TransMedics Group, Inc. Stock

Thank you, everybody, for coming in today, and I'm going to read the important disclaimer, which you can find on the Morgan Stanley website. And with that, I'd like to welcome Waleed Hassanein, CEO and Founder of TransMedics. It's a company that's very near and dear to my heart, so I'm excited to host this fireside chat in particular.

Waleed, maybe to start us off, 5 years from now, what do you think investors will realize that they misunderstood about TransMedics today?

Neha, first, thank you for the kind invitation to be here tonight or today. And for those in the audience, Neha helped take TransMedics public, so this is a great opportunity. So 5 years from now, I think we believe that the market is going to recognize how truly TransMedics have grown the organ transplant market and turn into -- be one of the best, if not, the best transplant company in the world as a med tech, high growth, high earner in the field.

Okay. Perfect. Well, maybe we'll talk about the bridge to getting to that 5-year out point, in particular, you've talked about reaching 10,000 U.S. NOP cases in 2028 and potentially 20,000 by 2030. What do you think are the two to three biggest assumptions embedded in those two numbers?

10,000 transplants, those are -- with the existing assumptions, no change. It's 20,000 and 30,000, the biggest assumptions are kidney transplant, OCS kidney transplant platform to be approved by 2029. And OCS Gen 3.0 to be deployed starting with OCS Liver, OCS Heart and OCS Lung 2029 and 2030, so these are the key embedded assumptions into these numbers.

Okay. Great. And when we were working on the IPO, there was two big growth stories. One was the share shift taking away transplants from kind of the existing standard of care, which obviously had its weaknesses, but also growing the pie. If you think about long-term growth, given where you guys are today, how much of it comes from the conversion versus doing more transplants and expanding that pie?

I think over the last 3 years, we've proven that we've grown the national organ transplant volume in the United States by 25%. We're the primary driver of that growth, so we have proven the thesis that we can grow the overall transplant numbers. The bottom line going forward, we're going to continue to do both, to grow the overall number and continue to take market share. We have to do both. It's not one or the other, so -- and we've proven that we can do both so far, and we expect that to continue.

Okay. Great. I mean liver has been a phenomenal story for the company. Penetration on the liver side is about mid-30s, high 30s percent in 2025 versus in 18% in heart. So heart is kind of closely following, but still some work to do. What have you learned from the liver adoption curve that you think can be an important factor for people to keep in mind as they think about heart's trajectory and even lung's trajectory and their ability to follow a similar path?

Two very important points. One, when you're delivering superior outcomes the market will react, which we're delivering in liver. We are delivering superior outcomes in liver across the two key metrics in organ transplant, patient and graft survival, vastly superior to anything else, including competing technologies, so that's number one. Number two, the impact of NOP. NOP enabled for the first time in history of liver transplantation the concept of semi-scheduled transplant or morning hour organ transplant. These two are fundamental learnings that are helping us and shaped our strategy to embark upon building another layer of evidence in ENHANCE and de novo to get the heart and lung to approach liver from an adoption curve standpoint, but also to leverage the NOP at scale. That's what we learned from the liver.

And you touched on a couple of the bottlenecks that transplant volumes have been hindered by. You mentioned surgeon capacity, logistics, transplant center economics, donor organ availability, there's a number of them. Can you talk a little bit about which one you feel have been solved or resolved by your technology and which ones are still on the come in the way you're growing that pie?

I think for us, there's the technology to dissolve a very important fundamental issue related to organs that are currently or historically have not been utilized. We've proven that with OCS we can utilize these organs. The NOP solved the issue of the learning curve, the adoption hurdle. Logistics solved the availability of logistics platform to deliver the organ from point A to point B. So I think we are so far have been delivering on our promises to continue to grow the pie, grow the overall transplant volume, but also increase market share.

What's coming is really taking that into the next level and to the next level of growth is about a cloud-based control and monitoring. So to scale, to go from 5,000 transplants, 6,000, 10,000, 20,000, 30,000 transplants, we need to scale the operation. Scaling the operation requires us to rely heavily on remote monitoring, remote control, embedded controls, automation to minimize the impact of headcount on the overall business growth filling the business.

Right. Making NOP as efficient and leverageable as possible.

Exactly, scaling the NOP operation.

Yes. that kind of leads to a fundamental question of what type of company is TransMedics, right? Is it a traditional med device company? Is it an integrated transplant infrastructure company? Is it a transplant services company? Is it all three in line?

Yes. TransMedics is a high-growth, highly profitable transplant business. Med tech, infrastructure, just transplant company. That's who we are. And we love it. And again, we still have a lot of room to grow.

I think the other important thing for folks to appreciate about NOP is that it really allows you to have a deeper relationship with transplant centers because it wasn't only about, hey, we're providing a device, which is critical and necessary, but it's about lifting that surgeon workflow burden off of the transplant centers themselves and allowing them to do highly profitable procedures for them. As you think about the higher switching costs of working with you all in the competitive moat you have built in with these transplant centers, can you give us a little bit of a flavor of what you've heard from them in your conversations as to why they're loyal to TransMedics?

I think there are several things that are critical in what we've established there is it's really loyalty starts with them being convinced that we are there for the right reasons, which is the outcomes to the transplant recipient, so that's #1 reason. Two, the ability for us to cover any case, no matter what time, what the logistics hurdle is because we have a vertical integrated logistics network so we can get them access to organs that routinely would not get -- have access to. Three is the quality of service that they're getting from our team, from our support team. And four, the outcomes they're experiencing to the patients.

That's really it. I mean you can compete with a company that is delivering not just great service, but ultimately, the technology, the fundamental basis for what we do is the OCS value is delivering the best organ transplant to the recipient and doing this in a way that is cost effective and economical to the transplant program. We are sharing with them some of the costs. We're making investments in the relationships that we are establishing. And our latest kind of expansion of the NOP services. We're providing donor and recipient screening and coordination service for the transplant program so we can help them access more and be more efficient to access more donors and transplant more cases. So all of the above results in this, they're seeing us reinvesting in the business. They're seeing us partnering with them on cost sharing of all the challenges that come with the operations.

Yes. And one of the major investments you all made was the decision to buy aircraft. Now you have over 20 aircraft. What do you think you can do with an integrated aviation network that you could not do by using third party? And I know this is a topic that investors, and you, in particular, love talking about.

Well, Neha, it's no longer a guess, I know for a fact that we could not be sitting here with the growth that we've achieved if we have been relying on third-party logistics. It's impossible. The reason why we entered into this space is we were losing 25% to 30% of our volume and that's back in 2023. We wouldn't have achieved the success that we've achieved today, and we wouldn't be planning to achieve more growth if we didn't control our own logistics, so I'm very excited that we made that decision, and it's part of the success journey here.

Yes. And you made another major investment with the PAD Aviation deal that kind of sets the stage for international expansion, but before we get into the details of that, if you could just tell us a little bit about how we should think about that international plan, it's a very different market. Europe is a very different market than the U.S., health care systems, reimbursement structures are different. So what needs to happen for the NOP model to be successful in Europe as it is in the U.S.?

Sure. Completely agree, Europe is different than the U.S., but also Europe is 50% of the global transplant market, so TransMedics as a global transplant company, we can't ignore Europe. Despite its difficulties, we have to find a way for TransMedics to be active and taking significant market share in Europe, that's -- no question about it. What needs to happen in sequence -- in order, first is establishing a regional or national reimbursement mechanism for the technology and the service because we're approaching Europe today through NOP lens. We're no longer a direct acquisition model in Europe because we believe Europe actually has a bigger need for NOP because they have much stricter working time hours, shortage of technical staff, clinical staff, so NOP is paramount to the success in Europe. So first it's the reimbursement. Second, it's -- reimbursement for both OCS and services. And third is the logistics.

Europe has the same problem with logistics networks for organ transplantation. It's fragmented mom-and-pop operations, it's very inefficient. It's relying on very old, antiquated aircraft that they end up losing significant portion of the donor pool because of the lack of an empirical integration of logistics. We know how to solve this. We solved it in a very, very complex market like the U.S., and we're planning to do the same thing for Europe. So they -- the approach we're taking towards Europe right now is built upon the success we've achieved in the U.S., but it needs to start with finding a mechanism of reimbursement. Once we do that for OCS and the service, we take -- we will make the investment in the logistics and start taking market share there.

Okay. And so let's talk a little bit about PAD Aviation. What is the deal? If you could just give a little bit of flavor for people to level set and then talk us about kind of future investment needed beyond that to build out this overall vision, which is Europe.

Sure. So PAD Aviation is a very important acquisition for us because it gives us the opportunity to set what is going to become the first European transplant logistics network. It's a different deal structure than what we've done in the U.S. because, again, it's early days in Europe. So the deal itself was a mid-single digit from an acquisition standpoint, but the plan is not to invest heavily in aircraft because they currently have six leased aircraft.

We are planning to use those first to build the demand, build the case volume, build the infrastructure and as we grow the case volume, we will gradually replace those leased aircraft with owned aircraft and start expanding the fleet based on expansion across Europe. It is critical to have access to PAD Aviation because it gives us the ability to compete for transplant logistics tenders on a national level in Italy or throughout the European Union. And we love everything about the team in PAD, they share the same vision, they love the mission and they're very passionate about what they do, so we felt it's a perfect match for TransMedics.

Okay. Perfect. I'd like to talk a little bit about pipeline. And you guys are always busy between clinical trials, pipeline development, whether it's OCS Gen 3.0, kidney down the road, maybe we can talk about kind of each of those in lockstep. On the clinical trial front, are there updates and milestones that you'd like investors to keep their eyes on for the next 12, 18 months?

Sure. I think in the next 12 to 18 months, there's a lot to pay attention to. First and sort of from near term to longer term of that horizon. First is the enhanced Part B heart program in the U.S. That will give us immediate access to 600 heart transplants in the U.S. that we currently are not servicing, which is DBD hearts 4 hours or less of preservation. Second is the de novo program, which is the -- our vision of resurrecting the lung market for machine perfusion. That will give us access to 450 lung transplants that today, again, we don't access. We envision that we will have the IDE supplement to allow us to initiate these programs with CHOPS in late Q3, beginning of Q4. Hopefully, by the next earnings call, we'll have that announcement public.

But we expect that to start generating significant catalysts for our growth in the early part of 2027. From there, we move our vision towards CHOPS. When I say CHOPS as in after the clinical program because we plan, as we stated publicly before, we plan to gain 510(k) approval for CHOPS as an individual medical technology that is owned and marketed by TransMedics to give us access to that pool of DBD hearts and lungs that are not accessed by OCS today. From there, we set our sight to the big prize, the kidney program, which we hope to come online second half of next year. And for that, as you said, we're very busy, but we're very, very excited about what's coming.

Yes. Okay. I think it might be worth spending a bit of time around kidney, why, and we spoke about this a lot during the IPO, why was this the last one that you went after, what are the learnings from liver, heart and lung that you're going to utilize to help make kidney successful? I think a little of that color would be helpful given how big of a TAM it is.

Sure. Kidney is the largest segment of the transplant market, not just in the U.S. but around the world. In fact, I would argue when people say, well, why Europe next and say, well, kidney, there's more diseased kidney transplants in Europe than actually in the U.S., so this is a very important market segment for us. From a clinical perspective, kidney has two major limitations that the OCS comprehensively addresses. First, we lose a lot of kidneys. In the U.S. alone, 10,000 kidneys last year were thrown away last year because of prolonged ischemic injury or prolonged time on ice. OCS eliminates ischemia during preservation, so you get access to -- you can increase the supply of kidneys by 10,000 a year. That's a huge win. Who wins at the end? Obviously, the patient. But you need to remember that CMS Medicare covers the waiting list for kidney transplant and all end-stage renal disease. But the waiting list cost alone for CMS is estimated to be $10.5 billion annually, so that's a huge economic value to CMS in addition to life-saving for patients.

So next, what are the next major hurdle in kidney transplant? It's the development of a major complication after kidney transplant called DGF or delayed function, which means the kidney doesn't function well and the patient is back on dialysis and sometimes requiring a second kidney transplant within the first year. That happens at a rate of 35% to 50%, sometimes even higher in DCD donors. The primary driver for us is ischemic engine. OCS eliminates ischemic injury during kidney preservation, which we believe will significantly reduce the form of DGF. So another huge clinical advantage for the recipient, but also another $0.5 billion cost saving to Medicare, CMS who covers the cost of DGF. So that's the clinical value.

So now let's talk about what Neha was asking about is the complexity of kidney transplant, and why did we wait until now to access this very important and very critical market segment. It was by design because kidney because of the way the kidney is matched between donor and recipient there's a significant time lag between identifying the kidney, identifying the donor and actually matching that with a recipient. So historically, that this whole time is managed by organ procurement organizations. Historically, when you wanted to introduce the OCS organ, OPO says, how does TransMedics come and salvage the kidneys before we know where is it going? That's TransMedics of the past. Today, TransMedics is sitting on the only national organ procurement infrastructure and logistic infrastructure that makes that problem go away.

So the plan is we will access every kidney that in the trial, and hopefully, once approved from time zero, from the minute the kidney leaves the donor is going to be on our OCS system. It's going to be managed by the NOP staff and remotely monitored and controlled and then transported to the recipient that the kidney would match to ultimately. So that sequence of events didn't exist until now. Now we have the critical mass, the infrastructure and the logistics that will allow us to make this happen today.

Yes, because I'm sure the question on investors' mind is the NOP infrastructure as it exists today, now set up for kidney or are there going to be changes that are required, given the differences in kidney, but I think what you explained that this is purpose-built...

Exactly. The only way we would be able to tackle the kidney is with the NOP infrastructure.

Yes. And you mentioned the OPO, there's been a lot of [ button ] noise in D.C. I don't know if you've been involved in some of those conversations. Could you just give a little bit of a flavor for where you see the OPO going, changes, anything that people should be aware of just on the landscape front?

Sure. I think OPOs are a critical partner in the journey of organ transplantation. There's no doubt about it. The noise is really stemming from HHS, HRSA and CMS initiatives to modernize the transplant system in the U.S. and reduce the number of organ procurement organizations in the U.S. We don't know what that reduction is going to look like. We're waiting to hear from CMS, and we're waiting also to hear if that's going to happen, when is it going to happen? What's the final number would be? And if they will be able or open to the idea of having outside entities becoming an organ procurement organization to potentially drive more efficiency. That's all in the hands of CMS. We expect to know a lot of answers to this. We hope to know a lot of the answers to this sometime later this year. But that's all we know about this particular topic.

Okay. What can you share about OCS Gen 3.0? You mentioned automation. You mentioned remote monitoring. What can you share about the new one?

That's an excellent question, Neha. Gen 3.0 is not just a new technology innovation. It's a fundamental purpose-built infrastructure or technology platform that is designed to gain significant, and I repeat, significant operating leverage by design, lower part count up to maybe 50% reduction of part count, more automated assembly to increase reliability and increased overhead remotely controlled, remotely monitored and with more mature technologies like heart, like liver, we will have built in algorithms to manage the organ. The whole concept is to scale and scale efficiently and with significant operating leverage. That's really what Gen 3.0 is designed to achieve.

Okay. And you mentioned -- you described TransMedics as a high growth, highly profitable, and you mentioned scaling, et cetera. I think for high-growth companies and for the way investors think about high-growth companies, there's a little bit of attention between delivering on growth and focusing on margins and profitability. You guys have done and demonstrated well the ability to do both. This year is a big year of investment, right, as we think about international expansion, et cetera. How do you guys think about that balance between growth and profitability?

We think both are critical. We think growth first, profitability very close second because you can just think about profitability and starve the growth. This is a growth-first business. We need to capitalize on the opportunity in front of us, but we have to be disciplined in the way we grow and disciplined in managing the growth, so that's how we are thinking it. Right now it's we're still in the early to mid-innings of our growth cycle. We cannot starve the business. We have to be focused on driving growth, growth, growth and also being disciplined in deploying our capital and making sure that we're keeping an eye on our profitability. Yes, we could do a better job in communication and articulating the different kind of peaks and troughs in the spending. No doubt about it, as I indicated that previously, but it is definitely growth first, profitability second. And it's not too distant. And it's a significant profitability as we demonstrated in the past.

Yes. I mean I think that's what's so unique is that you've taken an industry which literally was an ice box, right? And you have completely transformed it, and yet there's still so much opportunity and so much runway ahead of you all that it would be a shame for folks to not get the full access to the technology. There has been a lot of misconceptions about the story. It's taken time for people to fully understand it, you revolutionized the standard of care that was, like I said, it was a ice box. Then you went after airplanes. If you could dispel just one misconception that investors have about TransMedics today, what would it be? I'm going to ask you to pick one.

I think, listen, there's a lot of -- there has been a lot of confusion about TransMedics. That doesn't bother us. It doesn't bother us at all. For us, it's all about execution and putting points on the board. And it's also good because competitors need to understand that this is a very difficult environment. You need to be able to demonstrate ability to execute. Otherwise, it's the NFL, not-for-long, if you can't demonstrate the ability to execute, so we love it. We love it. So I would say we need -- we, TransMedics, need to continue to deliver on our promises. We need to deliver on our execution metrics and goals, and we'll let the execution speak for itself.

Okay. I think that all makes sense. And look, I think we've seen your guys' ability to do that, right? When people discount you, it would come up and then your quarter is phenomenal. So no question. I guess if there's three to five things you want investors to look out for as I think about pipeline, you've so much ahead of you, what KPIs or pipeline events over the next 12, 18 months, would you say people should really keep a focus on as big, chunky drivers of the story going forward?

Very straightforward. ENHANCE Part B, 650 hearts that we don't have access to today, followed by CHOPS 510(k), give us access to the delta between 650 hearts and 2,300 hearts, which is as a bridge gap to the full approval of the OCS and that a new indication of DBD hearts of 4 hours or less, de novo 2 shots ago. One is through OCS if we can galvanize the market to focus on the benefit of NOP and machine perfusion that's OCS if we -- if the market is -- really doesn't see the value and they want to stick to cold, we're delivering the best cold technology in CHOPS, controlled temperature, so we will resurrect the lung market come hell or high water. We're going to do it either with OCS or CHOPS or with both. All of those are happening in 2027.

Then Europe. We hope to see Italy start generating some meaningful uplift throughout sort of mid-next year, and then end the year strong with the kidney program. That's going to be huge. And as I stated publicly before, watch out for the kidney. If you think TransMedics achieved significant success with the liver adoption and that trajectory of the liver adoption, you have something else coming with the kidney. The kidney will be faster adopting than the liver. That's my bet based on the value that we've seen so far preclinically. So we're very, very excited about where we are. We think the next 12 to 18, 24 months is going to be hugely transformative in TransMedics. And yes, we're taking our lumps in '26 because of the investments we're making, but we're not looking back. These are critical investments to be able to harness that growth that we outlined.

