8 - $5.0 billion and EPS guidance was raised by a full dollar, to a range of $5.60 - $6.00. Shares are up early, and we’ll stick with a half-sized position. BUY HALF

TransMedics (TMDX)

TransMedics delivered another beat-and-raise quarter. Revenue rose 162% to $41.6 million and beat by $38.1 million. EPS loss was -$0.08 as some operating expenses were lower than expected and helped margins surpass expectations, though these will vary quarter to quarter as the company prioritizes growth over sustainable margin improvement. By segment, Heart grew 15% to $16.9 million, Liver grew 43% to $23.1 million and Lung slowed to $1.6 million. Lung is a weak spot, but management says it’s working on a plan to jump-start this business and should have an update within a couple quarters. The segment trends illustrate growing use of the National OCS Program (NOP) by transplant centers. NOP drove 91% of total Organ Care System (OCS) cases, offset by the still-recovering Lung segment (pandemic really hurt).

Turning to guidance, management increased their revenue growth outlook from a range of $138 - $145 million to $160 - $170 million (+71% - 82%), which straddles consensus expectations. On the conference call, there was a lot of talk about capacity and logistics. The company is opening a new clean room in the middle of this year so capacity will go up significantly. However, they are already facing challenges with air charters to transport organs and this is a looming bottleneck. Management is actively shopping for an air charter business (purchase outright or JV) so they can eliminate the bottleneck and expand capacity for a growing market that’s still stuck transporting organs in a very inefficient and expensive way. This new “TransMedics Aviation” business remains a question mark since we’re not certain on how exactly it will be paid for, what the revenue stream will be (maybe $15 - $30K per organ?) and where the margin profile will land (maybe mid-30% range?). While there are certainly considerable risks to rolling out an entirely new air transportation network it’s encouraging to see the company thinking big as they aggressively go after market share, while seeking to grow the overall organ transplant market. Given all factors, sticking with a hold rating. HOLD THREE QUARTERS

Repligen (RGEN)

Repligen reported this morning with results that beat expectations, but management reduced full-year guidance owing to the weak macro environment and weakness in China. Revenue of $181.4 million was down 12% but just surpassed expectations by $1.23 million. EPS of $0.64 beat by $0.05. Stripping out Covid-related revenue, the base business grew by 4% (7% constant currency). Regarding forward guidance, management reduced full-year revenue guidance by 5% to $720-$760 million (+4% to 8%) from $760-$800 million (+11% to 15%). Gross margin may be about 50bps lower to around 52.5%. Adjusted EPS is seen in the range of $2.35 to $2.42 versus prior guidance of $2.61 - $2.69.

I listened to the conference call this morning and there was a lot of talk about it just being a tough environment for bioprocessing after the huge jump in demand during the pandemic. Supply chains are normalizing (though resin supply is still tight for another quarter or so) and demand is leveling out, so management sees a stronger back half of 2023 than a return to around 20% growth in 2024. Regarding China, management said there is some destocking and reshoring there so it’s just a weak market. Regarding the small and early-stage biotech market being soft, which is part of why Danaher (DHR) had a tough quarter, Repligen management says it’s about 10% of total revenue.

I think what we’re seeing here is that Repligen, and the broader bioprocessing market, is in a bottoming process and there may be another quarter or so before things start to pick back up. Management appears to be being conservative for the rest of the year but sounded confident in better days exiting the year based on conversations with customers. The stock is up modestly today. Given all the factors let’s take our position down by another quarter and then hold the final half. SELL A QUARTER, HOLD REMAINING HALF

Tyler Laundon is chief analyst of the limited-subscription advisory, Cabot Small-Cap Confidential and grand slam advisory Cabot Early Opportunities. He has spent his entire career managing, consulting and analyzing start-up and small-cap companies. His hands-on experience has taught Tyler that the development of a superior business model is the biggest factor in determining a company’s long-term success. Accordingly, his research focuses on assessing the viability of management’s growth strategies, trends in addressable markets and achievement of major developmental milestones.