TransMedics Group, Inc. (NASDAQ:TMDX) Q2 2025 Earnings Call Transcript

TransMedics Group, Inc. (NASDAQ:TMDX) Q2 2025 Earnings Call Transcript July 31, 2025

Operator: Good afternoon, and welcome to TransMedics Second Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Laine Morgan from the Gilmartin Group for a few introductory comments. Please go ahead.

Dorothy Morgan: Thank you. Earlier today, TransMedics released financial results for the quarter ended June 30, 2025. A copy of the press release is available on the company’s website. Before we begin, I would like to remind you that management will make statements during this call, including during the question-and-answer portion of the call that include forward-looking statements within the meaning of federal securities laws. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements. These include statements about future events, results or performance, including commentary on potential market and business conditions, our examination of operating trends, the potential commercial opportunity of our products and services, the potential timing, outcome and value of new clinical programs, the potential impact of tariffs on our business, our expectations for growth and opportunities in our operations and financial guidance and/or projected expectations, including revenue, gross margin and operating expenses in 2025 and beyond.

These statements involve risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by the forward-looking statements. Accordingly, you should not place undue reliance on these statements. Additional information regarding these risks and uncertainties appears under the heading Risk Factors of our Form 10-Q filed with the Securities and Exchange Commission on May 8, 2025, and our subsequent SEC filings, which are available at www.sec.gov and on our website at www.transmedics.com. You can find the company’s slide presentation with information on second quarter 2025 results on the Investor Relations section of the TransMedics website. TransMedics disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements.

This conference call contains time-sensitive information and is accurate only as of the live broadcast today, July 30, 2025. And with that, I will now turn the call over to Waleed Hassanein, President and Executive Officer.

Waleed Hassanein: Thank you very much, Lane. Good afternoon, everyone, and welcome to the TransMedics Second Quarter 2025 Earnings Call. Joining me today is Gerardo Hernandez, our Chief Financial Officer. Organ transplant therapy is experiencing a renaissance globally due to the growing recognition of the life-saving and cost-effective outcomes when treating end-stage organ failure. In the U.S., federal agencies and Congress are driving a national initiative to modernize the U.S. transplant system to enable greater utilization of donor organs to meet the growing demand for more and better organ transplantation. More recently, this July, the European Society of Organ Transplantation, or ESOT, published a call for action paper in The Lancet, the premier medical journal, highlighting the global importance of organ transplantation.

Specifically, the paper reinforced the urgent need for health care systems to prioritize investments in organ transplantation as a critical health care strategy given the significant impact on health and cost efficiency of organ transplants. Against this backdrop, we at TransMedics have been relentless in driving significant positive transformation of the transplant therapy globally through our OCS technology, our unique NOP program in the U.S. This is what drives our mission-oriented TransMedics team and has enabled us to consistently execute and deliver on our plans. On today’s call, as we look into the future beyond our exceptional 2Q performance, I will be sharing our near- and long-term vision of key strategic initiatives designed to grow our OCS NOP volumes beyond the 10,000 planned for 2028.

Importantly, I will also provide our perspectives in response to some recent market confusion and noise following comments made by a certain player in the organ preservation ecosystem. But first, let me highlight our 2Q performance, which represents a new high watermark for both clinical cases and revenue. Our performance has also demonstrated the significant operating leverage potential of the TransMedics business, even as we continue to invest across several growth initiatives. We strongly believe that this quarter represents just one key milestone of many to come as we work towards achieving our strategic vision to drive TransMedics to become the global standard of care for organ transplantation. We are not stopping here. We are already ramping up our investments to drive the next several waves of growth that will deliver substantially more top and bottom line growth for TransMedics.

Our success has been and will remain fueled by the unique TransMedics Trident. That is to say our disruptive and technically unparalleled OCS technology platform, our revolutionary NOP service model and our unique dedicated transplant logistics network. Now let me turn to a more detailed outline of our 2Q performance. The results speak for themselves. Total revenue for 2Q 2025 was $157.4 million, representing approximately 38% growth year-over-year and approximately 10% sequential growth from 1Q 2025. We experienced sequential growth across all 3 organ segments, driven by higher overall utilization and center penetration of OCS NOP in the U.S. As I mentioned, this enabled us to achieve a new high watermark for overall case volume. In fact, to dispel any confusion about some of the outside commentary on lung transplantation in the U.S., OCS Lung experienced approximately 14% sequential growth in 2Q.

Our overall gross margin for 2Q was steady at 61.4%, similar to Q1. Meanwhile, we delivered operating profit of approximately $36.6 million in 2Q, representing more than 23% of total revenue and up from $27.4 million or 19% of total revenue in 1Q 2025. Finally, we have driven strong cash generation. We have significantly improved our billing cycle and maintained healthy AR collections, which collectively resulted in the addition of approximately $90 million to our balance sheet as we ended 2Q with over $400 million in cash. We hope these results cement our commitment to profitable growth and cash generation. We are humbled by these results, but we have our sights laser-focused on achieving and surpassing the target of 10,000 transplants U.S. NOP transplants in 2028.

Importantly, we are planning to go well above that target in subsequent years. In fact, our pipeline strategy of adding the OCS kidney platform is designed to position us to achieve at least over 20,000 annual U.S. NOP transplant as we will outline later in this call. We are also actively exploring options of expanding our NOP model internationally. This will enable TransMedics to potentially nearly double our total addressable market, as Europe represents 45% of the global transplant numbers. Stay tuned. We still have significant growth ahead of TransMedics, and we won’t rest until we deliver it. Shifting now to TransMedics transplant logistics infrastructure and performance. Transplant logistics service revenue for 2Q was $29.8 million, representing 56% year-over-year and 14% sequential growth.