Perfect. Well, look very helpful. It's always great to level set with you guys. Business transforms continuously. I feel like every time we chat, I've learned something new about the new direction you guys are heading in, so I'm sure investors found this very helpful, and we're looking forward to seeing what you guys do next.

Great. Thank you, Neha. I appreciate the opportunity. Thank you all.

Good afternoon, and welcome to TransMedics Second Quarter 2026 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 Hannah Jeffrey from The Gilmartin Group for a few introductory comments.

Thank you. Earlier today, TransMedics released financial results for the quarter ended June 30, 2026. 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 made during this call that can relate to future events, results or performance, including expectations or predictions, are forward-looking statements. All forward-looking statements, including, without limitation, our examination of operating trends, the potential commercial opportunity for our products and services, the potential timing, benefits or outcomes of new clinical programs and our future financial expectations, which include expectations for growth in our organization and guidance and/or expectations for revenue, gross margins and operating expenses in 2026 and beyond, are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these 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-K filed with the Securities and Exchange Commission on February 24, 2026, our subsequent SEC filings and the forward-looking statements included in today's earnings press release, which are available at www.sec.gov and our website at www.transmedics.com. TransMedics disclaims any intention or obligation, except as required by law, to update or revise any financial projections, expectations, predictions or forward-looking statements, whether because of new information, future events or developments or otherwise.

This conference call contains time-sensitive information and is accurate only as of the live broadcast today, August 4, 2026.

With that, I will now turn the call over to Waleed Hassanein, President and Chief Executive Officer.

Thank you so much, Hannah. Good afternoon, everyone, and thank you for joining TransMedics Second Quarter 2026 Earnings Call. With me today is Gerardo Hernandez, our Chief Financial Officer.

Before reviewing our second quarter performance and future catalysts, I want to take a moment to reflect on what we've built at TransMedics and the unparalleled value we are delivering every day for organ transplant patients globally.

TransMedics operates a first-in-class vertically integrated organ transplant platform that rests on 4 distinct assets. These 4 assets required several years and substantial capital to create. First asset is the Organ Care System or OCS technology. To our knowledge, OCS is the only portable multi-organ normothermic perfusion platform commercially available today. Second is the National OCS Program, or NOP, a dedicated national infrastructure for organ procurement, surgical, and clinical services.

Third is TransMedics Transplant Logistics Network, the first transplant dedicated air and ground logistics network in the United States. And fourth, NOP Connect, the first digital ecosystem that is purpose-built to run the end-to-end transplant workflow with full transparency for every stakeholder involved. Each asset is hard to replicate on its own. Together, they form a substantial moat, and we're not stopping here. We are determined to keep widening that moat.

Effective July 1, 2026, we began offering a new service, which is donor and recipient clinical screening coordination services, allowing transplant programs for the first time to run more of their workflow efficiently on the TransMedics platform. We continue to believe that this TransMedics platform can support approximately 30,000 transplants by 2032, driving more than $2 billion in top line annual revenue with a healthy operating profile.

Our capital allocation priority has always been and it is unchanged and deliberate. We are focused on durable top line growth ahead of near-term operating leverage. So alongside our second quarter results, I will spend a meaningful portion of today's call on exactly what we are funding over the next 18 to 24 months, the markets each investment unlocks and the milestone you should hold us accountable to.

Turning to the quarter. Second quarter 2026 was the strongest in our history in both revenue and case volume. Here are the highlights. Total revenue of approximately $190 million, up approximately 21% year-over-year and approximately 9% sequentially. Transplant product revenue of $111 million, up approximately 16% year-over-year and approximately 3% sequentially. Service revenue of $79 million, up approximately 29% year-over-year and approximately 19% sequentially.

Growth was led by liver, which was up approximately 28% year-over-year and approximately 7% sequentially. Heart also grew approximately 6% year-over-year and approximately 23% sequentially. And we expect heart to continue to accelerate in the fourth quarter and beyond as we unlock ENHANCE Part B.

TransMedics Logistics delivered approximately $41 million, up approximately 39% year-over-year and approximately 30% sequentially. This growth is the clearest evidence yet that vertical integration of logistics is both a growth engine and a structural differentiator for TransMedics. It is precisely why we are replicating this network outside of the United States.

On average, we covered approximately 86% of NOP mission requiring air transport in the quarter, up from 82% in the first quarter. This resulted in improved in operating efficiency. Taking share in this highly competitive transplant logistics market is [Technical Difficulty] real cost efficiency to transplant centers relative to the other transplant logistics providers in the States.

Adjusted income from operations of approximately $25.8 million or approximately 14% of revenue delivered while continuing to fund our growth initiatives. We ended the quarter with approximately $473 million in cash and cash equivalents, giving us great confidence in our ability to self-fund our growth investment from the balance sheet and operations.

And finally, on July 1, 2026, we closed our strategic investment in PAD Aviation in Germany, the first step towards establishing TransMedics Aviation Europe and building a pan-European transplant logistics network modeled on our U.S. network that we discussed in the quarter. We will discuss the implication of this growth investment later on this call.

In short, second quarter strength was driven by strong growth across OCS case volume and clinical services, and it was achieved with minimal contribution from ENHANCE Part B or DENOVO, which we expect to begin to contribute meaningfully late in the fourth quarter and definitely into 2027.

Now let me shift gears and address an important strategic topic. As we all know, our stock has been volatile since our last call as investors weigh our growth investment against near-term operating leverage. We take this matter very seriously, and I want to address it directly with data on both the size of the opportunities we're investing in and our track record of converting investment into significant results and significant shareholder value.

As I mentioned earlier, our technology, service infrastructure, logistics network and digital platform well positions TransMedics to potentially surpass $2 billion in annual revenue, with a strong operating profile at scale. Four initiatives underpin that path. Each has a defined market, a defined investment window and a defined milestone.

First, heart and lung growth, to try to replicate the liver trajectory. ENHANCE Part B targets a U.S. heart segment where we hold no clinical indications today. This segment represents approximately 2,200 DBD heart transplanted annually in the U.S., with roughly 4 hours of preservation time. We designed ENHANCE Part B to serve that segment in 2 distinct ways. The first is using the OCS for its improved preservation capabilities and enhanced function ex vivo.

Second is using CHOPS, a lower-cost technology alternative for transplant programs who may be focusing on controlling cost. DENOVO is our focused effort to reestablish or frankly, resurrect the lung perfusion market in the U.S. and broaden OCS Lung adoption. Together, ENHANCE and DENOVO gives TransMedics access to a conservatively estimated 2,000 to 5,000 incremental U.S. heart and lung cases annually. This could materially expand our addressable U.S. opportunity from existing product line.

As it relates to execution milestone, the IDE supplement incorporating CHOPS, which is the TransMedics controlled hypothermic organ preservation system into the ENHANCE trial, has been submitted and is currently under FDA review. We expect it to be approved by late Q3 or early fourth quarter, with the lung IDE to follow shortly thereafter.

Second initiative is the kidney. This will enable us to access the largest transplant market segment in the U.S. and around the world. Let me give you the details. The U.S. performs more than 21,000 deceased kidney transplants annually. In 2024, approximately 9,200 additional deceased donor kidneys were recovered and never transplanted, largely because of limitations of cold storage preservation.

At any given time, approximately 100,000 patients sit on the U.S. kidney waiting list. More than 131,000 new ESRD cases are diagnosed each year. The estimated CMS cost of the waiting list alone is approximately $10 billion annually in the U.S. Simply stated, the demand for better donor kidney utilization is enormous and is a matter of national interest for CMS and for end-stage renal failure patients.

Now let's shift gears to post-transplant outcomes in kidney transplant. Post-transplant outcomes are further constrained by delayed graft function, which occurs in 26% to 50% of U.S. kidney recipients, requiring the patients to go back on dialysis at a significant cost and morbidity. Ischemia and reperfusion preservation injuries are the primary cause of DGF post-kidney transplant. The estimated incremental cost is approximately $25,000 to $45,000 per DGF case in the U.S. To summarize, the kidney opportunity is massive and the clinical need is real and its associated costs are significant.

Now let me explain how OCS Kidney could address these issues comprehensively. OCS Kidney is being designed as the first portable normothermic oxygenated perfusion system for kidney transplant to significantly reduce ischemia and reperfusion injury on the donor kidney. In addition, OCS Kidney is designed to include online functional assessment capabilities.

We believe that OCS Kidney has the potential to significantly increase donor kidney utilization and significantly reduce the incidence of DGF post-transplantation, which will drive significant cost efficiencies to CMS. We're building OCS Kidney system on our next-gen platform, which is Gen 3.0, which adds meaningful scale and operating leverage across the business. This is the single largest addressable segment available to us in organ transplantation in the U.S. and around the world.

In terms of milestones, the development program is fully underway, and we have begun pre-IDE discussions with FDA to define the best path for the IDE to work on it collaboratively with the agency. In fact, we had our first pre-IDE meeting -- pre-sub meeting with the FDA this morning. We are targeting first clinical experience later in 2027, and the program is now entering engineering and manufacturing verification and validation to prepare for the first-in-human use. Global demand for OCS Kidney is significant, and we are evaluating potential options to capitalize on OUS demand in parallel to our U.S. IDE.

The third initiative is international expansion to expand our total addressable market. As we've discussed, we are replicating the successful U.S. NOP and logistics model in Europe, starting with Italy, where we have secured national reimbursement for machine perfusion and services that should take effect later this year or early 2027. We're actively engaged in multiple regional transplant logistics tenders in Italy today, and the recent PAD Aviation investment was the enabling step that makes us eligible to compete for these transplant logistics tenders across Italy and across Europe.

We are also in discussions with several additional European countries on NOP and logistics. The opportunity in Europe leverages capabilities we've already built, materially expanding our addressable market, extend our life-saving impact to European transplant patients, and we view it as a meaningful growth catalyst for 2027 and beyond.

Finally, building the technology platform to scale globally and drive significant operating leverage. That is NextGen or OCS Gen 3.0. Gen 3.0 is a complete redesign of the OCS platform, engineered from the ground up to deliver significant operating leverage and supply chain independence. In addition, it is designed to be highly autonomous and with cloud-based remote monitoring and control capability to enable scaling of clinical usage and to support operating capacity of 30,000 transplants and beyond globally by 2032.

Now let me conclude by a review of our execution track record. Over the last 4 years, TransMedics has consistently outperformed growth expectations, with the few exceptions largely driven by seasonal softness while at greater scale. We have also consistently delivered strong bottom line performance despite our hyper focus on top line growth and deliberate deployment of capital to build our unparalleled platform.

With that as a background, please let me state plainly for the record, TransMedics is and remains a growth-oriented business. Please allow me to repeat it again. TransMedics is and remains a growth-oriented business. We are funding these 4 growth initiatives over the next 18 to 24 months precisely because they are what carries us to approximately 30,000-plus transplants by 2032 and more than $2 billion in top line revenue.

Turning to guidance. Recognizing that we are early in Q3, which is a traditionally seasonally soft quarter for transplant procedure volume, and early in the integration path for PAD Aviation into our European operation, we are raising the low end of our full year 2026 revenue guidance to a range of $737 million to $757 million, representing 22% to 25% growth over 2025. Importantly, this guidance assumes no revenue contribution from PAD Aviation investment and no meaningful incremental revenue from ENHANCE Part B or DENOVO clinical programs.

With that, let me turn the call over to Gerardo to review our second quarter financial results in detail.

Thank you, Waleed. Good afternoon, everybody. I am pleased to share TransMedics second quarter 2026 results. A supplemental slide presentation with additional detail is available in the Investors section of our website.

The second quarter delivered strong revenue growth, sequential gross margin improvement and an adjusted operating margin of 13.6%. Our results reflect continued strength in the business together with increased investment in R&D and the infrastructure required to support future growth. Today, I will review our second quarter financial performance, the key drivers of operating expenses and our updated full-year outlook.

As introduced last quarter, we report several non-GAAP measures, including adjusted R&D, SG&A, operating expenses, income from operations, operating margin, net income and diluted earnings per share. We believe these measures provide both management and investors with greater visibility into the underlying performance of the business, particularly as we incur certain discrete expenses that may affect comparability between periods. Full reconciliations are included in the supplemental materials.

Now turning to our second quarter financial performance. Total revenue was approximately $190 million, up 21% year-over-year and 9% sequentially, marking the highest quarterly revenue in our history. U.S. transplant revenue was approximately $184 million, up 21% year-over-year and 10% sequentially. By organ, liver contributed with approximately $148 million, heart approximately $33 million and lung approximately $2 million.

International revenue was approximately $5 million, up 26% year-over-year, reflecting continued progress as we expand our presence in Europe. We remain in the early innings of our European growth story. And as we continue to build scale, we expect some quarterly variability. Product revenue was approximately $111 million, up 16% year-over-year and 3% sequentially, led by liver.

Service revenue was approximately $79 million, up 29% year-over-year and 19% sequentially. Service revenue represented 41% of total revenue. The increase was primarily driven by broader adoption of TransMedics Logistics and pricing adjustments to offset higher fuel costs. Total gross margin was 59.6%, up approximately 140 basis points sequentially and down approximately 180 basis points year-over-year. The sequential improvement was driven primarily by service margin, which increased from approximately 27% in the first quarter of 2026 to 35% in the second quarter, reflecting higher fleet utilization, improved operating efficiency and continued optimization of our service offerings.

Product gross margin was 77%, broadly stable sequentially. The year-over-year decline primarily reflects the higher mix of service revenue and certain temporary product cost pressures, including inventory provisioning and trial-related solution costs. These factors were partially offset by improved performance in TransMedics Logistics and continued operating efficiencies. We expect some normalization in service margin during the second half while remaining above historical levels.

Adjusted operating expenses were $87 million, up approximately 46% year-over-year and approximately 5% sequentially. OCS Kidney, next-generation OCS and our ENHANCE and DENOVO clinical programs accounted for approximately half of the year-over-year increase or about $14 million. Investments in our new headquarters and our new disposable manufacturing facility in Mirandola, Italy represented another approximately 20% of the incremental investment for about $5 million.

The Mirandola investment is an important step in strengthening our supply chain through greater vertical integration. The sequential increase was concentrated in these strategic growth programs. Excluding these investments, operating expenses declined sequentially, demonstrating continued discipline across the broader cost base. Adjusted R&D was approximately $32 million, up approximately 99% year-over-year, primarily driven by investment in the strategic growth programs.

Adjusted SG&A was approximately $55.8 million, up approximately 27% year-over-year and down approximately 4% sequentially. The year-over-year increase primarily reflects our Somerville headquarters and investment in NOP network, IT infrastructure and international expansion.

Sequentially, SG&A declined as nonrecurring payroll-related costs recorded in the first quarter did not repeat and consulting spending decreased following the completion of several projects. For the second half, we expect adjusted operating expenses for the existing TransMedics business to be broadly in line with the first half, with R&D remaining elevated and SG&A tightly managed.

Adjusted income from operations was $25.8 million, representing an adjusted operating margin of 13.6%. Most of the year-over-year decline reflects the planned increase in strategic investment with the balance attributable to the gross margin factors discussed earlier. Adjusted net income was $16.2 million and adjusted diluted earnings per share was $0.44. Diluted weighted average number of shares were approximately 40.7 million.

For modeling purposes, interest expense was $7.2 million in the quarter, including approximately $3.8 million related to the finance lease for our new Somerville headquarters. We expect headquarter-related interest expense of approximately $15.3 million for the full year and total interest expense approximately $29 million, partially offset by approximately $12 million of interest income.

Our effective tax rate was 24.3% in the quarter, and we expect approximately 26% for the full year. We ended the quarter with $473 million in cash and cash equivalents and approximately $18 million in restricted cash, primarily related to headquarters' lease, which is reported separately.

Now let me turn to PAD Aviation. The transaction closed in July 1, 2026, and PAD will be consolidated in our financial statements beginning in the third quarter. PAD's existing third-party charter business will be reported within non-OCS revenue. Future transplant logistics revenue generated by PAD in support of our European platform will be reported within service revenue, consistent with our U.S. transplant logistics business.

While we understand PAD's historical performance and its charter business, we have not yet established an operating track record under TransMedics to provide a stand-alone estimate with the level of confidence and precision we expect from our guidance. PAD is an important strategic investment that provides the aviation infrastructure required to support our European transplant logistics platform.

As we integrate the business and increase the utilization of transplant missions over time, we expect its financial profile to improve. In the near-term, however, its initial consolidation will be dilutive to both gross margin and operating margin beginning in the third quarter.

Now turning to our 2026 outlook. As Waleed noted, excluding the impact of PAD Aviation, we are raising the lower end of our full year 2026 revenue guidance to a range of $737 million to $757 million, representing growth of approximately 22% to 25% compared to 2025. This guidance assumes no incremental revenue from ENHANCE Part B and DENOVO. We are confident in our updated guidance because at the midpoint, it reflects a second half sequential growth pattern broadly consistent with the average observed over the past 2 years.

For the second half of 2026, we expect gross margin, excluding the impact of PAD Aviation of approximately 59%. Looking beyond 2026 and excluding PAD Aviation, we expect gross margin to remain broadly around current levels over the next 2 to 3 years as we continue to invest in international expansion. Over time, greater scale and utilization across our international platform, together with efficiencies designed into OCS Kidney and next-generation OCS should support a sustainable gross margin profile of approximately 60%, with potential for further improvement.

In terms of operating margin, our prior expectation was for a full year adjusted operating margin of approximately 16% or about 250 basis points below our 2025 level of 18.5%. We now expect full-year adjusted operating margin, excluding the impact of PAD Aviation of approximately 12.5% to 14%. The range primarily reflects potential variability in revenue performance, while the reduction from our prior expectation primarily reflects the higher planned investment in OCS Kidney. This represents a deliberate acceleration of key strategic growth programs rather than a broad-based expansion of our overhead structure.

Our capital allocation priorities remain focused on long-term value creation, supporting innovation across our technology and clinical pipeline, strengthening our NOP and international platform and build the systems and infrastructure required to support scale. We also continue to evaluate selective strategic opportunities that can further strengthen and expand our platform, subject to disciplined strategic and financial criteria.

To summarize, the second quarter delivered record revenue, sequential gross margin improvement and materially higher service profitability. We raised the lower end of our full year revenue guidance, excluding PAD Aviation, to $737 million to $757 million, and we expect full year adjusted operating margin, excluding PAD Aviation of approximately 12.5% to 14%, while maintaining a strong liquidity position.

With that, I'll turn the call over to Waleed, for closing remarks.

Thank you so much, Gerardo. Overall, we're pleased with our second quarter performance and more importantly, confident in what lies ahead as we execute against the growth initiatives we outlined today. Please allow me to be direct about how we see our business and how to model TransMedics.

We are building TransMedics to be a growth business in the near-, mid- and long-term. Operating margin will vary quarter-to-quarter with the pace of the investment required to fuel that growth. We are equally committed to delivering a strong operating profile at scale, and we will report progress against these initiatives every quarter.