Throughout 2Q, we owned and operated 21 aircraft. In Q2, we covered 79% of our NOP mission requiring air transport compared to 78 in Q1. So we’re nearly at our target of covering 80% to 85% of our NOP missions requiring air transport. Meanwhile, we’re continuing to add to our pilot crew to enable us to experiment with double shifting a portion of our fleet to run even a much more efficient operation by year-end. Moving now to update you on our next-gen OCS Heart and Lung clinical programs and the status of the FDA IDEs. We are pleased to report that we have received FDA conditional approval for the OCS Lung IDE in July. We’re continuing to collaboratively engage with FDA’s leadership to address their final questions and are planning to begin the trial initiation activities after the summer vacation season.

On the OCS Heart IDE, we feel we are very close to reaching similar agreement with the FDA leadership to enable the near-term launch of our clinical program. Based on the progress achieved with FDA, we feel we remain on track to launch both programs before year-end. As discussed at our last call, we see these clinical programs as potential major growth catalysts for 2026, but we are not counting on them contributing to our financial results in 2025. Now please allow me to directly and hopefully comprehensively address several misunderstood competitive commentary and the potential impact of U.S. National Transplant Modernization initiative that has become an unwarranted source of confusion and concerns recently. While we hold all companies operating in the field of organ preservation in very high regards, I want to be crystal clear that our expectation is that as TransMedics continue to execute and gain more market share, the results of our peers with smaller footprints in the market could be negatively impacted.

This should not come as a surprise or be misunderstood as a negative indicator of TransMedics’ current or future performance. Please allow me to repeat this sentence again. As TransMedics continue to execute and grow our market share in a certain market, our peers with smaller footprints result could be negatively impacted. This negative impact of our peers should not come as a surprise to the Street or be misunderstood as a negative indicator of TransMedics’ current or future performance. TransMedics can only be judged based on our own performance based on our own technology in our own market. Also, specific to the lung market, we have been very transparent in our view that the poor and equivocal clinical results associated with the nonportable and non-blood-based perfusion technologies have contributed heavily to the current apathy for lung perfusion in the U.S. Therefore, we see the recent competitive commentary on U.S. trends in lung transplant as a validation of our thesis.

In fact, it is because of the above dynamic that we designed the Next-gen OCS Lung program to comprehensively overcome these old preconceived negative sentiments existing within the U.S. lung perfusion market. Specifically, we have designed the largest prospective randomized controlled trial in the history of lung preservation for transplant. Please remember that our INSPIRE trial was the largest at approximately 350, but the next-gen OCS trial will be even bigger than the INSPIRE trial. We’re aiming at a total sample size that will exceed 450 DBD and DCD donor lungs that will be randomized between our next-gen OCS Lung platform versus cold, controlled static storage that is currently the standard of care. We are confident that if the clinical trial achieves the same level of success that we’ve seen in our preclinical testing that we will deliver far superior clinical outcomes without the limitations of time and distance.

This will be supported by Level 1 clinical evidence compared to the cold storage method that lacks any prospective clinical evidence. If successful, we fully expect that this will further establish the OCS Lung as the next standard of care in lung preservation. With that, I will turn to our views on the long-standing and ongoing HRSA, CMS, U.S. House and Congressional initiatives to modernize the U.S. transplant system. First, let me start by stating my personal belief that the U.S. transplant system is one of, if not the best, in the world. However, there’s always room to improve and modernize to expand organ utilization while optimizing the care of transplant patients and donors. To be clear, TransMedics has been engaged publicly and privately with stakeholders on this topic, providing our views on how industry player like TransMedics can play a crucial role to support all stakeholders, including OPOs and advance the transplant donation ecosystem in the United States.

For context on our views on this topic, I would refer you to our 2 public statements from 2022 in response to the RFIs by both HRSA and CMS, and these statements are written statements published on both HRSA and CMS web page. Importantly, the success of U.S. NOP in facilitating the growth of overall national heart and liver transplant volume has not gone unnoticed, and we are working with every stakeholder of the U.S. transplant ecosystem to ensure that they understand the following critical facts: first, TransMedics NOP is a win-win-win to every stakeholder in the U.S. transplant system with an interest in saving more lives in the U.S. This includes OPOs, HRSA, CMS, commercial payers and most importantly, patients and their families. Second, TransMedics clinical value is supported and impact on overall transplant volume is supported by hard data and facts that has been collected over the last 3 years through our NOP infrastructure.

And finally, TransMedics is here to stay and ready to serve as a critical and trusted partner in the efforts to modernize the U.S. transplant system to maximize donor organ utilization and save more American lives. As a show of our commitment to this goal, we have taken several actions. For example, we made significant investments to scale our digital NOP ecosystem to give maximum transparency to all U.S. NOP transplant stakeholders. We are expanding our leadership team with dedicated strategic and public affairs experts to ensure that TransMedics is well represented and our data is front and center to any discussions with the stakeholders. And finally, we are actively engaged with all stakeholders involved to make our positions clear and to avoid any misunderstandings or confusions.

As you can imagine, emotions are running high for some, and we need to stay balanced and lead only with facts and data. Finally, we have several strategic initiatives underway to support this work above. We expect to provide more details as they unfold over the next several quarters. With that, I also want to take a moment to address a point of confusion following the review of few unfortunate DCD cases in a recent New York Times article. Please let there be no uncertainty. The declaration of death for any DCD or DBD donation case in the United States is entirely independent of the organ procurement surgeons, whether it’s TransMedics NOP surgeon or any other procurement entity. This is purely and solely with the responsibility of the independent declaring physician working for the donor hospital and contracted by the local OPO.

There is a crystal clear line of demarcation of this particular clinical responsibility. Please remember that while this is a complex market dynamic, there are clear and established protocols in place and that TransMedics NOP surgical procurement team strictly adheres to these established protocols. With that, let me return to the fundamentals of our business. Our TransMedics OCS platform, the OCS NOP clinical support model and the dedicated transplant logistics network and more recently, the entire NOP digital ecosystem were all prospectively designed to give TransMedics a significant unique position that could operate freely in both the current transplant system as well as any potential system of the future. We are not sitting still. We are working with all stakeholders to ensure that the success of our model in saving more American lives is well recognized and that we will continue to deliver cost-efficient transplant services that meet the highest clinical standard for our users, partners and most importantly, patients in need.

I want to repeat again, TransMedics is here to play a critical role, and it’s here to stay, whether in the current system or any system of the future. Before I conclude, please allow me to now summarize at a high level, ongoing and planned investment initiatives designed to catalyze growth over the next several years. More specifically, we intend to: one, expand our infrastructure footprint to best position us to scale well beyond 10,000 transplants and attract and retain top-tier talent capable of supporting our Gen 3 technology requirements. Specifically, we are now fully engaged in identifying the best location to be our new long-term global headquarters for TransMedics. Two, deliver on our OCS platform pipeline of OCS Kidney, followed by Gen 3 OCS platform for heart, lung and liver.

three, expand our entire U.S. OCS NOP clinical and logistics team to meet the growing demand and minimize bottlenecks. four, position ourselves to capitalize on any opportunities stemming from the national modernization initiatives. And finally, we are strategically exploring select geographical expansion opportunities. This entails evaluating the potential for replicating the successful OCS NOP across several European countries. It has become increasingly clear that there is a significant interest for TransMedics to replicate our U.S. success outside of the U.S., including the dedicated transplant logistics network in European countries. We are thrilled by this potential. And as we always say internally, if TransMedics doesn’t do it, who would?

Based on the above, you can see that we are not slowing down. To be clear, given the breadth and magnitude of opportunities ahead, combined with our demonstrated ability to generate operating leverage and free cash flow, our near-term capital allocation strategy is growth oriented. Again, our near-term capital allocation strategy is focused on growth. While our operating margin will fluctuate somewhat as we deploy capital across these initiatives, we have a high degree of confidence in our long-term ability to deliver substantial top and bottom line growth while aiming at consistently maintaining positive cash generation. Now let me conclude my remarks by commenting on our expectation for the remainder of 2025. First, I’ll remind you all that we are in Q3, which includes summer vacation season for our users in the U.S. and outside of the U.S. We fully expect to see some minor and transient seasonality in our 3Q performance, similar to what we saw last year.

To be clear, we expect this seasonality to be transient and minor in nature. Importantly, we fully expect to end the year strong as we did last year. That being said, our exceptional first half performance and strong overall trajectory gives us the confidence to raise our full year 2025 revenue guidance to between $585 million and $605 million, representing approximately 35% growth over full year 2024 at the midpoint. With that, let me turn the call to Gerardo to cover the detailed financial results for the quarter.

Gerardo Hernandez: Thank you, Waleed. Good afternoon, everybody. I am pleased to be here to discuss TransMedics’ strong second quarter results. Please note that a supplemental slide presentation detailing our second quarter 2025 results is available in the Investors section of our website. As Waleed highlighted, we sustained momentum through Q2 with disciplined execution across the entire TransMedics team. Strong transplant volume growth, combined with the positive impact of our ongoing strategic investments drove solid performance across both product and service lines, along with continued margin expansion and improved profitability. U.S. transplant revenue was approximately $152 million, up 40% year-over-year and 10% sequentially.

By organ, liver contributed with $116 million, heart, $32 million and lung $4 million. OUS revenue was $4 million, down 12% from Q2 of 2024 and up 2% sequentially. OUS revenue by organ was $3.5 million in heart, $0.4 million in lung and $0.2 million in liver. Product revenue for the second quarter reached $96 million, up 34% year-over-year and 9% sequentially. Growth was driven by increasing organ utilization in liver and OCS adoption across both liver and heart. Service revenue for the second quarter reached $61 million, a 44% increase year-over-year and 11% sequentially. The primary driver was logistics revenue, which grew 56% year-over-year and 14% sequentially, fueled by the continued expansion and utilization of our aviation fleet. Total gross margin for the quarter was approximately 61%, representing an increase of 78 basis points compared to Q2 of 2024 and broadly aligned to Q1 of 2025.

The year-over-year increase was primarily driven by 431 basis point improvement in service margin, reflecting higher TransMedics fleet utilization and cost efficiencies in logistics operations. Product margin was flat compared to Q2 of 2024 and declined 172 basis points sequentially, largely due to higher freight expenses. The increase in freight was a deliberate action to accelerate inventory replenishment to our hubs. Overall, we are seeing the expected progress in gross margin improvement driven by operational efficiencies and the benefit of scale. That said, we expect this improvement to moderate in the second half of the year as scheduled aviation fleet maintenance ramps up in Q3 and becomes more pronounced in Q4, as previously discussed in our Q1 call.