On execution, our track record speaks for itself. A few years ago, our plan to vertically integrate logistics was widely questioned. Today, TransMedics transplant logistics is a significant growth driver and operational differentiator for our business. Importantly, TransMedics is approaching approximately $800 million annualized revenue run rate, yet with substantial growth initiatives still in front of us and ahead of us.

Finally, we remain grounded and humbled in the life-saving impact of the OCS technology, our NOP services, our world-class team, and committed to our mission of expanding access and improving clinical outcomes for patients in need of organ transplantation worldwide.

With that, I will turn the call over to the operator for questions. Operator?

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

I just wanted to start off with your service performance in the quarter, definitely, I think, stronger than we had been expecting. And the growth outpaced your disposables business even ahead of this new initiative that you're launching on the service side. So I know, like, I think you had talked to some increase in dry runs in the quarter. But how should we think about the drivers of that increase? And what are you seeing so far in the third quarter when it comes to that dry run dynamic or any others?

Thank you, Allen. We have never discussed increase in dry run pace. We don't see an increase in dry run rate. We didn't see it in Q2. We didn't see it in Q3. And I'll leave it at that.

I guess then, like, what drove that increase in service revenues, right? Because I think like maybe naively that disposables and service should go -- grow pretty hand-in-hand given -- especially on the aviation side, you service an increased percentage of your flights using NOP. So that would increase it a bit, but I think the growth disparity is a little bit stark there. So what drove that increase in service revenues kind of above product revenues?

Gaining market share in logistics, gaining a lot of efficiency in our logistics, improving our margins, pricing adjustment to buffer against the increase in costs, new centers. So that's -- these all combined lead to that picture.

Your next question comes from Josh Jennings with TD Cowen.

Congratulations on a strong quarter. It seems that the third quarter is starting off strong, too, looking at some of the transplant -- post transplant volume data. But maybe -- and that's a continuation in the back half of 2Q. Maybe help us think about the market growth dynamics that you're seeing in U.S. heart, lung, and liver transplant volumes and what's driving the acceleration if that is, in fact, occurring?

Thank you, Josh. We agree we started Q3 very, very strong. In fact, I mean, it's not a secret. It's published on Twitter every day. July was the highest aviation month for the business. But July is not Q3. And we are entering into August, and we all know what happens in August. So we're encouraged. As I said, there are new centers coming on board. There are new initiatives that are driving growth, plus we're gaining market share in our logistics and clinical services. So we are cautiously optimistic about Q3. We need to see how the rest of the quarter unfolds before we formulate an opinion.

We're focusing on our part of the equation, Josh. We're driving more utilization, more cases, more services. What happened on the national level, again, we keep track of it, but our primary focus is growing our own adoption and our own portion of the market, so. And we feel we're -- the team is doing a great job at that.

But it's early in Q3, Josh, I don't want anybody on the call to think that Q3 this year is going to be significantly different until we see it significantly different. So far, we had a great July. But again, we still have 2 more months to go. And August, we're starting to see some kind of -- we know what happened in August. People take vacations and centers go hunker down. So we have to wait and see.

Understood. That makes sense. Maybe just one follow-up just on the controlled hypothermic organ preservation system or CHOPS and I'm not sure if you -- if I missed this, but any update just on the 510(k) pathway? And maybe help us think about when you could have clearance in hand and just the commercial opportunity outside of the benefit you received from CHOPS being included in ENHANCE Part B and DENOVO, but just the overall commercial opportunity, help frame that up for us.

Thank you, Josh. Josh, as you know, we like to walk before we run, before we sprint. So right now, the focus is getting the IDE approval to get -- to unlock the trial. The next frontier for us will be the 510(k). I think realistically speaking, this is H1 2027 horizon for us.

As far as the opportunities that it unlocks, as I stated earlier, at least, at least 2,200 annual cases in the U.S. DBD hearts that are done with approximately 4 hours of preservation. So that's why we framed it as such in the prepared remarks.

And can it be used in other indications? Or are you focusing on heart first, Waleed? Sorry for the...

Again, we don't talk about our active discussions with FDA, and we're actively discussing all this with FDA. But when you look at what CHOPS does, there's no reason why we shouldn't have indications beyond heart. But I'll leave it at that.

Your next question comes from Bill Plovanic with Canaccord.

Waleed, first question is, I was wondering if you could unpack the statement that you're adding donor and recipient screening services starting July 1. I'm trying to understand the potential impact from that from a volume standpoint, from a revenue standpoint, providing that service, what does that do for the customers? And how does that impact TransMedics?

Thank you, Bill. We've been talking about this for a long time. It's a natural kind of progression to what we do. I'll focus on why we're doing it rather than what the centers could do because that's what I can control. We're doing it because we've always stated that the transplant market or the transplant workflow is highly complex and highly unorganized. There's many cooks in the kitchen. And we always believed that harmonizing that workflow into one streamline of services, technology, transparency, accessibility could be a catalyst for what TransMedics is doing. So we launched that service.

We signed up a major health care system in Boston. We are going to experiment with that, pilot that over the next few quarters. And the hope is, one, the center would see the value, and we would see the potential impact. It's early, but we're excited about this initiative. It gives us visibility to the national donor pool that's coming for allocation. It allows us to support these centers and give them access to our platforms, whether digital platforms, OCS platforms, logistics services and it streamlined the process for them to drive more efficiency and more transplants.

And then just following up on the earlier question regarding -- I'm sorry. I lost my train of thought there. The ENHANCE heart trial and the DENOVO lung trials, these have been delayed and they kind of continue to get delayed. I don't know if you could characterize the conversations with the FDA? Or what gives you confidence that we'll be able to at least start the DENOVO lung before year-end and get into the ENHANCE Part B early next year, if I'm accurately hearing you? What gives you confidence that we're actually more towards the end of the goal line with those IDEs rather than kind of stuck in the neutral here?

Thank you, Bill. Listen, again, there's a reason why we don't comment on our discussions with FDA. FDA owns the time line. We are working collaboratively with them. We believe we have done everything that we've been asked to do. I'll leave it at that.

The heart is ahead of the lung right now, and it has been to-date. So that's why we are predicting that once we gain visibility on the IDE for heart, we will use that as a stepping stone to get lung IDE amendment approved.

We have to remind the audience that what I'm talking about is not the IDE approval per se. I mean, everybody knows that IDE amendment is anywhere between 30 and 60 days. The problem is after that, we need to go back to the centers, notified IRBs and I'm focusing on getting actual cases done with that approval. So I'm not necessarily focusing on FDA approval per se. I'm focusing on the tangible outcome, the impact on our quarterly print, which is doing cases with that IDE.

Your next question comes from Ryan Daniels with William Blair.

This is Matthew Mardula on for Ryan. And I kind of want to follow-up on the previous question but ask it in a different way. Can you give us an update on the percentage or amount of the DENOVO, ENHANCE clinical trials that have been completed so far? I know in your prepared remarks, you discussed a minimal contribution from ENHANCE Part B and DENOVO in Q2. But any update on that contribution and then just overall completion of the clinical trials so far?

Sure. Matt, thank you for the question. I would -- as I stated several times, I believe, over the last few months, ENHANCE Part B will be completed before year-end. There's no question in our mind. But ENHANCE Part A -- I'm sorry, Part A, I apologize if I stated these. ENHANCE Part A is going to be completed before year-end this year. There's no doubt about it. The slow to kick into full gear is Part B for the heart and DENOVO. We've done a handful of cases in each, nothing really to hang our hat on. So that's why I said there was no meaningful contribution in Q2 from these two.

The only way we can really put that to test is by getting that IDE approval -- IDE supplement approved and giving the center the freedom to use a control arm that is not hampered by competitive dynamics. So we expect that once it happens, we expect, we hope for rapid adoption and rapid enrollment. And again, we're keeping our focus around 12 to 18 months from initiation of the enrollment of the study. So we're still within the bounds of 2027, but we need to start seeing uptake, and we need to get that IDE approved in the time lines we outlined.

Perfect. And one very quick follow-up. Regarding the international growth, you talked about securing reimbursement for both machine perfusion and services internationally that should take effect later this year or early 2027. It sounds like initial conversations internationally are going better than expectations. Can you give us some insights into that growth internationally? I know it's still early, but any big picture ideas as well as with the kind of tenders and contracts in Italy as well as expanding outside of Italy?

Matt, that's an important question, but I want to kindly correct the question. I did not say that we secured reimbursement for the product and service across Europe. I said we secured a budget in Italy, only in Italy. The budget that I'm referring to is in Italy. And that's where we -- the regional budgets have been ratified in Q2, and we expect going through the bureaucratic steps to get that budget disbursed is underway in Italy, and we hope to get through that bureaucratic process by end of this year, beginning of next. I'm referring specifically on Italy.

All the other dynamics across Europe are targeting or prioritizing countries that already have budgets for reimbursement. For example, Netherlands, France, the U.K., those have budgets already approved. What we're doing, however, is we're expanding our outreach to compete not just for the technology and the transplant, but also for logistics, which their budgets are large, already approved and already at the national tender level. That's what we are competing for. And that's where we see a near-term potential growth opportunity as a first step towards broader OCS NOP growth across Europe.

Your next question comes from Matt O'Brien with Piper Sandler.

This is Sam on for Matt. I guess we -- still waiting on the CMS final rule regarding OPO recertification. How are you planning for the potential opportunity here? And what do you think TransMedics' role would look like and the benefit to TransMedics if it could become an OPO?

Thank you, Sam. We are waiting exactly like everybody else. So we hope that decision will be made sometime in the second half of this year. We are waiting ready and able if we're fortunate to be given the opportunity to compete for as many DSAs as CMS would allow us to participate at. But until that happens, we have to continue to do what we're doing.

We see 2 significant benefits. The first is our ability to leverage technology, clinical leadership and clinical expertise to expand the donor pool and to increase the utilization of the existing donor pool using OCS technology, reduce the overall cost by eliminating, frankly, costly and unnecessary excessive procedures that really hasn't demonstrated its ability to increase organ supply like NRP. But again, if that doesn't happen, we will continue to operate in the same mode that we're operating in. And all of -- everything we discussed today from a growth opportunities, you notice does not include us becoming an OPO. So because this is a binary decision. It's either going to happen or it's not going to happen. So that's why we can't count on it until it happens.

Okay. Great. And then also, I want to continue the conversation on the really strong flight performance that's happened in the past few months. I know you mentioned market share gains. Could you talk a little bit about how double shifting the aircraft is going? And how durable do you think this momentum is in the flight performance?

Thank you, Sam. I think the growth is primarily market share gain. The double-shifting is what improved the margin. So there are 2 different things. The growth in revenue is primarily market share gain. And other vendors reported earlier today that they lost a major account. Where do you think that major account went to? It came to us. The double-shifting gave us significant operating leverage, so. How durable it is? We think it's durable. And again, we will let the print speak for itself.

Your next question comes from Patrick Wood with UBS.

Given the time, I'll just keep it to one. Curious about Germany and what it was that drove you, I guess, as the next steps to be looking at that market. I think they're kind of unique in that DCD isn't really on the table at the moment. What was it about Germany, just size and scale of patients? Why was that the right next move after Italy?

Patrick, first, congratulations on the new role, and thank you for the question. I want to clarify one point. We are not in Germany today. We made a major strategic investment in PAD Aviation in Paderborn, Germany because of its central location in Europe, we can access any potential European country or donor site within 2 hours of flight from Paderborn. That's what we make the investment in, but we are not active in Germany because of lack of reimbursement. We're still negotiating with the German reimbursement authority. And also, as you know, there's no DCD donation in Germany. So it's a complex market, and we are actively engaged there, but we don't see them as a near-term growth catalyst for us.

Your next question comes from Daniel Markowitz with Evercore ISI.

I was curious on the consulting fees in the first half and some of the findings of that work. So sort of asking a different way with what some of the folks before me have asked. If I recall correctly, it was focused on OUS market development. I guess I'm curious what was the focus of the diligence? And what did you find that gave you the confidence to accelerate investments here? I think some investors want to better understand and get more confidence that some of these cost-conscious markets seem right for OCS and logistics adoption.

Daniel, thank you for the question. I'll start, and I'll let Gerardo comment if he has anything to add. I think we learned a ton, specifically about the existence of these significant budgets for organ transplant logistics, significant budgets for increasing the utilization of donor pools, which we believe could be a first step towards expanding the overall clinical adoption in Europe. And they gave us a road map to all the tenders upcoming over the next several quarters across Europe, which is guiding us of who, where and how we can compete.

Gerardo, would you like to add anything?

No, nothing. You covered it.

Very helpful. And then just a follow-up on PAD Aviation. All the guidance metrics were kind of ex PAD, but can we get a sense for what the level of investment will look like and how that might impact the P&L, both near-term and maybe, call it, through the rest of this year and into next year?

Not yet. I think, as we mentioned, we are not prepared just yet to provide any number or any metric. However, I think by Q3, we should be able to align -- internally, we should be able to provide some guidance for the remaining of the year.

The only thing I would add to that, Daniel, is I want to caution the audience and the listeners that PAD Aviation investment is not Summit Aviation investment. Summit Aviation, we had a huge pent-up demand in the United States. PAD is just the beginning. It's the first step towards establishing that. So we are not going to be as bullish in capital deployment until we see the demand justifies that. So it's going to be slightly different to the Summit Aviation investment. But we will provide more color and more detail in Q3.

Your next question comes from Young Li with Jefferies.

I'll just keep it to one. Maybe just a follow-up on the prior OPO question and lines of conversation. Just kind of curious about, I guess, maybe if you can update us on the next milestones with the Modernization Act. Any changes in time lines and expectations there? As well as you talked about OPO pressures in 1Q this year. How has that dynamic evolved? How much have you seen in 2Q and expectations for second half impact?

Thank you for the question. Young, I really would love to address this in a direct way. There are no updates. We are waiting for CMS. CMS may delay the decision point. CMS may decide that they're not going to allow outside entities to participate. TransMedics is going to continue to grow and expand regardless of that initiative. The dynamic around the OPO, we printed Q2, everybody is looking at the OPTN data like we all do. I think we are -- I don't see that dynamic impacting the overall numbers. And as I said, I am and the team are laser-focused on our own adoption, our own expansion, our own growth.

I worry about providing commentary that is really not directly related to TransMedics that could be misperceived. That's why I'm addressing it in that fashion. At the end of the day, CMS has the ball. CMS has us on the clock. Everybody and their mothers are waiting for CMS to make a decision. Until they make a decision, we have no update, unfortunately, or no updates. So I'll leave it at that.

Your next question comes from Suraj Kalia with Oppenheimer & Company.

Gentlemen, congrats on a nice quarter. So Waleed, a couple from my side, and I'll pose them upfront. You mentioned about the centers that you all have signed for additional service platforms and the value that TransMedics provides. Maybe if you could shed it for us what -- how do you define value in this specific context? That is question #1.

And Waleed, question #2 would be the 10,000 organs by 2028, look, kidneys seems highly unlikely to contribute by that time and ENHANCE Part B -- or sorry, if ENHANCE Part A is completed, right, the DBD standard criteria label expansion will also come presumably late '27. So help us tie the different pieces together on the 10,000 units outlook by 2028.

Thank you, Suraj. Let me start by addressing the second piece first. The 10,000 transplants by 2028 was established at the JPMorgan conference, I believe, in January of 2023. So we never factored CHOPS. We never factored kidney. The 10,000 transplants is on the current platform, heart, lung, liver, at the current pace, at the current, how do you call it, adoption proportion. And kidney is what gets us from 10 to 20, and that's by 2030. And 2032, that includes international numbers. So I don't want anybody to be confused that 2028 or the 10,000 transplant has any of ENHANCE Part B or CHOPS. No, this is all -- those all came after that goal was set. So our expectation is to meet that goal with or without CHOPS, with or without ENHANCE Part B. So that's #2.

#1, it's simply stated, Suraj, TransMedics has built an infrastructure that is delivering significant value across the entire transplant ecosystem. We know that transplant ecosystem is very choppy. It's very segmented and there's significant inefficiencies both from workflow, organ utilization and expense. By efficientizing that entire workflow, by providing additional technologies like our digital ecosystem, by having the command center run the entire process for the transplant program, we become a trusted partner to transplant programs. We hope that that partnership translates over time to broader adoption and deeper utilization. Simply stated, that's the approach.

Your next question comes from Mike Matson with Needham.

I'll just limit to one, but just on this PAD deal. So I guess I'm a little confused what you're getting with the deal. Does this company -- I assume they own some planes and then the charter business that they have, the nonmedical charter business, it sounds like that's going to continue, but I assume that will kind of wind down over time as you ramp up the OCS part of their business. Is that all fair statements?

Mike, thank you for the question. What we're getting with the PAD Aviation is the license to operate in Europe. This is not a small undertaking. What we expect to happen, again, similar to Summit, but will take a slightly longer pathway because of the demand is we will transition out of the charter business into 100% transplant operations or transplant missions over time as the demand ramps up.

The company has a large number of pilots, a fairly sizable fleet that they operate, doesn't necessarily mean they own. And we're leveraging all of that to minimize our capital expenditures early on until the demand is there to justify us buying our own planes. But to get access to the aviation license to operate in Europe and internationally and get access to having 40-plus pilots under our command and an efficient fleet that is available and the ability to participate in all these transplant logistics centers across Europe as the first step towards expanding our medical device adoption is critical in Europe. So that's why we -- yes, go ahead.

That answers my question.

Your next question comes from David Rescott with Baird.

I guess I'll also limit it to one, and congrats on the results here. I appreciate the comments on this delta between the service and product revenue that you saw from a growth perspective in the quarter. But curious if you could provide any more color as to whether or not that was seen more either on the heart or liver side or DCD versus DBD? Just curious to hear why exactly or where exactly you've seen that bigger step up? And then I guess, is it fair to assume that the remainder -- for the remainder of 2026, that this higher effectively service revenue dollar per transplant should remain into the back half of the year?

David, I'm sorry, can you please repeat the first part of the question about DBD and DCD? I missed that. I apologize.

Yes. Can you hear me still?

Yes, I can hear you now.

Yes. Just curious if this higher service revenue dollar was seen more or more specifically coming from either liver or heart or DCD liver, DBD liver. Just curious if any of those specific organs were seeing a higher service utilization.

Yes. Thank you, David, for the question. Service is associated with OCS use and they go hand in hand. So when we have higher service dollars, it's associated with OCS use for the most part. And the delta is potentially dry runs because our team gets deployed and we charge for the service. So that could be the delta. But we see it across the board. We see it in liver. We see it in heart. We see it in lung when lung is used. Nobody can operate the OCS without service.

And David, if I can add something there. We're expecting that in the second half, the gross margin of service will normalize a little bit. We will remain above historical levels, but will certainly not be comparable to the one in Q2. Service margin is closely linked to volume. So as we have more volume, we should be able to achieve those new levels of gross margin. But for instance, in Q3, when volume goes down, there is no way we can achieve those levels. I hope that answers your question.