Total operating expenses for the second quarter of 2025 were $60 million. up 6% year-over-year, and the increase was primarily driven by a 15% increase in R&D expenses, reflecting continued investment in our innovation pipeline and a ramp in support to our product development capabilities. SG&A expenses grew 3% year-over-year, driven by ongoing expansion of our IT infrastructure, investment in strategic growth initiatives and the impact of inflation. Sequentially, total operating expenses were broadly in line as a modest increase was mostly offset by the absence of nonrecurring legal expenses incurred in Q1 of 2025. Operating income for the quarter was $37 million, up 192% year-over-year and 33% sequentially. Operating margin expanded to 23% compared to 11% in the prior year and 19% in Q1 of 2025.

Net income for the second quarter was $35 million, representing a 186% year-over-year increase and 36% sequentially. Earnings per share were $1.03 and diluted earnings per share were $0.92 for the second quarter of 2025. We ended the quarter with $401 million in cash, up $90 million from March 31, 2025. This increase was driven by strong operating cash generation, supported by meaningful improvements in our billing cycle, which together with the continued healthy collections reduced our accounts receivable balance, underscoring our commitment to process efficiency and our focus on efficient working capital management. Our first half results reflect disciplined execution, continued gains in operating efficiency and meaningful progress in our clinical and innovation programs.

Together with the scalability of our business model, these results continue to validate our ability to drive meaningful financial improvement and position the company for sustained momentum through the rest of 2025 and beyond. Looking ahead, given the strength of the business, as Waleed mentioned before, we are raising our full year revenue guidance to a range of $585 million to $605 million, up from our prior range of $565 million to $585 million. This reflects approximately 35% growth over 2024 at the midpoint. Growth is expected to continue to be fueled by the expansion of total transplant volumes, increased OCS adoption and the continued momentum across our service platform. Our updated guidance reflects the strength of our first half results and sets a prudent baseline for the second half with clear room for upside as momentum continues.

In terms of gross margin, we continue to expect overall gross margin to remain approximately at 60% over the coming years. This accounts for the various factors influencing both product and service margins beyond just mix. In terms of capital allocation, we are focused on initiatives that drive long-term value, balancing strategic growth with financial discipline to deliver sustainable profitable growth. Our investments will continue to prioritize R&D to advance our pipeline, implement systems that simplify and automate core processes and improve efficiency across our logistics operations. One example of this approach is our double shifting pilot program designed to optimize fleet utilization. We know additional jets will be needed to support continued growth.

And this program will help determine the right fleet size to drive operational efficiency and maximize the return of our capital investments. We expect to see early outcomes of the program in the first half of 2026. While our target remains to own 22 jets by the end of 2025, we will continue to be opportunistic moving forward only when the right conditions are in place. That may mean holding off on additional purchases this year or accelerating acquisitions if favorable opportunities arise. At the same time, we will make targeted investments to support growth well beyond 2028. including the development of our NOP network in selected international geographies, our planned move to a new global headquarters to accommodate the growing scale and complexity of our business and continue with ongoing enhancements to our manufacturing and product development infrastructure.

These initiatives are at different stages of implementation and will be rolled out over time. Together, they represent critical steps to position TransMedics for its next phase of growth as we work to surpass 10,000 transplant milestones and expand our global leadership in organ transplantation. Finally, with stronger top line performance, continued efficiency gains and spend discipline, we expect to deliver at least 650 basis points of operating margin expansion for the full year of 2025 compared to 2024. While quarterly variability is expected, as Waleed highlighted, we are confident in the full year step-up driven largely by greater leverage across our operating expense base. Over the long term, we are targeting an operating margin at or approaching 30% by 2028.

The path may not be linear year-over-year as we continue investing in the capabilities and infrastructure outlined earlier. Our differentiated OCS technology, combined with our NOP and vertically integrated logistics capabilities give us a unique advantage to broaden access globally. Built on these strengths and addressing the significant unmet need in organ transplantation, we believe TransMedics is well positioned to deliver sustainable growth, expand margins and create substantial long-term shareholder value. And with that, I’ll turn the call over to Waleed for closing remarks.

Waleed Hassanein: Thank you so much, Gerardo. Overall, we’re very pleased with our 2Q performance, which once again underscored the unique attributes of TransMedics business. TransMedics is not only a top line grower, but also an increasingly profitable business capable of generating significant bottom line leverage. We remain confident that this is just the beginning, and we believe we are well positioned to deliver sustainable long-term financial results while also investing significantly in our business as we gain more efficiency of scale and continue to deliver leverage throughout the operation. TransMedics is a very unique business, providing unparalleled life-saving solution in a huge untapped market. We look forward to continuing our upward trajectory while saving more lives and delivering significant value to every transplant stakeholders, not just in the U.S. but globally. With that, I will now turn the call to the operator for Q&A. Operator?

Q&A Session

Operator: [Operator Instructions] The first question comes from Allen Gong with JPMorgan.

K. Gong: So my first question is kind of going to be on the seasonality, right? And I think you’ve done a really good job of preparing us for seeing that kind of summer disruption from dock locations, from aviation maintenance. So I’m just curious about what you’re seeing so far in July because we have access to the very high-level data showing kind of the summer dip as expected, but just curious to hear what you’re seeing relative to expectations.