Your next question comes from Tom Stephan with Stifel.

I'll only get to one. But I wanted to ask about 2027 sort of in the context of Street at, I think, roughly $3 of earnings next year. Maybe, Gerardo, for you. Just curious if you can help us think about '27 OpEx or maybe '27 operating margin. This year, I think you said the midpoint of the new guide around 13%. Last year was, I think, 18% to 19%. So do we think about 2027 Op margin somewhere in between, maybe closer to either of those ends being 13% or 19%? Just any directional commentary would be helpful as we try to reset our models a bit down to the bottom line. Maybe to ask it more bluntly, for '27 earnings, should we be above or below $2?

Thank you for the question. Operating margin is a clear -- is clearly linked in the case of TransMedics to basically 3 elements. One, it's our scale, so the volume that we have. Two, it's the usual gross margin. But three, and probably more importantly, it's capturing the benefits that we have designed within OCS 3.0 and Kidney to improve our gross margin. Those 3 elements will drive a long-term operating margin that will be sustainable to the level that I have mentioned before.

Right now, for 2027, it's early to say which is the right forecast. The reason for that is because we need to see how the second half of this year evolves in terms of the different projects that we currently have to make sure that we have clarity on a reasonable 2027 view.

Let me put you one example. For instance, the clinical programs, we had significant investment in 2026. But now that we have delayed -- that those programs are delayed, that investment is going to next year. We need to see how the rest of the programs evolve, as I said, to have better -- clearer visibility, and then we will be able to provide a better view.

So with that, I don't want to go into more details, but certainly, in Q4, we will have a better view and provide guidance on 2027.

This concludes the question-and-answer session. I'll turn the call to Waleed, for closing remarks.

Thank you, operator. Thank you all very much for taking the time to be in this call and looking forward to our next call. Thank you. Have a great evening.

This concludes today's conference call. Thank you for joining. You may now disconnect.

[ Audio Gap ] projections, expectations, predictions are forward-looking statements, whether because of new information, future events or developments or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 5, 2026.

And with that, I will now turn the call over to Waleed Hassanein, President and Chief Executive Officer.

Thank you so much, Hannah. Good afternoon, everyone, and welcome to TransMedics First Quarter 2026 Earnings Call. As always, joining me today is Gerardo Hernandez, our Chief Financial Officer.

Our vision has been bold -- our vision has always been bold and growth-oriented. Since inception, TransMedics has been relentless in our pursuit to transform organ transplant therapy by increasing utilization of donor organs and improving the clinical outcomes of transplant patients throughout -- through technology and service innovation and by disrupting the status quo.

To accomplish this, we've been deliberate yet aggressive in our strategic investment in growth initiatives. We believe that 2026 is a critical and transformational year that stands to cement TransMedics' near, mid- and long-term growth trajectories and global market position.

In the U.S., we're actively engaged in growing our heart and lung franchises by advancing our enhanced heart and DENOVO lung programs to expand our clinical evidence to support broader adoption.

In parallel, we are also completing the development of the OCS Kidney platform using our Gen 3.0 platform. Our OCS Kidney platform will enable us to access the largest segment of the global transplant market, which is kidney transplantation. This will happen for the first time in the history of TransMedics. We strongly believe that once regulatory approvals are in hand, OCS Kidney will drive significant growth for our abdominal franchise.

And we're not stopping here. We're also actively engaged in upgrading our heart, lung and liver devices to Gen 3.0 platform, which will enable us to gain significant future operating leverage and increase clinical adoption of the OCS platform in these critical organ transplant segments.

Our growth initiatives also now go beyond warm perfusion. We recently unveiled the TransMedics Controlled Hypothermic Organ Preservation System, or CHOPS. CHOPS is designed to expand our product offering to cover new segments of the transplant market best served with cold static storage.

And finally, our growth initiatives now extend beyond the U.S. to important international markets. In Europe, we are undertaking a bold initiative to replicate the NOP clinical service and transplant logistics model to catalyze European OCS adoption and potentially expand our total addressable market.

I will provide details on each of these exciting initiatives on today's call. As you can see from our ongoing growth initiatives, our focus remains on long-term value creation with continued investment across each pillar of our growth strategy.

Specifically, I want to highlight that this is a strategic and proactive decision, and we fully expect that our financial performance over the next several quarters will reflect these necessary investments in people, infrastructure and technology development as we capitalize on the opportunities in front of us.

Based on everything we know today, we are highly encouraged and inspired by what's ahead for TransMedics. We are committed to executing our plan to drive significant growth for TransMedics and for the global transplant markets broadly. As I've stated repeatedly, I truly believe that TransMedics remain in the early innings of our long-term growth opportunity.

I'm excited to report that our first quarter performance that reflects a strong start for 2026. Despite the broader volatility and the transient negative impact of the U.S. Transplant Modernization Act on OPO performance and the overall donor numbers in the U.S., we managed to deliver a solid quarter to start the year. Here are the key operational highlights for 1Q 2026.

Total revenue for 1Q '26 was $174 million, representing approximately 21% growth year-over-year and approximately 8% sequential growth from 4Q 2025. U.S. transplant product revenue grew by 22% year-over-year and approximately 7% sequentially to $102 million, while OUS transplant revenue grew approximately 39% year-over-year and approximately 17% sequentially to $6 million.

We delivered an adjusted operating profit of approximately $18.1 million in Q1, representing approximately 10.4% of total revenue in 1Q while continuing to make significant investment to fuel our growth.

Importantly, we ended 1Q with $462 million of cash and cash equivalents, while making substantial investments in the growth initiatives above. TransMedics transplant logistics services revenue for 1Q 2026 was approximately $32 million, up from $26.1 million in 1Q 2025, representing approximately 22% year-over-year growth and up from $28.6 million in 4Q 2025, representing approximately 12% sequential growth.

In Q1, we maintained coverage of approximately 82% of our NOP mission requiring air transport. We expect to maintain 22 operational aircraft in the U.S. fleet throughout 2026. As we discussed, we are now focused on maximizing the utilization of our U.S. fleet and improving efficiency and capacity by double shifting a portion of the fleet to meet the growing clinical demand.

We will detail key findings from this initiative at year-end. Overall, we are pleased by our strong performance that was fueled by growing OCS case volume, increased clinical adoption. Importantly, we're also encouraged that we achieved these results without any contribution of ENHANCE and DENOVO clinical programs due to the enrollment timing of these important programs.

Speaking of ENHANCE and DENOVO, let me shift to provide a detailed update on our strategic initiative to unlock these 2 important clinical programs to help us grow our cardiothoracic franchise in the U.S. At the recent ISHLT conference in April, we unveiled our TransMedics Controlled Hypothermic Organ Preservation System, or CHOPS. CHOPS is a true active cooling device designed to provide a variety of temperature conditions ranging from 4 to 12 degrees Celsius to meet the users' need. This represents a unique -- unique and optimized approach that we believe is superior to the Styrofoam boxes that are used for cold static storage of organs today.

These boxes use face-changing material or cold packs that are extremely variable and are nearly impossible to control or adjust preservation temperatures with. CHOPS will be an FDA-registered and regulated organ preservation device made by TransMedics and will serve as the control arm of the ENHANCE and DENOVO programs once the IDE supplement is approved.

This would be a huge strategic win for TransMedics as it stands to help avoid any reliance on competitive products as we conduct our important clinical programs for heart and lungs. We plan to file the IDE supplement within the next few weeks, and we expect this to be approved and implemented in early Q3 2026.

Importantly, in parallel to these clinical programs, we fully intend to file a 510(k) application to clear this device for commercial use in the U.S. Once cleared by FDA, CHOPS would expand TransMedics' platform of organ preservation technologies and enable us to address shorter preservation times for organs that may be best suited for cold storage.

As we highlighted on our last call, the panic and confusion caused by the competitive reaction to our clinical programs somewhat delayed our ENHANCE Part B and DENOVO enrollment. We not only addressed this challenge by introducing CHOPS, but we are now going after the niche market with superior, more validated cooling technology and our best-in-class NOP infrastructure.

Said differently, beyond facilitating our trial enrollment, we are expanding our product portfolio to ensure that TransMedics is well positioned to provide transplant programs around the world with the widest range of products to meet their clinical needs across the full spectrum of organ transplantation. We plan to accomplish this goal based on best-in-class technologies, best-in-class clinical services and with the most cost-efficient and reliable logistical network in the market.

Now let me move to share the -- share update on our strategic initiatives that we see as an important catalyst for our business. First is the National Transplant Modernization Act. In March 2026, TransMedics submitted our detailed comments on CMS proposed rule-making language for the new U.S. transplant system to advance U.S. transplant modernization initiatives.

Our public comments focused on several key topics. First, on the system-wide benefits of allowing new entities with proper national infrastructure that are not current OPOs to participate in the new transplant ecosystem by becoming either a multiregional or even national OPOs. This is to help maximize U.S. donor organ utilization for transplants. Importantly, it will provide a mechanism for fair competition and maximize transparency while driving cost efficiency to the U.S. transplant ecosystem.

Second, on the benefit of using FDA-approved portable perfusion technologies to maximize donor organ utilization in the U.S. while limiting the use of unproven, fairly expensive and potentially detrimental techniques that were organically introduced into the market over the last several years.

Third, on the benefits of enabling for-profit entities to participate so long as they are strictly adhering to all performance metrics proposed by CMS and complying with all the financial disclosure requirements.

Fourth, on the benefits of allowing new entities to bid to replace as many of the decommissioned OPO regions as they can support.

And finally, we highlighted the potential benefits of requiring these new participating entities to provide technology and clinical support services to existing OPOs. Again, our proposal was to -- it was intended to maximize the benefits to the U.S. transplant ecosystem in general and not just to one entity.

If CMS agrees with this direction, TransMedics fully intend to submit bids for donor service areas or DSAs associated with decommissioned OPOs later this year or early next. Again, our goal is to drive efficiency, transparency, maximize patient access and organ utilization for transplant in the U.S.

The second growth initiative is NOP Europe. As we've discussed, we are actively building infrastructure and staffing in Italy across 4 hubs to cover Northern and Southern Italy. Meanwhile, we're actively engaged and applying for Italian organ transplant air and ground logistics tenders for a few Italian regions as we speak. We are also actively engaged with Benelux region stakeholders to establish NOP in the Netherlands and Belgium to create NOP hubs that are staffed by a dedicated clinical TransMedic staff to manage OCS cases in these countries.

Another important element to our European NOP strategy is to create the first ever dedicated and integrated transplant logistics network to cover the broad European transplant logistics demand. On that front, we announced last week that we've entered into a definitive agreement with a major European charter flight operator, PAD Aviation, or PAD to partner on creating this European air logistics network.

PAD is located in Paderborn, Germany, which is within 1- to 2-hour distance from all the major transplant hubs across Europe. Importantly, they are operating a fleet of same model aircraft that we use in our U.S. fleet, Embraer Phenom 300Es. Simply stated, we're planning to replicate the success of the U.S. NOP in Europe to potentially expand or nearly double our total addressable market, increase OCS clinical adoption and provide efficient and dedicated transplant logistics service across Europe using our dedicated logistics network.

The third growth initiative is OCS kidney program. As we discussed on the last call, this represents our next frontier with kidney expected to be the first organ to launch on our OCS Gen 3.0 technology platform. Gen 3.0 technology platform will comprise a completely redesigned form factor, hardware, software and perfusion system that is smaller, lighter with lower part count, purposely designed for automated assembly and high reliability.

Currently, the development program is running at full speed, and we hope to introduce the final design device and potentially working device at the American Transplant Congress in Boston in late June.

Looking ahead, we are still targeting early 2027 for our U.S. IDE submission for our kidney program. We are extremely excited about this program as it stands to unlock a substantial incremental market opportunity measured in tens of thousands of kidney transplant procedures globally.

The fourth growth initiative is OCS Technology Gen 3.0 upgrade for both liver, heart and lung systems. This program is running in parallel to the kidney program to bring significant technology upgrade to our current liver, heart and lung systems and help catalyze our clinical adoption in these transplant segments.

Again, we are intentionally developing our Gen 3 platform to gain supply chain and operating leverage with lower part counts and less reliance on critical third-party suppliers. As you can see, our growth strategy is multifaceted with catalysts lined up across the short, mid and long terms. We're excited and laser-focused on investing to ensure the successful execution of these initiatives throughout 2026 and beyond.

Now let me conclude by stating that based on all the dynamics we see today, both in the U.S. transplant ecosystem and at the macro level, we are reiterating our revenue guidance for the full year 2026 between $727 million to $757 million, representing a 20% to 25% growth over full year 2025.

We may revisit the guidance later in the year as we gain more visibility on the pace of ENHANCE and DENOVO enrollment and other dynamics in the U.S. transplant ecosystem.

With that, let me turn the call to Gerardo to cover the detailed financial results for the quarter.

Thank you, Waleed. Good afternoon, everybody. I am pleased to share TransMedics first quarter 2026 results. Please note that a supplemental slide presentation with additional details is available in the Investors section of our website.

As Waleed highlighted, we started 2026 with solid execution and continued momentum across our platform. Importantly, consistent with the priorities we highlighted on our previous earnings call and throughout 2025, Q1 also marked the beginning of an accelerated phase of investment and execution for TransMedics.

We are advancing multiple initiatives designed to support future growth, strengthen our operating capabilities and position us to capture the opportunities ahead. These include continuous progress across our different programs, international expansion efforts, shops and as announced last week, our agreement to invest in PAD Aviation to support the development of a dedicated organ transplant logistics network in Europe that Waleed mentioned before.

Together, these initiatives and these actions demonstrate our ability to move quickly and boldly in allocating capital to execute on strategic opportunities that we believe can further fuel long-term profitable growth. And as Waleed says, let me repeat, these actions are designed to further fuel long-term profitable growth.

Beginning Q1, we are introducing certain non-GAAP financial measures, including adjusted R&D expense, adjusted SG&A expense, adjusted operating expenses, adjusted income from operations, adjusted net income, adjusted diluted earnings per share and adjusted operating margin.

We use these non-GAAP financial measures to support financial and operational decision-making and to evaluate period-to-period performance. We believe these measures are useful to both management and investors because they provide meaningful supplemental information regarding our core operating performance, particularly as we begin to incur certain discrete expenses and because they offer greater transparency into the key metrics management uses in running the business.

Examples of these discrete expenses include costs related to strategic initiatives, corporate development activities, headquarter relocation and the implementation of our new ERP. A reconciliation between GAAP and non-GAAP results is included in the supplemental materials available in our website.

Now turning to our Q1 financial performance. Total revenue for the quarter was approximately $174 million, representing 21% growth year-over-year and 8% growth sequentially. Growth was led by strong liver performance, continued progress in heart and increasing contribution from our integrated logistics platform.

U.S. transplant revenue was approximately $167 million, up 20% year-over-year and 8% sequentially. By organ, liver contributed with approximately $139 million, heart with approximately $26 million and lung with approximately $2 million.

International revenue was approximately $5.6 million, up 39% year-over-year and 17% sequentially. International revenue growth was primarily driven by heart with smaller contribution from lung. We are encouraged by the progress we are seeing internationally as we continue to build our presence and advance our expansion plans.

At the same time, the business remains at an early stage and quarterly variability is expected due to reimbursement and market dynamics. Total product revenue for the quarter was approximately $108 million, up 22% year-over-year and 8% sequentially, reflecting continued strong liver performance and modest growth in heart.

Service revenue for the first quarter was approximately $66 million, up 19% year-over-year and 9% sequentially. Growth was driven primarily by logistics revenue, supported by increased utilization of the TransMedics aviation fleet.

Together, these results reflect continued demand for the OCS platform and the value of our integrated NOP model. Total gross margin for the first quarter was approximately 58%, broadly consistent with recent quarters and down approximately 331 basis points year-over-year.

The year-over-year decline was driven primarily by increased internal supply chain activity to replenish inventory across our hubs and position inventory in support of the DENOVO and ENHANCE programs as well as continued investment in NOP network, which together with certain onetime items impacted the margin, and we will expect this to normalize in the coming quarters.

Sequentially, as mentioned before, gross margin remained broadly stable at approximately 58%. Underlying performance in the quarter was encouraging with operational improvement largely offset by ongoing internal supply chain costs to support the DENOVO and ENHANCE programs continued investments in NOP capabilities and certain onetime items that we will expect to normalize in the coming quarters, as mentioned before.

Adjusted operating expenses for the first quarter were approximately $83 million, up approximately 42% year-over-year and 17% sequentially. Adjusted R&D increased approximately 45% versus the first quarter of 2025, primarily driven by the continued development of our OCS kidney program and our next-generation OCS platform. The increase also reflects ongoing product development activities in Mirandola, Italy and headcount growth as we continue to strengthen our development capability across U.S. and the Mirandola site.

Sequentially, the increase in adjusted R&D was primarily driven by continued investment in OCS Kidney and our next-generation OCS platform with a smaller contribution from increased product development activity in Mirandola.

Adjusted SG&A increased approximately 41%, primarily reflecting the continued investment to strengthen NOP network and IT capabilities, the initial impact of our new headquarter in Sommerville and consulting and market research in support of international expansion plans. Some of these factors also drove the sequential increase, particularly continued investment in NOP network and international expansion initiatives.

Adjusted income from operations for the quarter was approximately $18 million, representing an adjusted operating margin of approximately 10%. The year-over-year decrease in operating margin primarily reflects the timing and scale of our planned investment in 2026 as well as the gross margin dynamics discussed earlier.

Adjusted net income was approximately $11 million or $0.30 per diluted share. As Waleed mentioned before, we ended the quarter with approximately $462 million in cash. Cash generation from operations remained solid during the quarter, and our balance sheet remains strong and continues to provide us with the flexibility to invest in the business, support our clinical and international expansion plans and evaluate strategic opportunities that we can -- that can strengthen our platform.

Now turning to our 2026 financial outlook. We are reiterating our full year 2026 revenue guidance of $727 million to $757 million, representing a 20% to 25% growth over full year of 2025. We continue to expect growth to be driven primarily by increased transplant volume supported by OCS and NOP platforms, expansion of service revenue and progress across our clinical and international initiatives.

In terms of gross margin, we continue to expect our long-term gross margin profile to remain around the 60%. As I shared before, as we continue to invest ahead of growth and expand geographically, we do expect some near-term pressure.

We feel confident in our long-term profitability goals. As we continue to scale the business, we expect to capture additional operating leverage while also benefiting from initiatives that are planned to be margin accretive over time, including our kidney program, our next-generation OCS -- and our next-generation OCS.

Taken together, these factors reinforce our confidence in the long-term profitability of the business. And again, as Waleed said, let me repeat, taken together, these factors reinforce our confidence in the long-term profitability potential of the business.

In terms of capital allocation, our focus remains on driving long-term value. We are concentrating our investment in 3 key areas: first, fueling growth through continued R&D investment, strengthening our NOP network and targeting expansion into selected international markets.

Second, building a stronger foundation through enhanced systems, processes, talent and organizational capabilities to improve efficiency, scalability and execution. And third, enhance our infrastructure and strategic optionality, including our new global headquarters, manufacturing and product development upgrades and selected strategic opportunities that can further strengthen our platform.

Overall, our first quarter performance reflects continued execution, disciplined investment and progress across several strategic initiatives. Several strategic initiatives that aim to expand our TAM and materially strengthen TransMedics' long-term position. We are moving with conviction and investing strategically in capabilities required to support future growth, improve scalability and drive long-term value creation.

And with that, I'll turn the call over to Waleed for closing remarks.

Thank you, Gerardo. Overall, we're proud of our success to date, but we're not stopping here. 2026 represents another critical period for TransMedics as we invest to deliver on several transformational growth catalysts. The strong financial position we've built over recent years have enabled us to pursue this multipronged approach, and we are more excited than ever for what lies ahead.

In conclusion, we're humbled and proud of the significant life-saving impact of our OCS technology, NOP services and dedicated team and remain committed to our mission of expanding cases and improving clinical outcomes to patients in need for organ transplant worldwide.

With that, I will now turn the call to the operator for Q&A. Operator?

[Operator Instructions] Your first question comes from the line of Bill Plovanic of Canaccord Genuity.

I'm going to focus on CHOPS, if I could. And just could you please help us understand the strategy behind CHOPS, the thought on cannibalizing your existing uses? And then are you still planning on hitting that 10,000 organ target? Does that include CHOPS? Or is that incremental? And then also just any thoughts on CHOPS for liver and kidney?

Thank you, Bill. I want to clarify one thing right off the gate. CHOPS is not cannibalizing anything. CHOPS is tackling a segment of the market, specifically DBD hearts that are like 2 hours of preservation that we're not being used at today. So that CHOPS is not cannibalizing. It's additive to our market share, and it's specifically focused on these short transport runs that are currently going on static cold storage. So that's number one.

Number two, the strategy behind it was to find a better way to develop the control arm with better technique than the standard Styrofoam boxes that are currently being sold for static cold storage, but also presented an opportunity for us to provide a broader product portfolio to meet those centers that are -- their volume is primarily shorter distance and they don't invest in DCD or longer distance organ procurement.

Finally, our goal right now is on heart and lungs in that order. We do not see -- obviously, it will be approved for organ preservation, cold static storage for organ preservation, but we have not made a decision yet, is it going to be rolled out for liver and kidney as well. We think the kidney cold static preservation is really a disaster, and we are trying to transform all this to machine perfusion. CHOPS is specifically designed for the cardiothoracic platform.

Your next question comes from the line of Joshua Jennings of TD Cowen.

Hoping to just build on discussion on ISHLT will lead and just with the ENHANCE Part A and Part B programs, optimal scenario being kind of a win-win-win potentially driving day-only surgeries for high-risk DCD Hearts showing superiority in DBD short transports and then also opening up this advanced cold storage CHOPS opportunity. And maybe just help me better understand the dynamics there, if you would, and how ENHANCE Part A, Part B can help drive stronger liver heart penetration, OCS heart penetration.

Thank you, Josh. As we've stated before, ENHANCE was designed exactly to accomplish the goals you outlined. We wanted to give the market a safe, reproducible and effective way to do morning hour heart transplants. We wanted to give the market a better way to preserve DCD Hearts and better way to preserve long distance and long preservation time, extended criteria hearts, minimizing edema and resulting in better function and enhancing function on OCS. That was primarily the design of ENHANCE.

In addition, we wanted to penetrate that segment of the market that I called earlier, DBD Hearts that are, call it, sub-4 hours of preservation, which currently the vast majority of those are being transported using Styrofoam boxes with cold packs. That's Part B of ENHANCE. So yes, the vision, the strategy of ENHANCE is still intact. Unfortunately, the competitive dynamic caused a little bit of a confusion and resulted in a little bit of a delay to launching these 2 parts, specifically Part B. And we found a solution for it and that completely make ENHANCE fully independent from any competitive dynamic.

So we are as excited as always and as we've ever been on ENHANCE, and we just can't wait to get the IDE supplement approved and getting the program rolling. So again, from where we sit here, we see this as a huge opportunity for us to catalyze adoption in heart across all market segments in heart and still have an optionality for centers that are not for whatever reason, are not focused on any of the sort of expanding portion of the heart market of DCD or long-distance procurement and just are happy with the cold storage to offer a product that is, we believe, will be -- will provide them -- meet their expectation and provide them potentially better solution, but on our platform, which is CHOPS.

So as you said, Josh, we look at this as a win-win-win from TransMedics perspective. We just have to be patient. We have to execute on the strategy. We have to finish the program. From where we sit, Part A is going slightly ahead of schedule. We're excited about what we're seeing. The market is giving us early feedback on how the hearts are behaving -- coming off OCS, which is exactly as we predicted it would be. But again, we need to finish the program, and then we expect good things.

Your next question comes from Allen Gong of JPMorgan.

I had a quick one on what you're seeing in the market. I know intra-quarter, you had talked to some disruption that you were seeing at OPOs, especially as they're grappling with some of the potential changes proposed in the OPTN modernization. But I'm curious to hear what you're seeing so far in the second quarter. Are you seeing the same level of challenges? Are you seeing it get better? Are you seeing it worsen? And how should we think about your growth in the second quarter in light of that?

Thank you, Allen. The specific things that we're seeing is what everybody is seeing, which is that the overall disease donor numbers have been below expectation and below last year. And we saw that throughout the first quarter and April continued. We hope that will reverse. We usually don't pay too much attention to inter-quarter variability, but we are paying attention this year because of the dynamic with the Modernization Act.

And if you remember, we predicted that we will see some volatility in diseased donor numbers, which is the mechanism that OPOs kind of register their this pleasure with the transformation. And we've seen it reverse, and we have all the confidence that it will reverse. When it will reverse, we don't know, but we're not -- we don't expect this to be a chronic thing. And we expect actually when it reverses, it will bounce -- not just bounce back to baseline, but we expect some acceleration. That's what we've seen over the history over the last 20 years. When this happens, that dynamic kind of plays out as I outlined.

Got it. And sorry if I missed this in the prepared remarks when bouncing around. I understand that the new strategy that you are approaching for your clinical trials. Do you have an expectation for when you think you can get those IDE approvals and then how quickly you can get those trials started afterwards?

Yes. Thank you, Allen. As I stated in the prepared remarks that we plan to file the IDE supplement within the next couple of weeks, and we hope to be in approval stage and implementation stage by early Q3.

Your next question comes from the line of Ryan Daniels of William Blair.

This is Matthew Mardula on for Ryan. And I might have missed this, so I apologize, but what is the guidance for operating margins this year? And is just the operating margin growth more weighted in the second half and investments more front loaded given what we've seen in Q1? Any more color into margins and its trajectory for the second half would be greatly appreciated.

Yes. What I mentioned in the last call is that we're expecting up to around 250 basis points below -- operating margin below last year, which now will be really adjusted operating margin below the number that we had in 2025. I would not like to go into more details in terms of phasing because we have an investment plan that it needs to materialize for it to result in what we are seeing. So I'd rather not go into those level of details now.

Your next question comes from the line of Chris Pasquale of Nephron Research.

Waleed, I also wanted to ask about the ENHANCE, DENOVO trials. And the CHOPS program seems like a great addition to the portfolio. But previously, you were comparing OCS to established hypothermic organ storage approaches in those studies. Now by including CHOPS in the trials, you effectively have 2 investigational arms being compared against each other.

So I guess kind of a 2-part question is, one, does that complicate the interpretation of the results? Do you worry at all about not having a clean outcome here in terms of physicians being able to interpret what the data says. And then two, you're theoretically introducing a harder control arm here if you really believe that you're going to do a better job controlling the temperature of those organs. And so does that make you at all concerned about the margin of improvement you're going to be able to show in the studies?

Chris, excellent question, and thank you for asking it. So let me address it in several sections. The first segment is there's no such thing as well-established cold storage other than ice. What we've seen over the years is there's these hypotheses and claims that are being thrown out there in the marketplace by a handful of newcomers to the space that haven't been really substantiated.

In fact, even the variation in temperature we've seen at the last ISHLT that did not show any significant difference than 4 degrees to 8 degrees versus 10 degrees. -- none of these hypotheses have really materialized. So for us, we don't -- we're not concerned at all that we are lowering the standard. The opposite is true. We're actually elevating the game and saying, listen, if you, as a center, wants your organ to be stored between 4 and 8, we have a device that we can validate that it's between 4 and 8. If you want it at 10, we have a device that validates it at 10. So that's number one.

Number two, we've discussed the second part, which is comparing to investigational arm. The CHOPS will not be investigational by the time we interpret the trial results. That's the plan that we discussed with FDA, and I would leave it at that.

Three, do -- am I worried about raising the bar in the control arm? No. I think the OCS will prove its value because, again, these programs are designed to show several value points. And again, we know that even if we deliver superiority results, there will be a segment of the market that's still focused on cold static storage just because of cost, just because of limited volume or what have you. And in this case, TransMedics would gain market share in that segment that today, we don't have a product to sell to these needs.

So net-net, we are extremely focused on getting these programs executed. We are -- we believe we found the best solution out. In fact, I would -- at risk of quoting the FDA, the FDA called it a creative and elegant solution. So we will go and execute the trials, and we are confident that our strategy is going to pan out on many fronts. We just can't wait to get these programs fully activated and we get out of this confusion that was created by the panic that was thrown into the mix by our competitors.

Your next question comes from the line of Suraj Kalia of Oppenheimer.

Waleed, can you hear me all right?

Can hear you perfect, Suraj.

So Waleed, I wanted to follow up on Chris' question just with a slightly different flavor. So one of the pushbacks we got after the CHOPS announcement was, hey, how do you know this -- the CHOPS is optimally designed, i.e., it isn't really designed as an inferior product. I'd love for you to push back on that notion. This is a new product. How do you know this is optimally designed as is? Hence, you can -- I think, so Chris was looking at one side of the spectrum in terms of good outcomes of the control arm. What I'm saying is at least what the pushback we got was, what -- if it is suboptimally designed and you get bad outcomes in the control arm, hence, you automatically look good. I'd love for you to push back on that notion of thought.

Great. Suraj, thank you for asking this important question. The opposite is true, Suraj. The thing is, again, this question implies that the market is actually working with highly scientific, highly validated technologies. The opposite is true. There are transplant -- major transplant programs are going to Home Depot and buying either YETI coolers or RYOBI coolers and they're operating with them day in and day out. And guess what, none of these coolers have been validated or designed or even FDA approved for that intended purposes. We are elevating the game. We are a company that pride itself of developing and delivering Level 1 evidence to the highest clinical standards and to the FDA standards. That's number one.

Number two, as I said in my prepared remarks, and I will reiterate it again here, CHOPS is designed to be a fully registered and regulated FDA medical technology, which means, by definition, Suraj, as you know, that we have to go through an exorbitant amount and exhaustive testing to validate that the design meets the intended purpose.

None of the technologies I'm talking about have been -- have gone through that. So that's a hyperbole assumption. We -- the opposite is true. We are actually -- I am with -- Chris' spectrum is the one that's more realistic that we are elevating the game on the control arm. But even then, we are not concerned because we see significant value and also we provide solutions across the spectrum of values achieved -- that would be achieved in ENHANCE DENOVO.

Your next question comes from the line of Matthew O'Brien of Piper Sandler.

This is Samantha on for Matt. Also wanted to talk about the clinical trials in CHOPS. I guess, first, kind of a 2-parter. Can you first just quantify and put into numbers for us how much of the market CHOPS is expected to address? And then I'm also trying to square the design of these trials. You mentioned the superiority. So these trials are essentially trying to say that OCS is a better technology versus now cold storage and CHOPS, but then also the decision to launch CHOPS, presumably this inferior technology.

Sure. Sam, that's an excellent question. So let me address the latter piece first. Again, as I stated earlier, we all know you, everybody on this call and the listeners know and they've spoken to clinicians and surgeons in the field of organ transplantation. You ask 10 transplant surgeons, one question, you will get 12 different answers. So we know for a fact that, even when we prove superiority, there will be a handful of centers or a segment of the market that will still prefer cold storage technique in certain cases. Why not provide them that solution and go through the effort of providing a fully FDA-approved regulated device that gives them that flexibility. So that's number one.

Number two, I'm sorry, Sam, can you repeat the first part of the question again? I lost my train of thought.

No, that's okay.

Quantification. I'll give you one example. I'll give you one example. 2025 U.S. heart transplant total volume was 4,646 hearts, okay? You need to know that 46% of that total market which is 2,131 were DBD hearts preserved less than 4 hours. Our portion of that market is measured in single digits. So that is a market that is today all going to cold storage techniques.

The Styrofoam cooler, the RYOBI cooler, the YETI coolers, why not provide an answer to that? Yes, we should gain a greater portion of that by demonstrating superiority or demonstrating better outcomes. But there will be a segment of that market still out there that the surgeon or the clinicians would need access to cold storage technique. Let's provide them the solution and provide them the clinical service of NOP and the logistics associated with it.

Your next question comes from the line of Daniel Markowitz of Evercore.

Thanks for taking my question. I wanted to talk about energy prices. It sounds like you're able to pass this along to customers via surcharges. Can you just talk through the dynamic a little bit? What's the exposure here? Are you able to pass it all along? And how does this flow through the P&L? And what's, I guess, contemplated in the guidance on that front, both on the revenue and on the COGS side?

Daniel, thank you for asking this important question, which, as we understand, has been creating this black cloud overhang over TransMedics. People forgot who TransMedics is and which market segment we deal with. We're not United Airlines or Delta. We are an organ transplant company. So you need -- everybody needs to remember that we are operating in a highly competitive environment where there are other charter operators and companies that service the same market that we are servicing from a logistics standpoint.

Historically, for the last 4 or 5 decades, transplantation have survived and grown when oil prices was high, when oil prices was low. How? Because the market has a mechanism to recover the cost of these -- when the prices go up. In fact, so because of that competitive dynamic, I cannot share with you on an open mic the detail of how TransMedics is doing it. All I can share with you is I can assure you and I assure all the listeners on this call that TransMedics is doing the absolutely right thing by our customers, and we are having the ability to control our logistics and our fleet and the network effect that was created here gives us maximum operating leverage on dealing with fuel prices.

I'll give you one example. We are monitoring fuel prices by hub, and we have the maximum flexibility of moving hubs and floating our fleet to make sure that we are not incurring unnecessarily higher fuel charges, so we don't pass these unnecessarily high fuel charges to the transplant program. But again, the results speaks for themselves. If fuel charges are truly that unsurmountable challenge, we would not be able to print the results we printed here. And to put everybody's mind at ease, fuel charges is a small component of our operating flight hour cost. So it is covered and our network is the most cost-efficient way to deal with this problem until it's resolved.

Your next question comes from the line of David Rescott of Baird.

I want to follow up on some of the margin commentary, gross and operating. First on the gross margin side. I think historically, Q1 is typically or has been over the past 2 or 3 years, the high watermark for gross margin. So curious, one, if that is the way that we should be thinking about the cadence for the year, if there's any maybe transient impacts there? And then I appreciate some of the comments already on the operating margin side. But just trying to get a sense maybe for some of the puts and takes that you saw in Q1 versus what you're expecting to maybe normalize or work its way out as you get into the back half of the year. Maybe CHOPS is a piece of that. Just be curious on any more color on the gross and operating margin numbers in the quarter and then for the year. Right.

Right. Thank you, David, for the question. In terms of gross margin, we -- as I shared in the call, we're looking and we're expecting convinced that we can -- that the right margin for the business is the 60% -- around 60%. We are investing ahead of that. And because of that, we are seeing some pressure in the margin in the short term. I saw, let's say, significant positive impact -- operational impact in the quarter in Q1 that was mostly offset by some -- a good portion of that was transient expenses.

So my view is that for the rest of the year, we should see a recovery towards our long-term goal. I'm not sure we're going to get all the way to the long-term goal this year or even next year. That's why it's long term. But I see -- and I believe that this is the quarter where it should be more the floor rather than the ceiling.

Your next question comes from Young Li of Jefferies.

I think you mentioned the ENHANCE Part A trial is enrolling slightly ahead of schedule. I guess I'm wondering how does that sort of inform or change your expectations for Part B enrollment timing once that restarts in 3Q, is 12 to 18 months still the right time frame for ENHANCE Part B and DENOVO enrollment? Or can you enroll faster than that?

Xuyang, thank you for the question. I'll answer the second part first. We still are holding the 12 to 18 months time frame. That hasn't changed. I think I caution to compare Part A to Part B. There are 2 different components. But it's -- remember, it's the same centers that will be enrolling in Part A or Part B. So again, it's all about value. If the center sees the value and sees the clinical outcomes in their hand, we expect the trial enrollment to pick up.

For me, right now, I'm focusing on getting the IDE supplement approved, getting the TOPs into the control arm and removing all the confusion by competitors so we can get Part B enrolled. DENOVO is actively enrolling, and we enrolled a handful of patients already despite some of the confusion, thanks to the transplant program stepping up and moving forward. But I think it will accelerate even further once CHOPS is introduced as the control arm or an option for the control arm.

Your next question comes from Mike Matson of Needham & Company.

So just on the CHOPS devices that are going to be used in the trials, will you be getting paid for those? And then just generally, can you talk about the kind of -- what kind of pricing we should expect on that, both in the trials and then when you're selling it just kind of the customers in the open market?

Mike, I appreciate very much the question. Unfortunately, I cannot discuss the commercial structure of CHOPS yet, the priority is to get it through the IDE process. And all I can say is this is going to be a part of our NOP service offering, and I'll leave it at that.

Your next question comes from Tom Stephan of Stifel.

Apologies if this has been asked, jumping between calls. But Gerardo, maybe for you, for the 20% to 25% guidance on revenue in the core business for '26, when I look at growth over the last, call it, year or so, 40% plus growth in 1H, 30% plus in 2H and then 1Q was a bit over 20%. So like with that trend in mind, what gives you confidence that the growth rate rest of year will remain stable in the core business or even accelerate a bit moving forward in order to kind of hit that full year 20% to 25%.

Thank you for the question. Well, basically, when we look at the phasing and the history of the transplant volume in the U.S., we can see how the remaining of the year, it continues to strengthen. So we're not expecting any change to the global volume, except for the one that Waleed mentioned before in terms of any potential disruption due to the Modernization Act.

Now we believe that we can -- that we will deliver within the 20% to 25% growth with that. And I think that's really what makes us confident. We're seeing the results. We're seeing the adoption and that together with the last year's performance, it really shows how the market trend is going. So there is nothing really that would prevent us to get to that range, at least as I see it today.