Waleed Hassanein: Allen, thank you for the question. We’re seeing some signs of seasonality, maybe not as pronounced as last year, but it’s still, we’re still early. August is about to start, so it’s still early. So we assume some seasonality in Q3, given all the factors we described. And yes, we are starting to see it in July. But again, what we’ve seen so far is, I would call it, a slightly less impact than last year. But again, it’s too early to really make that a trend.

K. Gong: Got it. And then kind of moving higher level to some of the news that’s been coming out recently, The New York Times podcast that came out today, kind of talking about how there’s a lot of pressure to grow organ volumes, you kind of corroborating what you’re saying, you’re a really important partner with that. And while you made it very clear that your side of the business is very separate from the side of the business that actually makes the termination of DCD. Are you concerned at all that greater oversight over OPOs, over DCD usage could lead to, unfortunately, like an impact on you just because there are fewer of those procedures happening, centers are being a bit more cautious, what have you?

Waleed Hassanein: Allen, that’s a very important question. I think I actually — I see it as the opposite. I think some level of organization and organizational structure and oversight will actually benefit the transplant market, especially in DCD. We all have been debating and discussing for the last 2 years, this notion of NRP. That was haphazardly implemented. It cost the system significant amount of dollars. It lost many organs unnecessarily. These organs could have been put in OCS, protected right away, saved these organs and did it with a much more cost-efficient way. And unfortunately, it was haphazardly implemented in the system because of the lack of oversight. So we see this as just one example that some level of oversight is actually — could potentially be beneficial, not detrimental.

But we have to wait and see. As I tried to highlight in my script, we feel confident that the unique attributes of our business allows us to operate in the current system or any system in the future, and we stand by that statement.

Operator: Our next question comes from Chris Pasquale with Nephron Research.

Christian Pasquale: Congrats on the quarter. Waleed, to start with, congratulations on getting the IDE approved for the lung trial. Just curious whether you can share if there were any substantive changes in the design of that trial with what you agreed to finally with the FDA relative to what you laid out in the proposal at ISHLT.

Waleed Hassanein: Chris, thank you for the question. The clinical trial design, as we know it, is not touched. Most of the remaining questions are actually focused on preclinical testing, working with the preclinical testing reviewer. So I’m not aware of any changes to the clinical trial design as we outlined in ISHLT, and we’re looking forward to wrapping this part up and publishing the full design of the clinical program on clinicaltrial.gov sometime in late August, early September as we approach the IRBs and the trial will be in the formal kind of initiation process.

Christian Pasquale: Great. And then curious your thoughts on the U.S. heart market. Your own business there continues to grow really nicely. Your penetration continues to tick up. But if we look at the last 6 to 8 quarters now, the market itself has been relatively flat. We saw some growth in 1Q, but that kind of reversed this quarter. And so we’re still on that flattish trend. What do you think is holding back volumes in that segment? And maybe contrast that with the continued strong growth we’re seeing in liver? And what can you do to get it growing again?

Waleed Hassanein: Chris, I think as we stated before, heart getting double-digit growth last year or the year before — last year and the year before, overall heart market grew. So this is just the ebbs and flows of organ transplant, the waiting lists as waiting lists are being replenished. So that’s kind of the noise level, the detailed noise level that happens quarter-to-quarter. However, the way we are going to approach this and hopefully normalize this going forward is going to be through our clinical program. This is why we really are thrilled or anxious to get the heart clinical program approved like the lung and getting that rolled out because that you will see a lot of dynamic change once we introduce that next-gen heart technology.

But we expect the market to rebound and this happens every now and then, and it’s probably multifactorial. But again, Q3 has this noise level of seasonality, but I suspect the heart market will normalize by Q4 and hopefully, into ’26 with both the heart and lung next-gen activities underway, we’re going to see significantly different dynamic in 2026. That’s one — that’s the majority of the reason. But also, we discussed this before, Chris, that the growth of DCD. With DCD, there is higher rate of lack of progression, which ultimately impacts the heart the most. So that could be a factor for it. But that will also normalize as more oversight comes on board with DCD. So it will — this is — we look at this as a transient phenomenon. The rate of heart failure is not going down.

The rate of waiting list expansion is not going down. We are playing a key role of opening up the supply of organs. So there is absolutely no reason why to believe that this transient phenomena of slowing down is going to be something that will stay with us for long term.

Operator: Our next question is from Josh Jennings with Cowen.

Joshua Jennings: Congratulations on another strong quarter. I was hoping — I think you laid it out clearly that TransMedics is well positioned to thrive throughout this modernization of the U.S. transplant network. I know your team and team in Gordon down in Washington, you’ve been meeting with the committees and you’ve been interacting with committees and Congress people throughout this year. But do you see any headwinds for TransMedics as this U.S. transplant network evolves? Or is it simply, as you stated, the technology, the NOP, the logistics are all driving transplant volume growth, and that is the goal of this modernization of the transplant network.

Waleed Hassanein: Thank you for the question, Josh. I think I want to be very balanced in what I say to answer this question. I think the results of the NOP are black and white, and they are not going unnoticed by all the stakeholders. The major impetus for this transformation is what is growing the national transplant volume. The system has been at this for a good portion of the last 5 years. Guess who has been growing the national transplant volume in the U.S.? None of these initiatives yet. It has been the NOP and the OCS and the vertical integration of logistics. That’s not going unnoticed by the stakeholders. So headwinds, we’re seeing none. But as you can imagine, the emotions on the other side of the equation could be running high, and there may be some fictitious fear that OPOs are worried that they’re going to be — some of them will be decommissioned and that TransMedics may want to take over.