And Tom, let me add also, again, we don't comment on penetration and market share midyear or throughout the year. As you know, we comment on it at year-end because of the choppiness of it. But we're watching our market share in Q1 despite the overall transplant numbers and donor numbers being a little bit on the low end and below last year, we're maintaining and growing our market share, which tells me that we're taking some market share in Q1.

That's what gives us the confidence that just organically, without even talking about ENHANCE and DENOVO that we should be able to meet that target range that we set for ourselves.

There are no further questions at this time. I will now turn the call over to Waleed Hassanein, President and Chief Executive Officer, for closing remarks.

Thank you all very much for spending your afternoon with us. We're looking forward to one-on-one calls. I appreciate it. Have a great evening, everyone.

This concludes today's conference call. You may now disconnect.

Good afternoon, and welcome to TransMedics Fourth 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.

Thank you. Earlier today, TransMedics released financial results for the quarter and full year ended December 31, 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 made during this call that relate to future events, results or performance, including expectations or predictions are forward-looking statements.

All forward-looking statements, including, without limitation, are examination of operating trends, the potential commercial opportunity of our products and services, the potential timing, benefits or outcomes of new clinical programs and our future financial expectations, which include expectations for growth in our organization and guidance and/or expectations for revenue, gross margins and operating expenses in 2026 and beyond are based upon our current estimates and various assumptions.

These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these 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 10-K filed with the Securities and Exchange Commission on February 24, 2026, and our subsequent SEC filings and the forward-looking statements included in today's earnings press release, which are available at www.sec.gov and our website at www.transmedics.com. TransMedics disclaims any intention or obligation, except as required by law, to update or revise any financial projections, expectations, predictions or forward-looking statements, whether because of new information, future events or developments or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, February 24, 2026. And with that, I will now turn the call over to Waleed Hassanein, President and Chief Executive Officer.

Thank you so much, Laine. Good afternoon, everyone, and welcome to TransMedics' Fourth Quarter and Full Year 2025 Earnings Call. Joining me today is Gerardo Hernandez, our Chief Financial Officer. I'm thrilled to be here tonight reporting our fourth quarter performance, capping off an outstanding year for TransMedics as we delivered our best operational performance to date. These results were achieved despite external challenges earlier in the year that were designed to distract and disrupt our sustained and transformational growth. I'm extremely proud of the resilience of our team and our business. In addition, I'm grateful to our global clinical users for their continued partnership with TransMedics and their trust in our OCS NOP program throughout the year.

Based on our performance in 2025 and our continued investment in expanding the caliber and the breadth of our team, I am growing exceedingly confident in TransMedics' ability to overcome future challenges as we continue to innovate and disrupt antiquated and inefficient transplant processes in the U.S. and around the world.

We are highly motivated and inspired by our mission to expand the utilization of available donor organs for transplantation while aiming to deliver the absolute best possible clinical outcomes for transplant patients worldwide. We strongly believe that TransMedics is just getting started, and we have our sites focused on new peaks, which we will share with you on today's call.

Now let me proceed with discussing our business performance. On our last call, we stated our expectation that 3Q seasonality in U.S. transplant activities would be transient and that we should recover in 4Q. Today, we're excited to report that 4Q results that validate our views. 4Q 2025 was a banner quarter for our business and allowed us to conclude 2025 on a very high note.

Here are the key operational highlights for 4Q 2025. Total revenue for 4Q '25 was $160.8 million, representing approximately 32% growth year-over-year and approximately 12% sequential growth from 3Q 2025. U.S. transplant revenue grew approximately 11% sequentially to $155 million, while OUS transplant revenue grew approximately 33% sequentially to $5 million. Finally, we delivered an operating profit of approximately $21.3 million in 4Q, representing approximately 13.2% of total revenue for fourth quarter while making substantial investments to fuel our growth.

Now let me provide the financial results for the full year 2025. Total revenue for the full year 2025 was $605.5 million, representing approximately 37% growth year-over-year. We delivered operating profit of approximately $108.6 million, representing approximately 18% of total revenue for the full year 2025. Importantly, we ended the year with approximately $488.4 million of cash and cash equivalents.

Shifting now to TransMedics transplant logistics infrastructure and performance. TransMedics transplant logistics service revenue for 4Q was approximately $28.6 million, up from $21.7 million in 4Q 2024, representing approximately 32% year-over-year growth and up from $27.2 million in 3Q, representing approximately 5% sequential growth. Throughout 4Q, we owned and operated 22 aircraft. In Q4, we maintained coverage of approximately 80% of our NOP missions requiring air transport compared to 75% in the same period in 2024. We are very pleased by our strong performance in 4Q and full year 2025. That was fueled by growing OCS case volume and increased clinical adoption.

Importantly, as we predicted, our performance enabled growth in overall U.S. liver and heart transplant volumes for the third consecutive year, driven primarily by OCS NOP cases. This is really unprecedented and frankly, humbling. As we do every year, I would like to share full year OCS transplant volumes and overall U.S. transplants per order.

Here are the key highlights. For the third consecutive year, we grew the total OCS transplant volume. As of February 20 2026, our internal company data and [indiscernible] database recorded records show that there were 5,139 total U.S. OCS transplant performed in the full year 2025. Let me repeat this. As of February 22, 2026, our internal company and UNO's database records show that OCS was responsible for 5,139 transplants performed in the full year 2025, up from 3,735 U.S. OCS transplants in 2024.

The overall transplants represented approximately 26% of the total 19,833 U.S. transplants for the year for heart, lung and liver in 2025 and up from 20% of the 2024 U.S. transplant volume for the same organs. Importantly, for the third consecutive year, we saw growth in overall U.S. liver and heart and lung transplant volumes. For the full year 2025, there were 19,833 liver, heart and lung transplants, up from 18,894 in 2024. We strongly believe that the OCS NOP once again played a key role in driving overall liver and hot market growth due to the increased use of DCD and DBD donors in the U.S.

Since 2022, U.S. national transplant volumes for liver, heart and lung grew at a rate of 25%, including OCS NOP transplant volume. Without OCS volume, national volumes for the same organs would have declined by approximately 1% over the same period. Please allow me to repeat this. U.S. transplant volumes for liver, heart and lung grew 25% with OCS NOP and would have declined by approximately 1% without OCS NOP case volume. Based on these facts, we believe that we are delivering on our vision of growing the overall U.S. market. Said differently, we are expanding the overall market, not just taking share.

Now let me discuss our clinical adoption per organ. For liver, in 2025, OCS Liver transplant represented 4,197 transplants or 36% of the overall liver transplant volume in the United States. That is up from 26% in the same period in 2024. For heart, OCS transplant represented 854 cases or approximately 18% of the overall heart transplant volume, modestly up from the 17% seen in 2024.

For lung, the numbers are small. OCS lung transplants represented only 88 cases or approximately 2%. These are very small numbers, and we will discuss below how we are planning to address this particular topic. These results underscore the significant remaining greenfield potential for OCS NOP cases across all 3 organs. Specifically, we are focused on the enhanced heart program to drive increased use in heart transplantation across the donor types.

Finally, our de novo lung clinical program will focus on reinvigorating the OCS lung market segment in the U.S. while driving much needed expansion of the utilization rates for donor lungs. Both programs have been cleared by FDA and are in various stages of trial activation and enrollment in the U.S. We're looking forward to reporting the progress of these 2 crucial programs at the upcoming ISHLT in late April.

Now let me move on to discuss our 2026 plans and guidance. As we stated before, we're excited for 2026 as we believe it will represent another critical and transformative year for TransMedics business given our focus on few, wide -- few wide-ranging and far-reaching catalysts for near, mid- and long-term growth for our business.

Let me share with you a summary overview of all the growth catalysts we are focused on in 2026. First, OCS enhanced Heart program. Simply stated, part A of this program is designed to move cardiac transplantation beyond preservation and into functional enhancement of donor hearts. Importantly, it was designed to significantly expand the time and distance limitations currently imposed on the 4-hour DBD heart transplants preserved using cold static storage. Initial feedback is promising, but we are still early in the process.

Now let's talk about Part B. Part B of this program is designed to allow OCS to gain a potential new clinical indication in DBD heart transplant segment that are sub 4 hours preservation by demonstrating superiority of outcomes in a head-to-head comparison to current cold static storage modalities. Progress in Part B has been slightly impacted by our competitive dynamic as it relates to a cold storage arm of the trial. Specifically, there is a hesitation amongst competition to a head-to-head comparison between OCS and their static cold storage modality. We are confident in our ability to overcome this competitive dynamic that we somewhat expected.

Importantly, we are committed to conducting this important part of our heart program with the highest level clinical evidence and robust protocol and randomization scheme. If successful, one or both parts combined, could dramatically increase the use of OCS heart in the U.S. and should have a huge impact on our transplant volume and top line revenue growth.

Next is OCS de novo lung program. As I've stated before, in our humble view, this is the last real chance for lung transplant community to experience the benefits of machine perfusion and integrated NOP services in lung transplantation in the U.S. If successful, this program would resurrect a sleeping giant of lung transplant market and would add significant lung clinical adoption and top line revenue growth for TransMedics. Next is bringing the NOP model to Europe and rest of the world. This program is actively launching in Italy and few other European countries have expressed strong interest in exploring the NOP model in their local geography. This program has the potential to significantly grow our OCS market adoption in Europe. Expanding our commercial activities in Europe has the potential to nearly double our transplant total addressable market for TransMedics. We are actively engaged in building our European NOP transplant air and ground logistics network while also expanding our European clinical support infrastructure.

Next is the OCS kidney program. This represents our next frontier and will be the first organ to launch on our OCS Gen 3.0 technology platform. OCS Gen 3.0 will have a completely redesigned technology and perfusion systems that is smaller, lighter and with a much lower part count. Importantly, it's designed for automated assembly and was designed to operate with a high degree of reliability. There are currently more than 20,000 diseased kidney transplants in the U.S. annually and an additional 8,000 to 9,000 kidneys that are discarded annually in the U.S. for only prolonged ischemic times.

To our knowledge, the OCS kidney system will be the first and only warm perfusion oxygenated kidney platform for kidney transplantation used from the donor to the recipient. Currently, the development program is running in full gear throughout 2026 to get the platform ready for FDA trial by early 2027. Next is OCS Gen 3.0 for liver, heart and lung systems. This program is running in parallel to the kidney program to upgrade our current liver, heart and lung system and help grow our clinical adoption rates and scale our operations. Finally, we are exploring the potential to capitalize on the U.S. transplant organization initiatives driven by HRSA, CMS and U.S. Congress. Specifically, we are exploring if TransMedics can be a more integrated contributor to the national transplant ecosystem in the U.S.

The goal is to maximize donor organ utilization for transplantation and continue to save more American lives and save significant health care dollars. As you can see, these are significant potential short mid- and long-term catalysts for our business, and we are laser-focused on ensuring successful execution of these initiatives throughout 2026. That being said, we're also cognizant of a few operational challenges that could influence the pace and timing of these initiatives. First, as stated, we are still building out our logistics infrastructure in Europe, which could moderate the initial pace of our EU NOP launch as we ensure we have the right foundation in place. Second, timing of the full de novo trial accrual will depend on how long and how the lung transplant market adopts machine perfusion and NOP, which remains to be proven.

Third, timing of enhanced Part B completion will be influenced by some of the inertia created by competitive dynamics for the cold storage arm in the marketplace. Fourth, the -- very common and now, I hope, well understood annual phenomena of potential Q3 seasonality in U.S. transplant market that temporarily slows down transplant activities. And finally, ramping our infrastructure and clinical staffing to meet the growing demand for OCS NOP will be critical to achieve our full growth potential in 2026. With all this in mind, we are setting our revenue guidance for full year 2026 between $727 million and $757 million, representing approximately 20% to 25% growth over full year 2025.

With that, let me turn the call to Gerardo to cover the detailed financial results for the quarter.

Thank you, Waleed. Good afternoon, everybody. I am pleased to share TransMedics fourth quarter 2025 results. Please note that a supplemental slide presentation with additional details is available in the Investors section of our website. As Waleed highlighted, we sustained strong momentum through the fourth quarter, closing the year with solid performance following an expected seasonally softer third quarter in U.S. transplant activities. As discussed in our Q3 call, our rapid growth in prior years often marked the natural seasonality in the U.S. transplant activity. At our current scale, those dynamics are more visible. However, as we have seen, these fluctuations tend to normalize over the full year. Total revenue for the quarter was approximately $161 million. U.S. transplant revenue was approximately $155 million, up 33% year-over-year and 11% sequentially.

By organ, liver contributed with $127 million, heart $26 million and lung $2 million. International revenue was $4.8 million, up 24% year-over-year and 33% sequentially. Revenue by organ was $3.9 million in heart, $0.2 million in lung and $0.7 million in liver. Growth was primarily driven by liver and heart. While we continue to make progress in our international expansion plans, the business remains at an early stage and quarterly variability is expected due to reimbursement and market dynamics.

Product revenue for the fourth quarter was $100 million, up 34% year-over-year and 15% sequentially, reflecting continued momentum across both liver and heart programs. Service revenue for the fourth quarter was $60 million, up 29% year-over-year and 8% sequentially. The primary driver of growth was logistics revenue, which increased 32% year-over-year and 5% sequentially, reflecting continued expansion and strong utilization of our aviation fleet compared to 2024. Together, these results reflect strong order utilization, continued OCS adoption and increasing leverage of our integrated logistics platform. Total gross margin for the quarter was approximately 58% down 110 basis points year-over-year and 70 basis points sequentially.

The year-over-year decline primarily reflects higher clinical service costs associated with the expansion of our MOP program. increased logistic discounts and higher freight expenses. The sequential decrease was mainly driven by inventory-related charges associated with our year-end inventory procedures and higher freight costs from expediting shipments to replenish our costs.

Total operating expenses for the fourth quarter of 2025 were $72 million, up 14% year-over-year and 18% sequentially. The year-over-year growth was mainly driven by increased R&D investment to advance our innovation pipeline and expand product development capabilities, including targeted additions to our technical and development teams. SG&A growth reflected continued IT infrastructure expansion, strategic growth initiatives and selected headcount investments to support scale. Sequentially, the increase was largely driven by higher R&D investments related to development and testing activities as well as incremental S&L investment supporting growth and expansion initiatives. Operating income for the quarter was $21 million, 146% year-over-year and down 9% sequentially. The sequential decrease was primarily driven by higher operating expenses associated with increased investments during the quarter. Operating margin expanded to 13% compared to 7% in the fourth quarter of 2024.

Net income for the fourth quarter was $105 million, a significant increase both year-over-year and sequentially. Net profit included an income tax benefit of $83.8 million compared to an income tax provision of $0.1 million in 2024, mainly related to the release of the valuation allowance. The release of the valuation allowance on our deferred tax assets is not merely an accounting adjustment but a strong indication of our confidence in the sustainability of our long-term profitability grounded in continued growth and scalability. This decision follows a thorough and rigorous evaluation under applicable accounting and tax standards. Earnings per share were $3.08 and diluted earnings per share were $2.62 for the fourth quarter of 2025. We ended the year with $488 million in cash, up $22 million from September 30, 2025, driven by strong operating cash generation and continued disciplined working capital management.

Overall, our fourth quarter performance reflects another quarter of strong execution, operational efficiency and continued advancement across our clinical programs. As we operate at a greater scale, the TransMedics team continues to demonstrate focus and discipline, investing in growth while maintaining strong financial and operational performance.

Now let me summarize our full year 2025 results. Full year revenue reached approximately $605 million, representing 37% growth over 2024. Growth was led by liver, which grew almost 49% and continued strength in heart at almost 15%. Lung revenue was lower compared to 2024. U.S. transplant revenue reached approximately $585 million, reflecting a 38.6% growth year-over-year. Our international transplant revenue ended the year at $16.7 million, representing a 9.3% year-over-year growth, primarily driven by liver and heart.

Breaking it down by categories, product revenue totaled $672 million, while service revenue contributes with $233 million. Breaking it down by organ, liver revenue reached $461 million, heart revenue reached $226 million and lung reached approximately $15 million. [indiscernible] School revenue for the year was $4 million. Gross margin for the full year was 59.9%, up from 59.4% in 2024, reflecting logistics efficiencies and scale benefits.

A portion of these gains was strategically share with customers through logistic discounts enabled by our integrated network. Margins also reflects incremental costs related to our double shifting programs and higher expedited hub replenishment expenses. Total operating expenses were $254 million, up 13% year-over-year. The increase was primarily driven by a 23% increase in R&D investments, reflecting continued investment in our innovation pipeline and product enhancements. SG&A grew almost 10% year-over-year, reflecting ongoing expansion of our IT infrastructure and investment in strategic growth initiatives. Operating margin expanded from 8.5% in 2024 to 18% in 2025. A significant achievement in a year where gross margin improved only modestly. This performance demonstrate that the primary driver of margin expansion in our model is operating leverage as revenue scale, supported by a strong discipline to cost management. Net profit for the year was $190 million compared to approximately $36 million in 2024. Results benefit from strong operating performance as well as the previously mentioned onetime income tax benefits recognized during the fourth quarter related to the deferred tax assets.

This performance positions us well as we enter 2026 with continued growth momentum and a strong financial foundation. Earnings per share was $5.60 and diluted earnings per share was $4.87. Now turning to our total revenue guidance for 2026. We anticipate revenue growth of 20% to 25% over the full year of 2025, which translates to a full year revenue range of approximately $727 million to $757 million. Growth is expected to be driven primarily by the increased order utilization, continued OCS adoption and expansion of our service revenue. In 2026, we expect similar seasonal dynamics in the U.S. transplant activities consistent with prior years. In terms of gross margin, we expect overall margins to remain around 60% over the long term. This outlook reflects the [indiscernible] of influence in both product and service margins beyond mix alone. As we expand internationally and continue investing ahead of growth, we may experience some near-term pressure. However, we expect this impact to normalize as volumes scale across markets. In terms of capital allocation, our focus remains on driving long-term value. We are concentrating our investments in 3 key areas: first, fueling growth through continued R&D investments, strengthening our NOP network and targeting expansion into selected international markets.

Second, building a stronger foundation by implementing systems to simplify and optimize processes across the business, improving efficiency as we grow. And third, enhancing our infrastructure and strategic optionality, including our client move to a new global headquarters to accommodate growth, ongoing upgrades to expand our manufacturing and project development capabilities and our continued evaluation of strategic opportunities that could further strengthen our platform for the future.

Collectively, these initiatives are preparing TransMedics for its next stage of expansion as we move beyond the 10,000 transplant milestone. We continue to make progress on our double 5 pilot program to improve fleet utilization and expect to see early results in the first half of 2026. These insights will help us determine the rightly sized and utilization model to maximize capital efficiency. We achieved our goal of owning 22 [indiscernible] by the end of 2025. While there are no current plans to increase the fleet in 2026, we remain open to acquiring additional aircraft when the right conditions are in place, whether to enhance U.S. capacity or to support international expansion. In 2026, we plan to meaningfully increase investment and with particular focus on advancing our traditional programs, completing the final development phase of our OCS kidney program and continued development of our next-generation OCF platform.

It is important to note that approximately half of the incremental investment is transitory in nature and as these initiatives are completed, expense levels should normalize, allowing us to capture additional operating levels over time. Based on the current revenue guidance for 2026, we expect operating margins to be up to approximately 250 basis points below 2025 full year levels, primarily reflecting the timing and scale of these investments. As investment levels normalize and the business continues to scale, we would expect operating margins to resume expansion. We continue to expect operating margins to approach 30% by 2028.

As shared in previous quarters, we may see some fluctuations as missed by international and invest ahead of growth. However, we remain confident in the long-term direction and scalability of our model. As we look ahead, we see meaningful growth opportunities from multiple sources beyond continued organ utilization and OCS adoption including the expected impact of our [indiscernible] programs, advancement OCS kidney program and ongoing international expansion efforts. Together, these initiatives expand our addressable markets and reinform the long-term growth potential of our platform. With a proven track record of delivering on what we set out to do we are well positioned to continue creating long-term value while expanding assets of transplantation and giving more patients as second chance life. And with that, I'll turn the call over to Waleed for closing remarks.

Thank you so much, Gerardo. Overall, we're very proud of our 2025 results as we delivered 37% year-over-year growth and achieved positive cash flow from operating activities. We did this while investing in our pipeline and continuing to build our infrastructure to capitalize on our highly differentiated OCS technology and service offering. We are now laser focused on executing in our initiatives in the potentially transformative 2026 year and are excited about what's ahead. In conclusion, we are humbled and proud of the significant life-saving impact of our OCS technology, NOP service and dedicated team and remain committed to our mission of expanding access and improving clinical outcomes to patients in need of organ transplantation worldwide.

With that, I will now turn the call to the operator for Q&A. Operator?

[Operator Instructions]

We will take our first question from Allen Gong from JPMorgan Chase & Company.

Thanks for the question. Congrats on the really good quarter to end the year. I guess my question is going to be on guidance if I'm limiting it to one, you're guiding a step above The Street even after factoring in to being the quarter when we think about the midpoint of the range. You clearly have a lot of moving parts next year between underlying growth in liver and heart and the enrollment of the clinical trials and you also have Italy in the back half. So when it comes to those 3 dynamics, can you talk broadly about your expectations for those and how that factors into your guidance philosophy?

Thanks, Allen. As always, we take guidance very, very seriously at TransMedics and we have huge opportunities ahead of us as we outlined, Gerardo and myself. But also we have a few challenges in a few moving dynamics. So in our guidance, we factored in all of the above and issued what we believe is a realistic guidance that would enable us to execute and let the execution and performance dictate what do we do or if we need to revisit the guidance. So we feel confident in the guidance that we are putting forth here. And as it bakes in all the uncertainties or the opportunities and uncertainties in front of us. So again, we would go and execute, and we let the execution and the results and the performance dictate if we need to revisit the guidance as we move forward throughout the year.

We will take our next question from the line of Josh Jennings from TD Cowen.

Great to see the strong start at the end of the year. I appreciate the breakout of the catalyst late in 2026. Hoping to ask a question on OCS Liver. Waleed, you've talked publicly about a registry publication coming up in the near term that it could be a huge catalyst for liver adoption. I know you can't front run the results here, but I was wondering, one, just -- I mean, could we see some cost effectiveness data published in the near term and just thinking about that element of OCS Liver as new competition is coming into place? And just are you seeing any competitive headwinds out there that are new in 2026 for the OCS Liver franchise?

I think let me address that question in 3 pieces. The first piece is there are health economic data on liver transplant that's already published many of them for the last 2 years, single center experience. So that's already in the print. But what's coming is really the unequivocal drop the mic statistical superiority in the most important outcomes after liver transplantation, which would justify and support all the evidence that's been built in having more than 14 or 15 publications now already in print out there. Those publications that are coming, they are aggregated of thousands of cases, they're coming out of our registry and many of them are already under review. I cannot comment when are they going to come out? Because obviously, I cannot interfere with the review process, given that these are very high impact journals.

The last piece, the comment about competition. Listen, we're very cognizant of everything that moves in the field of organ transplant. We are not seeing competitive dynamic impacting our ability to execute in 2026 and beyond. I now will leave it at that.

Our next question comes from the line of Bill Plovanic from Canaccord Genuity.

It's Zack on for Bill. Just a quick one on can you provide more details on NOP Connect 2.0? I believe you talked about that in the last earnings call saying it would provide you operational efficiencies. Can you talk about what you've seen early on so far?

Thank you, Zack. We've seen a lot. We've seen -- it's now at the platform. I would say the vast majority of our cases are now coming through the NOP Connect 2.0, and we're seeing efficiency in the management. We're seeing efficiency in the billing. But again, these are early days, early quarters. We are -- as we look forward, we see continuous improvement and expansion of our digital ecosystem, this is our -- this is going to be our second legacy after the OCS. This digital ecosystem is now fully integrated, fully supporting a significant portion of the national transplant volume in the U.S.

And our commitment is to continue to support it, continue to expand it to provide the best service for our customers, but the best and the broadest transparency about the status of the organ, the management of the organ as well as the financial billing around TransMedics services. So we're very, very encouraged by what we're seeing, and we're going to continue to make strategic investments in the digital platform to continue to expand and efficianize our market adoption of OCS.

Our next question comes from the line of Suraj Kalia from Oppenheimer & Company.

Nick, excellent quarter. Can you hear me all right, Waleed?

We can hear you loud and clear, Suraj.

Perfect. So Waleed, forgive me, I'll just kind of quickly sneak in two. It seems like you guys gained about 400 bps of liver share in Q4. Why was that? And Waleed, your comments about Part B of ENHANZE, look, the numbers are suggesting you guys are going to exit FY '26 with approximately 6,300 organs. But if I parlay your clinical trial commentary, it means like you're not expecting a lot of contribution. You all must have put in some safeguards in place if Paragonics or others through a [indiscernible] in the control arm, could you share some additional color on how do you keep the ball moving in Part B? Gentleman, congrats again.

Thank you, Suraj. The first part of the question about the liver execution. Listen, this is a testament to the outcomes of the OCS liver. This is a testament to our clinical leadership of the liver program. This is pure TransMedics execution excellence, period, full stop. So that answer part 1. Part B, listen, we were not -- this is not our first rodeo. We are the company that have supported and completed the largest number of randomized and single-arm trials in the history of organ transplant. None of these cold static storage technologies have ever seen 1 FDA randomized or non-randomized trial. So we were prepared and we somewhat expected this. We will execute Part B, and it will be, hopefully, a significant success for TransMedics. It might take a few extra months to navigate through this dynamic, but the bottom line is we're extremely confident in our strategy, in our design, in our technology. And it says a lot when the control arm is worried about randomizing against OCS. So again, we're humbled by it.

We're not letting that distract us from the task at hand. And as we committed, we are going to complete the study with the best protocol and investor randomization and with the control arm.

Our next question comes from the line of Ryan Daniels from William Blair.

This is Matthew Mardula on for Ryan. Congrats on the quarter. And I kind of want to piggyback on that question, but I want to focus on the feedback you have received regarding the heart clinical trial. Given that you have already mentioned doing a handful of heart transplants for the trial, and I know it is still early in the process and ongoing. But I'm curious if you're what transplant surgeons feedback has been has been on the trial as they progress. And I kind of believe you previously mentioned in meeting all expectations. So I'm curious how that has trended? And is there anything in particular, transplant surgeons have called out regarding the device and maybe express more interest in using the device more in the future.

If I tell you -- if I answer that, it's a great question, Matt, and I appreciate the question. But if I answer that question, I might as well have seen the results. The trial is just early in the process. It's good feedback. It speaks to the value of everything we're trying to execute. I would leave it at that, and I hope to have more meaningful presentations by users of the technology, not by TransMedics, at the ISHLT symposium.

Our next question comes from the line of David Rescott from Baird.

Great. Congrats on the results here. I wanted to ask -- been hopping around a bit. So I'm not sure if it's been covered yet, but the CMS' proposal on some of the OPO changes. There's obviously a lot of stuff going on just on the OPO front in general. So wondering if you could give us some updated thoughts on the state of affairs, just on the broader OPO environment and whether or not there's any benefit that you could see or if this is building out some of the thoughts on the OCS service in general and how we should think about this potentially over the longer term?

Thank you, David. All I could say is organ transplant system in the United States has gone through really significant transformation, hopefully, to the positive. We are supportive of the CMS language, proposed language. We're supportive of Senator [ Widen's ] proposed bill to open up the historical closed transplant system to more competition, more transparency, more efficiency, more high standards of execution and metric -- performance metrics and we are going to try to play a bigger role to support the vision, the growth in overall transplant in the United States, saving more American lives, delivering cost-effective therapy to patients in need, that's costing CMS billions and billions of dollars, but also support existing OPOs in their missions. So we look at our role as -- it's a win-win opportunity for TransMedics to play a bigger role, but also support existing OPOs. That's all I can comment on at the moment.

Our next question comes from the line of Daniel Markowitz from Evercore ISI.

I wanted to ask on the operating margin guide for 2026. It sounds like the gross margins may see some volatility as you expand internationally, and then OpEx as a percent of sales is expected to increase as well to get to that 250 bps of contraction year-on-year. I guess, can you give us the breakout of how much of the margin contraction is coming from some expansion dynamics that weren't really areas of investment yet in 2025, things like international expansion, the trial spend that are kind of, I guess, onetime in nature. And with so many exciting investment opportunities, what are you looking at that tells you that it will make sense to get the business back to significant margin expansion in 2027 and 2028 as opposed to continuing to bring money into investments.

Right. So the big drivers of almost 50% of the incremental investment that we have in 2026 is driven by really 3 elements. One is our -- the completion of our clinical programs, OCS [indiscernible] on de novo. We have -- the second part is the completion of our OCS kidney development. And the third one is the continued development of our OCS next generation or 3.0 as we are calling it recently. Those 3 elements account for -- I think with more than half of incremental investment. And those, by nature, are transitory. So once we complete those elements, that's what gives me the confidence that spend should normalize and then we should be able to start capture an operating leverage as we continue to grow.

Our next question comes from the line of Mike Matson from Needham & Company.

Yes. So just wanted to get some clarification on your comments on the Part B of the ENHANCE trial around the competitive issue that you called out. So I guess the comparators static cold storage. So does that -- I guess I would have assumed that was just putting the organ on ice, but does that really mean one of these cooler type technologies that's out there? And then is the competitor sort of trying to prevent their product from being used in the trial or being enrolled in this trial, is that the issue? I guess I don't completely understand what's happening there.

Yes. That's exactly what's happening. Not everybody is using ice. Static cold storage boxes using [indiscernible] changing elements are being used. And the makers of that styrofoam box is refusing to randomize their technology to ours.

Okay. Got it. And I mean, I guess, how do you plan to kind of work around that or address that.

Wait and see.

Okay. Thank you.

Yes. I mean we have to -- we had hoped that this won't be the case, but we are kind of somewhat expecting it. So we have a plan bypass that. And at the end of the day, it's the transplant programs that need to take control of the trial and TransMedics will support them with the right control arm that would be acceptable to FDA. Anymore questions?

Yes, Mr. Hassanein, we have our next question coming from the line of Chris Pasquale from Nephron.

Waleed, you had a really nice quarter in liver, but heart and lung were both a little bit lower than we expected. Was there anything that you noticed in those segments of the business around the end of the year? In particular, I'm wondering if the trials, which got going a little bit slower than expected might have caused any disruption or if there are any other dynamics there that would sort of explain the deceleration we saw?

The lung -- Chris, as you know, thank you for the question. The lung as you know, it's a [ rounding ] error for us. So really, I wouldn't read too much into the lung dynamic. I think most -- frankly speaking, most of the lung centers were waiting to see the FDA approval to start launching into de novo. The heart, I would say, has a similar impact, but also there has been a couple of other activities in trials wrapping up in the second half of 2025 that may have played a role. One is the cold perfusion trial, but that's wrapped up. And then the other one is a couple of centers decided to do something that they are doing organically. And that, again, we will address all these dynamics at the ISHLT Symposium. As we sit here, we don't -- any of these dynamics, we believe, wholeheartedly, it's transient in nature. And all that's going to get washed with enhanced firing up and de novo hopefully getting initiated here pretty soon. So we're looking forward to seeing the impact of ENHANZE Part A and Part B. And hopefully, we can reverse that these dynamics throughout '26 and then to '27. Anymore questions, operator?

No, sir. We don't have any further questions. That concludes our question-and-answer session. I will now pass it back over to our CEO, Waleed Hassanein, for closing remarks.

Thank you all very much, and looking forward to speaking again to report on Q1 results. Have a wonderful evening, everyone. Thank you.

The meeting has now concluded. Thank you all for joining. You may now disconnect.

Thanks, everyone, for being here. My name is Allen Gong. I'm on the medical supplies and devices team here at JPMorgan. It's my pleasure to introduce the management team at TransMedics. We're going to be starting off with some prepared remarks from CEO, Waleed Hassanein, and then we'll be joined by CFO, Gerardo, for the Q&A. So if you want to kick us off.

Great. Thanks, Al. Good afternoon, everyone. As a quick announcement, we have not released anything and we usually don't create a release for JPMorgan, but we're very excited to be here with you this afternoon. Let me start by showing everybody, this is our new home in Summerville. We hopefully will be relocating to this building over the next 12 to 18 months or so. This is our forward-looking statement.

As many of you know, we're in a very unique and exciting field of organ transplantation. Organ transplant happens to be the gold standard of treating a very complex, very expensive disease condition called end-stage organ failure. It is the gold standard of treatment because it is the most cost-effective treatment for these very complex, very expensive disease condition. It also affords the patient who gets a transplant, the best quality of life and the longest life expectancy. So what's missing? That sounds all exciting. What's missing is for the last 20 to 40 years, there has been limited utilization of existing donors for organ transplants, which limits the total number that this life-saving procedure could be used in every year. And even in the ones that are being transplanted, there is a good room for improvement for post-transplant clinical outcomes.

What is behind these limitations or challenges? It's organ preservation techniques. For the last 4 decades, cold static storage or cold storage has been the Achilles heel of organ preservation for transplant. Cold storage has 3 main limitations that really directly correlates with every bad outcome and every bad thing that happened in organ transplant. First, once you take an organ from the physiologic environment of being in a human body, oxygenated, functioning and put it on ice or cold, you subject the organ to a decay curve. The slope of that decay curve is unknown. It's called ischemic damage.

Right off the bat, that puts a time and distance limitation of how far you can go from an organ from point A to point B from donor to recipient, which significantly limit the utilization of available donors or donor organs. But more importantly, once you take an organ from the physiologic environment of the body and put it on ice or cold storage, there is no way you can optimize or enhance or recondition that organ for transplantation. And more importantly, because the organ is not functioning at all. It's not living. It's not doing much. It's just sitting on ice like a 6-pack or a piece of steak. There's no way you can assess organ viability for transplant.

These 2 combined leads to the most critical reasons why most organs don't get used. If any transplant surgeon on call at night and get a call and if there's any blemish, any concern, any theoretical issue with the organ, the surgeon will immediately turn down the organ because of these limitations knowing that, that organ will be coming to them on ice with another injury layered upon the condition of the organ.

TransMedics has changed all that. But before I get to what TransMedics developed, so let me show you some starking statistics of what these limitations result in, in organ transplant. This is the national transplant numbers from the United States, from the OPTN National Registry from last year, 2024 results. There were nearly 17,000 transplants -- 17,000 donors in the U.S., split between DBD donors and DCD donors. Of those, we only utilized 20% of lungs, 24% of heart and 61% of livers. That's really a huge untapped opportunity to try to get that utilization rate higher.

But more importantly, I told you it's also correlated to post-transplant complications. This is a very famous graph where everybody in the field of organ transplant is very familiar with. The probability of patients transplanted with organs, specifically hearts or lungs that are above 3 to 4 hours, the probability of mortality of this patient escalates with every additional minute beyond the 180 to 200 minutes.

We see this complication called PGD, Primary Graft Dysfunction or early allograft dysfunction or primary non-function or in the kidney, it's called delayed graft function. All of these complications add significant cost to the organ transplant procedure. It could require a patient to get a second transplant, which would add $1 million plus of cost and subject the patients to significant comorbidities and mortality. All these complications are directly related to the time the organ spends on ice, meaning if the organ is in cold condition for longer, the higher the probability of these bad outcomes to happen, the higher the probability of these organ transplants to be costing more and the patient could be at risk of losing their lives.

So what did TransMedics do? We looked at these 3 challenges of cold preservation, and we developed technology that hopefully comprehensively overcome these limitations. We decided to do -- take organ preservation and replicate human physiology in a medical technology. We wanted to minimize ischemic damage from donor to recipient. So how did we do it? We developed the only truly portable perfusion system that perfuses organs with oxygenated nutrient-rich blood. So the organ does not believe it left the human body. In addition, because the organ is being maintained in a physiologic condition, we could enhance, optimize, treat that organ outside of the body of the donor to -- by maintaining active metabolisms.

In addition, we can assess organ viability, organ function with standard tests that we use in every donor environment to test the viability of these organs for transplants. We believe that these 3 or 4 characteristics comprehensively overcome the limitations of cold preservation. This is our platform, the Organ Care System, or OCS. We have 3 FDA-approved platforms in the United States, OCS Lung, OCS Heart and OCS Liver. And this year -- end of this year, beginning of next, we're introducing our newest kidney block, OCS Kidney. We are thrilled and excited about the introduction of the OCS Kidney coming into the market. We'll start obviously with a clinical program, clinical trial because of the following reasons.

The OCS Kidney represents the front end of our Gen-3 technology. It's the most advanced technology ever developed in the history of organ preservation. And certainly, as you would expect, it's led by TransMedics. It's smaller, it's fully automated. It's remotely monitored and controlled. It has built-in sensors that doesn't require a human to be doing blood samples and blood tests in route from donor to recipient. And it maintains the kidney in physiologic condition, so we can maintain the kidney on the system for an extended period of time, and we can truly assess kidney viability up to the minute it's ready for transplantation.

I can't tell you how excited I am about this introduction of our new platform. And this will be the front end of the Gen-3 technology. The heart, lung and liver will be upgraded to Gen-3 technology after the kidney is in the clinical program. And I want to give a shout out to our Kidney team and our R&D team in Andover that's working tirelessly to get this technology into the clinic by the end of this year, beginning of next.