That’s not our goal at all. We work with OPOs very collaboratively. In fact, because our goals are aligned. So that’s why I wanted to be balanced. Do we see headwinds from the stakeholders? No, because the data is clear. Our goals are aligned. It’s a win-win for everybody. But because this is an emotional topic and sensitive topic to some of the major stakeholders that have been in a virtual kind of unipole for the last 40-plus years, you should expect — we should expect some misunderstanding, and that’s why we’re overcommunicating and over engaged and always highlighting this is not to replace anybody. This is to work collaboratively with the existing system and any potential new modification to the system in the future. I hope I’m addressing your question, Josh.

Joshua Jennings: Yes. And then just a follow-up on the clinical trials. You made nice progress with the FDA and expecting to start both trials before the year-end. I was wondering if you could share any progress with CMS just in terms of reimbursement for the trials on — particularly in the study groups for heart and lung clinical development.

Waleed Hassanein: We’re not engaged with CMS just because we’re already approved with the technology. The modifications we’re having, we don’t see this as requiring any CMS engagement at the moment.

Operator: Our next question is from Ryan Daniels with William Blair.

Unknown Analyst: This is [ Matthew Mardula ] on for Ryan Daniels. And I want to talk about the lung transplants. And I know lung transplants are a small percentage of your revenue right now. But how do you see the next-gen OCS helping penetrate into the lung transplant? I know you’ve mentioned before that next-gen OCS will account for a small amount of revenue this year, but any insights into the growth of it next year or long term would be great to hear about.

Waleed Hassanein: Thank you for the question, Matt. I think I’ll keep this high level. I think the lung trial or the next-gen OCS platform is designed to address the 2 or 3 major historical concerns that have plagued the U.S. lung perfusion market based on the suboptimal outcomes seen at the early ex vivo perfusion study. So what are these perceptions? The perceptions are that the longer the lung are perfused, the higher the probability of the lung getting edamatous. The longer the lung is perfused, it may not work after transplant, that sometimes the system is not protective of the lung and there’s a hesitation of taking a lung for proper evaluation on machine perfusion. There is the perception that putting the lung on ice overnight is safe.

Why? Because there is no data to prove or disprove any of these subjective individual perceptions. First, the OCS next-gen technology for lungs is designed to overcome all the limitations of the historical perfusion technologies that were in the market in the U.S. We reduced edema significantly. We maintain lungs for extensive period of time exceeding 24 hours. Now we’re conducting the trial comparing ourselves to cold storage, and we’re allowing the comparison for any types of lungs, DBD or DCD. So we will prove with Level 1 evidence that the OCS will have potentially superior outcome through cold storage. So we will kill 2 birds with one stone. One, overcoming the historical limitation of nonportable acellular perfusion. And we will hopefully unequivocally deliver Level 1 evidence proving the superiority of the OCS platform over cold storage.

That’s what gives us the excitement about the potential future of our lung next-gen platform to give us access and not just access to become the next standard of care in that market. That’s why we’re investing and putting our dollar and our investment where our mouth is to prove that we are superior in both fronts. That’s what gives us the confidence and excitement. And we just can’t wait to go execute this trial and actually deliver the Level 1 evidence to prove it.

Operator: The next question comes from Matthew O’Brien with Piper Sandler.

Samantha Munoz: This is Samantha on for Matt. Congrats on a good quarter. I guess I want to talk first about what you’re hearing in the field about DCD donations. Are there any increasing concerns in the operating room following the New York Times article? And then also, I guess, bigger picture, where do we stand in terms of utilization of DCD organs? And how much more room is there to grow in that category?

Waleed Hassanein: Samantha, thank you for the question. We’re not seeing any hesitation or concern or pullback on DCD donation. DCD donation is here to stay. It’s a life-saving donation. It’s really part of the renaissance that is happening in organ transplantation. The New York Time article incidences have been known in the field for a good portion of the last 2 years. This is not news, guys. Unfortunately, it was publicized as sensational news, but it’s not news in the people in the community have been — we have heard about these cases for the last 2 years. So that’s not news, and we’re not seeing any pullback or concerns or anything like that. So that’s number one. I’m sorry, can you repeat the second part of the question one more time?

Samantha Munoz: Sure. Just about utilization of DCD organs.

Waleed Hassanein: Utilization of DCD. Yes. Utilization of DCD remains unchanged between 50% and 55% that actually materialize to become a DCD donor. There’s between 45% to 50% that does not progress to become a DCD. That number has not changed materially, at least across all 3 organs.

Samantha Munoz: Great. If I can sneak in one more about the next-gen clinical programs. I know you said previously that both arms of the trial will use the NOP service. How will that work specifically in the cold storage arm? Will that still generate revenue for you?

Waleed Hassanein: I would — yes, the plan is both arms will go through NOP to maintain the blinding of the accepting surgeon. I will reserve the commentary on the revenue generation until we get the trial started just to make sure that we were not — we need to wait and see how the rollout will be. But the expectation is there will be some revenue generated at least from logistics on the control arm. We’re waiving the service fee for our surgeons and our team to procure these organs as a sign of good faith to make sure that we’re not making any money on technologies that are not ours.

Operator: The next question comes from Bill Plovanik with Canaccord.

Zachary Day: It’s Zachary Day on for Bill. Congrats on the quarter. So you called out that it was heart and liver that drove the quarter. Just taking a step back, are there any share trends you wanted to call out in Q2, whether it’s on the organ specifically or DBD and DCD broadly?

Waleed Hassanein: Zach, thank you for the question. As you know, we don’t comment on the share inter year. We talk about our share at year-end because of the different variabilities between quarters. But we continue to take market share, both DBD and DCD in heart and lung and liver — I’m sorry, heart and liver and to a lesser extent, lung just because the numbers are small.

Zachary Day: Got it. And do you have thoughts on any new competition coming into the liver market later this year?

Waleed Hassanein: Not that I’m aware of. Are you aware of any?

Zachary Day: Yes. I mean we were — we’ve heard that there’s private companies coming in or at least one to be named, I guess, but I won’t name them on your public call.

Waleed Hassanein: Thank you. We always welcome competition. It keeps us honest. And as long as we’re all aiming to save lives, that’s a great thing for organ transplant.

Operator: Our next question comes from Justin Wang with Morgan Stanley.

Xuesong Wang: I’m just filling in for Patrick. I was wondering if you can spend a few minutes to talk more about NOP Access. What has early surgeon and center feedback been like? And how do you see this affecting the overall NOP ecosystem longer term? Separately, can you talk about how Access will work with OCS Connect?

Waleed Hassanein: Thank you for the question. The early feedback with the first, I would say, a couple of dozens or 3 dozen users has been off the chart, exceeding our expectation. Again, it’s still early, but we’re pleased and humbled by that success. NOP Access is an expanded version of NOP Connect. So it’s not 2 different platforms. The customer-facing part of the ecosystem is the access. The back-end-facing part of the ecosystem is NOP Connect. So it’s one of the same. It’s just — again, it’s a part of the ecosystem. So they work simultaneously and homogeneously and seamlessly together. And there’s a third side to this, which is the logistics and route mapping portion of that. So all of which work seamlessly together.

Operator: The next question comes from Suraj Kalia with Oppenheimer.

Suraj Kalia: Waleed and team, congrats on a great quarter. Can you hear me all right?

Waleed Hassanein: We can hear you okay, Suraj.

Suraj Kalia: Once again, Waleed, really good quarter. Waleed, and forgive me if I’ve screwed this up. I believe in the last quarter, you had said 2% to 5% of FY growth would come from the clinical trials. But I thought in your commentary, I heard you are not expecting any growth from — or any contributions from the clinical trials, but yet you are raising guidance. Did I get all of that right? Or did I misunderstand something there?

Waleed Hassanein: Thank you, Suraj. Let me clarify the first comment. The 2% to 5%, I believe, came during our Investor Day. So that’s in December. Last call, end of year, we said we do not expect any substantial contribution. This quarter, we’re saying we have enough organic growth that we’re not even counting on any growth from the clinical trial in ’25. As Gerardo said in his commentary, there is some potential upside. But just given the timing of initiation of these trials, I did not want the community to factor in any substantial growth or any growth for that matter in ’25. There’s enough organic growth in our business that we will meet the guidance as outlined.

Suraj Kalia: Got it. And Waleed, for my follow-up question, for the next-gen OCS the lung trial is obviously a superiority trial. And you mentioned a lot of factors contributing to poor lung uptake, reducing edema, graft failure, so on and so forth. Wally, what parameters in the next-gen OCS specifically give you confidence in generating superiority? Is there a difference in perfusion parameters, event rate assumptions in the null hypothesis? Any additional color at this stage that you can give us to help gauge the confidence in generating superiority? Gentlemen, congrats again.

Waleed Hassanein: Thank you very much for the question, Suraj. We — so the detail and all the statistics and assumptions will be outlined in the clinicaltrials.gov posting for the trial. But at a high level, what gives us the confidence is what is the most and most frequent and most damming short-term complication after lung transplant is primary graft dysfunction, Grade 3. What is primary graft dysfunction Grade 3 is lung edema that compromise lung oxygenation capacity. What gives us the confidence is we reduced lung edema in our preclinical testing significantly compared to every control subject that we compared ourselves to. So in addition, we have revamped the ventilation system. We’ve revamped the perfusion flow to minimize hemolysis, all of which gives us better physiologic control over the lung perfusion and ventilation than we’ve ever had before.

But again, until we replicate this in a clinical program, it’s our thesis and hypothesis. But we’re excited that our clinical — our preclinical results were that strong. So stay tuned.

Operator: Our next question comes from David Rescott with Baird.

David Rescott: On the really strong quarter here. I appreciate the comments on seasonality, typical Q3 seasonality that you’ve seen. There’s been some focus on the third-party flight data just around the volumes or the trends in July. And I wanted to confirm at least it looks like from our perspective that pretty much the trends that you’re seeing in July so far quarter-over-quarter are pretty much exactly what you saw last year in the month of July. So I wanted to clarify that at least nothing in July so far is different from the typical seasonality that you’ve seen. And when I think about the comments that you made already on it. When you look at what you saw last year on a quarter-over-quarter basis, kind of pulled down the U.S. revenue down, I think, 3% to 5% or so on a quarter-over-quarter basis.

So when you think about the way Q3 is shaking up, is there anything in your mind that leads you to believe that the seasonality you saw last year is not the right kind of guidepost for where seasonality could be shaking out this year?

Waleed Hassanein: Thank you, Dave, for the question. So let me address the first part. The — I’m only commenting on what we’ve seen in July. The flight tracker we’ve always said it’s not 100% accurate, and I’ll leave it at that. You also have to remember that with our vertical integration of logistics as well as the more physiologic protection of OCS, we’re doing more ground transportation than flights sometimes. So again, third-party flight tracker, I know people are very proud of it, but it doesn’t really — it’s not 100% reflection of our business. So that’s number one. Number two, what we’re seeing in July doesn’t give us any concerns or more concerns than what we have seen before as the typical seasonality that we’ve been seeing for the last 2 or 3 years and during the summertime.

So we’re not pushing panic buttons. We’re not — none of that. It’s pretty much par for the course. If anything, as I commented, I believe, to Allen’s question, it’s slightly less impacted than last year. But again, it’s early in the quarter. it could shake up to be like last year. It’s still early in the quarter, and obviously, we can predict. As far as last year versus this year overall, I don’t think I have enough data points to say that last year is not the norm or is the norm. It’s just last year is what was visible and resulted, as you said, exactly 3% to 5% down quarter-over-quarter, but we came back and recovered in Q4. And if you look at our H2, we grew 9% last year. I think these are, relatively speaking, good numbers to model going forward for this year.

But I also like Gerardo to comment from his perspective.

Gerardo Hernandez: David, I think a couple of days ago, there was an article where one of our covering analysts actually went back and reviewed the transplant volume seasonality between Q3 and Q4, I think it’s since 2022, ’23 and ’24. And the result of the analysis basically says that there is no there is seasonality, but the magnitude of the seasonality changes has been changing year-over-year. So there is no one specific, let’s say, line or assumption that we could take for this year, where we are — I mean, we’re confident in the full year. We know that there is going to be a deceleration in Q3, but we’re going to get back and get within our guidance. And as I said, I think our guidance sets up a prudent baseline and with the potential upside to surpass.

David Rescott: Okay. Perfect. And then on the operating margin guide that you have for the full year. You raised it versus the last quarter, obviously, you raised it versus where you entered the year, implying kind of a step down in the expansion that you saw in the first half of the year. And so my question is more toward if at all — or I guess, what? And then if at all, is there any contribution contemplated in there from the clinical trials that are expected to be up and running by the back half of the year? And then when we think about the incremental dollar amount per case in the clinical trial into ’26 and we start to model that in the model, how should we be thinking about how clinical trials are going to flow through the P&L, specifically kind of on the R&D and OpEx, gross margin side?

Waleed Hassanein: Right. So for — let’s say, for this year first, the vast majority for increase in operating margin is gaining operating leverage at operating expenses level. That’s where we’re going to gain. As you may recall, I said at least 650 basis point increase. What is really driving the number is the amount of investments that we’re expecting to have over the second half of the year. Now some of those investments are in different stages. So depending on how they actually materialize, they could maybe slip into next year or not. So that’s why we’re taking a I’m taking a conservative approach to say at least $650 million. There could be room for upside if we, for instance, get higher in our guidance range or we decide to move one of the projects, et cetera, to next year.

So there is room. But it is not the contribution of the clinical program that is driving that improvement. It’s actually our operating expenses and our planned investments in the second half of the year. I think for 2026, what I would like to say today is just reiterate what I said during the call. We are expecting to be at reaching or at % 30% — we should be at or approaching 30% operating margin in 2028. The path is — it may not be linear, but we’re confident on that one. So I wouldn’t want to talk about next year just yet. I think when we come to provide a little bit more guidance of 2026, that’s when I’ll be sharing more thoughts.

Operator: Our next question comes from Mike Matson with Needham & Company.

Michael Matson: I guess I just want to ask one on the heart and lung clinical program. So I understand it’s not going to have much of an impact this year. But looking at next year, how many of those patients that get enrolled in the trial do you think would kind of otherwise have been captured by TransMedics as transplants and you would have gotten OCS revenue from? In other words, is it going to be cannibalizing some of the existing business you otherwise would have had? Or is it going to 100% be additive to your volumes?

Waleed Hassanein: Thank you for the question. I think as we said before, there will be hundreds of patients that we actually don’t have access to today. Out of the 450 lungs, we expect 300 patients that we don’t have access to today. Out of another similar number for heart, we — about 300 or 350 of those are DBD hearts that we don’t even have the indication for today. So we discussed this before. This is not to cannibalize our existing volume. This is to add and to increase our indication.

Michael Matson: Yes. No, no, I know long term, it would increase. I was just wondering if some of the patients that may have.

Waleed Hassanein: No, I’m talking about even at the short term.

Michael Matson: Okay. All right. And then you commented on a lot of the headlines in the quarter, but there was one thing I didn’t really hear anything on, and I just thought I would ask about it. So one of your competitors, OrganOx, got approved for use of their device during flights. I know they don’t have the logistics capabilities, at least as of now or planes or anything like that. But do you think that, that changes the competitive dynamics at all or makes them any more competitive in liver than they already have been?

Waleed Hassanein: Mike, I’ve stated before, and thank you for the question. The OrganOx device invented the back-to-base model for a reason. The device cannot fly even if you have to add wings to the device to be able to fly this device. This device is so large and so wide and so tall based on our knowledge of the configuration of aircraft in the United States or charter flight, they would require a large jet to be able — and not any large jet to have that configuration. It’s going to be too expensive to fly. And ultimately, the device doesn’t have the battery capability. I think this is another unwarranted noise in the system that we don’t see it at all. This device is designed to be back to base model.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Waleed Hassanein for any closing remarks.

Waleed Hassanein: Thank you all very much. Have a wonderful evening, and we look forward to continuing the dialogue. Bye.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.