So how does the OCS differ from cold storage? This is how it differs. In OCS, there is no ischemia. There's no decay. It's living preservation. Lung is breathing, the heart is beating, the liver is producing bile and the kidney is making urine. We can assess lung, heart, liver and kidney viability up to the minute the organ is ready to be transplanted. We can enhance organ viability or organ function on the technology, on the OCS to move away from just preserving it. We can enhance it, we can improve it, we can make it better and function better. So everything I'm going to talk about, I wanted to set the record straight. Everything we talk about, every claim we make has been supported by the largest body of clinical evidence that were Level 1 FDA pivotal trials.

We've tested the capabilities of OCS in both DBD organs, DCD organs, extended criteria organs, standard criteria organs across heart, lung and liver. We didn't stop here. We are now in the beginning of Gen-2 technologies for heart and lung by adding to that evidence base by OCS Heart ENHANCE, which the trial started in Q4. We have close to 18 patients already transplanted. And I'll tell you it's early. We understand we have long ways to go for our ENHANCE heart, but we are very excited about the early results and the early feedback we're getting from centers that are transplanting these hearts into their patients.

20 minutes ago, literally 20 minutes ago, the OCS Lung DENOVO trial had received unconditional FDA approval. So our team is rushing to get the DENOVO trial initiated. We stated that we expected that approval to happen in Q1. We're thrilled that the FDA granted us unconditional approval for the OCS Lung DENOVO that early in the year, and we can't wait to get these trials started.

So you should ask me, Waleed, why are you doing these trials? You've already got approval for heart and lung. We're doing these trials, again, to go beyond preservation to deliver to the clinical community prospective Level 1 evidence that we can improve heart function and lung function outside of the human body. That's number one.

Number two, we wanted to deliver the same type of catalyst to clinical adoption that is actually fueling the adoption of our liver program, which is the ability of the transplant team to operate in normal working hours between 7 in the morning and 7 at night instead of 2 in the morning to 6 in the morning by allowing safe, reproducible preservation and perfusion of these organs in OCS using the NOP staff and giving them better quality of the surgical procedure, but also significant improvement in the human resource management and the financial resource management.

And finally, we are no longer interested in a me-too type comparison. We are going for a superiority claim with these types of trials. Why are we doing this? Because as we have been building the platform, as we've been building all the market dynamic that I will talk about, there has been a lot of newcomers to the field that have never conducted a clinical trial in their existence. And they're saying, oh, we can do, we can do, we can do, we can do. So we're going to hold them to these unsubstantiated claims and we're going to compare ourselves to any cold preservation technology out there, and we are aiming to prove superiority of our platform compared to this cold preservation technique.

2.5 years ago, we didn't stop at just delivering or selling medical technology, but we developed a first-of-its-kind business model called the NOP or the National OCS Program, which is a turnkey solution that pretty much manages organ preservation and procurement nationally across the United States. Today, we're operating out of 18 hubs across the U.S. We have 50 full-time transplant, fully trained transplant surgeons, cardiothoracic and abdominal and 200-plus clinical specialists across those 18 hubs. We also vertically integrated our logistics network into TransMedics aviation, where we have 22 operational aircraft with more than 130 pilots with dedicated maintenance hub and a very advanced command center.

We selected Phenom 300E made by Embraer, not because it's pretty, but it's because it is the most efficient, environmentally friendly, fastest light jet as well as it's the longest range. We did this so we can go as far as we can go to get organs and make more organs available for transplant. This is our command center in Andover, which we're building the new command center in our new facility in Summerville to be at least 4x the size and it's highly sophisticated operation for many of you who visited us can attest to that. That command center is manned 24/7 with dedicated logistics and clinical expertise, 24/7, 365, and we could not achieve the success we've achieved without the dedication of that team that is operating around the clock to make every organ transplant available or every donor available for organ transplantation for patients in need across the United States.

We didn't stop here. We -- you heard me talk about in our Investor Day last December in 2024 about how excited we are about our digital ecosystem. Today, as you can see, that digital ecosystem is becoming very, very sophisticated. It's becoming an area of pride for TransMedics because it is fully transparent. It allows centers across the United States and soon in Europe to launch an NOP case and have full visibility to the status of their organ, to the viability of their organ, to the distance, to the GPS locator, to the time where the organ is going to arrive to them using a proprietary app.

This app is HIPAA compliant and fully secure. It also gives them full visibility to the economics, the finance aspect of the case and gives TransMedics full capability to manage the deployment, manage the logistics, manage the resources. And obviously, we have a Power BI layer in there, so we can monitor every moving piece for every mission on NOP. It's very, very sophisticated. We're very, very proud of that. And we think this is going to be one of the critical element of our success in the immediate and long-term future, not just in the U.S. but also in Europe. So this is all great.

Let me show you evidence of what did that all translate to in U.S. ecosystem of organ transplant. So this is the U.S. transplant national volume for heart, lung and liver for the last 3 years that includes the NOP volume or NOP case volume. We resulted in mid-20% year-over-year growth over this 3-year period for heart, lung and liver national volumes. This is then same national volume if you remove the OCS NOP, which means that OCS and NOP were directly related to driving the increased volume in the national basis, which has always been our vision that using OCS could significantly improve organ utilization in the United States.

Next is, again, right out of the SRTR Transplant System Explorer. This is the DCD organ utilization for transplant in the U.S. It's one of the primary reasons why we were able to gain more organs to be transplanted. You can see it's grown significantly from the COVID era or pre-COVID era till last year. You need to understand that what's behind that is this is the results of the OCS being approved by FDA for both liver, lung and heart to use DCD organs safely in the United States. And since then, there has been more than 500% increase in DCD utilization for organ transplant, which is driving that national growth in the U.S.

Next is the utilization rate. I showed you utilization rate in the 20% to 60%. This is our utilization rate coming out of the real-world experience with the OCS NOP; for liver, 98%; heart, 97%; lung is 96%. This is as of 2024 year-end. We are going to announce our utilization rate at our next earnings call, we usually announce it at year-end because of the variability during the year. But it's the highest rate of organ utilization reported in the history of organ transplant. So we're very, very proud of this.

Now many have asked, is this it for TransMedics? If TransMedics reached a plateau in our growth curve, the answer is absolutely not. We're just getting warmed up. We see significant growth opportunities in front of us. We stated publicly that 10,000 U.S. transplant is our target for 2028. We've stated publicly that 20,000 U.S. transplant is our target for 2030 and reaching 30,000 transplant by 2032 globally. How are we going to get there? First, in '26, we are focusing on really accelerating the heart and lung adoption using the Next-Gen ENHANCE and DENOVO. We're launching our EU NOP model starting in Italy, but we have our sights on several other European countries to hopefully contribute towards the tail end of this year into 2027.

2027 is going to be the year of the kidney. That is when we're going to launch a large clinical program of kidney -- for the kidney device, and that will generate significant momentum, significant adoption in the largest market of organ transplant, which is kidney. Also continue to expand NOP internationally in Europe, Middle East, maybe Australia. Now what's after that is really expansion into Gen-3, liver, heart and lung technology, launching the OCS kidney internationally and FDA approval of the OCS kidney in the U.S., which will get us into the 30-plus thousand transplants a year in the U.S. and around the world. So this is our plan for Italy. We are targeting 4 hubs in Italy, 2 in the North, 2 in the South. We are already establishing a command center. We're building a transportation network, both ground and air.

And we are very excited about launching this program. We've already started 2 missions already this year, and we can't wait to update the community at this program. We expect this program to really generate meaningful results second half of this year into early next year.

Our financial performance has been very strong. We've been extremely fortunate that the NOP and everything we talked about despite the fact that we own aircraft and people thought that we've lost it when we announced that. It's really -- we couldn't achieve this strong financial performance without having going full in on the NOP and vertically integrating logistics. Our revenue growth speaks for itself. Our operating growth is also palpable. We are focusing on profitability, but definitely, there is a time over the next 12 to 18 months where we cannot starve the development in Gen-3, but we will maintain a profitable profile for the business going forward, and we're sitting on a very strong balance sheet that we are hoping to hold or opportunistically deploy to expand the reach of TransMedics across transplantation or other adjacent markets.

With that, let me leave you with why are we excited about TransMedics. We believe we're in a very unique position where we have a Trident or at least that's what we codename it internally of end-to-end service technology that is unparalleled in the field and vertical integration of logistics and digital ecosystem, delivering superior clinical outcomes, the highest rate of organ utilization for transplantation. We have a team that is fully dedicated with excellent track record of execution. And we're not just basking in our glory, we have a very strong pipeline of technical innovation that we cannot wait to deploy into the market.

With that, I thank you very much for your attention, and I'm happy to address any of your questions.

So just to kick it off, we're coming off of another strong year for TransMedics. As you said, you haven't preannounced the quarter. But with the publicly available data, looking at UNOS, looking at the flight data, it looks like you had a strong close to the year in December for the broader DCD market at least, kind of talking around it a bit relative to expectations, relative to the seasonal slowdown that we saw in third quarter, how did the fourth quarter play out?

Yes. As we expected, we said we should expect slowdown in Q3, and we should expect recovery in Q4. That exactly happened. And we can't wait to announce the quarter results, and we're excited about how the year is actually starting. So -- and we expect that we will report some -- not just good results for the quarter, but we -- I can't wait to see the full year results from a penetration and market adoption standpoint across the 3 organs.

I think one of the main dynamics we're really going to be keeping an eye on over the coming year plus is probably going to be the clinical trials for heart and lung. Heart, correct me if I'm wrong, it was still under a limited approval up until -- is it still under limited approval?

It's still under limited approval.

So you were enrolling patients in the trial because they allowed you to enroll up to a specific cap. And then lung, you just got the approval today, and it sounds like you're going to start enrolling soon. So what has the pace of enrollment, I guess, for heart been like? And when we think about your ability to enroll both of those studies, how quickly do you think you can get those enrolled and finished?

We've always stated that, Allen, we expect 12 to 18 months for a full enrollment to happen, and we are going to stay with that conservative assumption until we get the uncondition -- the conditions removed for the heart, and we see how the pace continues for the year. But the early pace on the heart is very, very encouraging. The early results or feedback, I shouldn't say results, the feedback we're getting from the centers that transplanted these hearts was exactly matching our expectations and hope. So we're thrilled to be at this stage. We expect the heart conditions to be removed here within the next 30 or 45 days, and we can't wait to get the lung initiated. That's really where I'm holding my breath and because for us, this is a very important program to really resurrect that sleeping giant.

So I imagine heart probably started off a little bit faster than lung might because you've been able to maintain that commercial relationship, while with lung, you've obviously had to kind of roll that back a little bit, and you might have to reestablish that relationship a bit. So relative to the 12 to 18 months, is it just that lung will be closer to the 18-month time frame as you have to turn on the centers, get the protocol in place and then start actually enrolling patients, so that's the way to think about it; heart may be a little faster, lung may be a little slower.

Yes, I think that's fair, Allen. Also, there's nothing more important or more strong to catalyze a trial and accrual more than results. So we hope that once the lung gets started, that the results will be encouraging to drive more adoption. We think that's what's catalyzing the heart right now. And again, it's early, but the early signals have been proven to match our expectations so far.

Liver, even though I think heart and lung are having their time in the spotlight, liver has kind of been the main driver that's gotten you here, and it's going to continue to be a strong growth driver for you going forward. It's -- of the 3 that you're currently playing in, it's the largest market. So naturally, it has been able to drive a lot of your growth. When we think about the outlook for 2026, right, there aren't obvious catalysts like there are for heart and lung trial enrollment. So how should we think about lung adoption progressing through 2026? Where are the opportunities for you to continue driving growth? What are the untapped future opportunities for you to kind of sustain that going forward?

You mean liver. Liver adoption.

Yes, liver.

What's not obvious is we're sitting on a gold mine of more than 9,000 liver transplant data, very granular data collected in our OLP registry. The first publication reporting on the first 6,000 liver transplants will be hopefully out in the top impact journal, U.S. journal, hopefully in Q1 or early Q2. The other catalyst -- and that will be a huge catalyst for the liver adoption.

There are several other publications in the pipeline that will articulate the significant value of liver, not just in DCD, but also in DBD. And there are other couple of smaller catalysts that our team is working on that we will be discussing in the second half of the year. So we're still halfway through in the liver. We're not done yet.

There is a significant portion of the DCD liver is not being utilized because of failure to progress. We -- our team is thinking about creative clinical ways that we can launch a program to hopefully make many of those livers transplantable using the OCS. So there's a lot of catalysts that's still ahead of us in the liver, but we're obviously proud and excited about where we are with the liver today.

The competitive landscape is definitely an interesting point. You kind of addressed it during your presentation that there -- it is pretty noisy out there. You had a competitor in liver that got acquired. You have a player in lung that's been there for a while with a slightly different offering, and you also have entrants potentially for heart as well. So have you seen any -- let's start with like the easy one, with liver, right? Have you seen any strategic changes since the main competitor was acquired? Are you seeing any inroads being made? Anything new on that front?

Not to our knowledge. But it's early, and we welcome competition and -- but we have not seen any major dynamic or shifts in the market since that announcement was made.

Thinking about broader liver, you talked about how you're trying to expand access to the organs that currently aren't being used. But let's say there's organs that are being used just not on OCS, right? I'm a liver doc for some reason, I don't want to use OCS. What are my reasons?

I think poor understanding of the outcomes that could be -- that will -- should be fixed with the broad publication of the data, so that's number one. Number two is a lack of understanding of the economic benefit of the OCS, just looking at the sticker price and saying, oh, it's too expensive, yet they're paying probably double the cost of OCS by using the competing technology plus NRP.

All that, our team -- our commercial team is doing a great job, and they continue to be creative at overcoming that. And again, the results will speak for themselves. We are making significant progress in adoption and market utilization in liver in the U.S. So -- and we still have ways to go. So...

On the heart side, for that study, you have the 2 arms. One is evaluating the system in the patient population that you're indicated for already treating and then the other is to expand you into shorter travel time, DBD patients. So when we think about your strategy there, you've talked to kind of an interesting strategy where you may submit for the approval for the OCS system before you finish the enrollment of the second arm. So I was just curious if you could kind of expand on the strategy there and your thought process.

Sure. Well, the protocol is in clinicaltrials.gov so it's not a may. The protocol is written prospectively to say when Part A is finished, the FDA allowed us to submit the results of Part A for PMA supplement to get that indication approved. So that's by design. The reason why that's very important for us is if we continue to prove the thesis that the new Next-Gen OCS heart could truly enable morning hour heart transplant safely, effectively and reproducibly. This historical notion of 3 hours or 4 hours transport and the heart has to be transplanted, which was developed by ice, by cold storage will go out of the window. So -- and the FDA fully recognizes that.

So again, our focus right now is to execute the trial to the best of our ability, get the data cleaned and submitted for Part A, while we're initiating Part B and doing a head-to-head comparison so we can quiet any potential competitor in the cold preservation arena that never conducted a clinical trial of that magnitude, and we will put the technology to the test. But if we finish Part A and show the results, the FDA gave us the ability to do that, to go and file for the PMA supplement for them to approve that indication. And then we have a decision to make depending on the progress of Part B, whether we continue, whether we stop it. So we have maximum flexibility there. But that was all by design. That's not -- that was not kind of an afterthought.

One more question before you move on to financials and rope in Gerardo here. The 10,000 target, you established that quite a while ago now, and there's been a lot of changes to the story since then. Clinical trials have begun. You've started talking about kidney, you started talking about Italy and a bigger presence OUS. So what is included in that 10,000? What is upside to that 10,000? And then kind of the next step, what is included in the 20,000?

Sure. 10,000 was established at JPMorgan in 2021 or -- yes, I think -- 2022. And it was U.S. number, heart, lung and liver only and period. It doesn't include Gen-2. It doesn't include international or Europe. So that's what the 10,000 is, and we feel very confident that we will achieve that goal. What the Gen-2 heart and lung could enable us to do is to potentially get there a little bit sooner, not too much sooner, a little bit sooner or maybe in 2028, do a little bit more than 10,000. That's what Next-Gen could catalyze.

What's on top of that, how to get from 10,000 to 20,000 is just purely kidney in the U.S., and that's 20,000 is a U.S. number as well. Today, as we sit here today in the beginning of 2026, last year, there was approximately 25,000 diseased kidney transplanted in the U.S. On top of that, you need to know that there was approximately 10,000 kidneys that were rejected for transplantation for one clinical reason and one clinical reason only, prolonged ischemic time on cold storage. If we just target that low-hanging fruit, that will be -- that will get us -- that will get us to the 20,000 in the U.S. The 30,000 is a conservative estimate when you add on top of that the European impact in 2032 and whatever mature U.S. market at that time with kidney fully contributing to our growth.

Got it. And then talking about the P&L, the other side of the story for TransMedics has been a tremendous growth in profitability over the last few years as you've introduced aviation as the disposal business has continued to grow alongside that. It's added a little bit of complication, I guess, to the gross margin profile, right, before you only had the disposable. Now you also have the service piece built into it. Now you're moving internationally. So how do we think about the gross margin outlook? What is a stable gross margin 5 years down the line, let's say, like with international factored in as well?

What I have been seeing [indiscernible] is our gross margin in the long term would be around the 60%, it can be slightly above, slightly below, but 60% is what we are targeting. We have a number of initiatives that will be margin enhancements. However, we have other ones like you said International, where the margin may not be the one compared to the one that we have in the U.S. just because the volumes are different. So the economies of scale will be different. All in all, when you take all of those in the balance, we expect the margin to remain at around the 60%.

However, what we're really focusing on improving is the operating margin. That's where in 2025, our operating model proved to be able to scale in a very efficient way, right? There, we're expecting to be at or approaching the 30% operating margin by 2028.

What does that target assume in 2028, that 30% when it comes to moving beyond Italy, right? Because right now, you're just starting off in Italy. I know you have plans to eventually expand that, build up the aviation capability to service more Europe, all of Europe at some point. What is that 30% assume for the balance of investment into that initiative and revenue from that initiative?

That's a good question. We -- because it's not only Italy. Italy is -- it's our beachhead, right? But in order to make Europe meaningful, we need to go into multiple different countries. So it's -- you got to bring together the different puzzle. And that's why what we're mentioning is in 2032, that's where we're adding to the number, the OUS getting to the 30,000 transplants. That's what we currently have. There could be upside, yes, we believe that the 30% is the floor, but it's too early to mention exactly what kind of upside can we have. There are so many variables just yet still there.

Got it. Unfortunately, I do think we're out of time. There's so much more we could talk about. Thank you, Waleed. Thank you, Gerardo, for your time today.

Thank you. Appreciate it.

Thank you.

Good afternoon, and welcome to the TransMedics Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. [Operator Instructions]

I would now like to turn the call over to Ms. Laine Morgan from Gilmartin Group for a few introductory remarks. Thank you.

Thank you. Earlier today, TransMedics released financial results for the quarter ended September 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 forward-looking statements address various matters, including, among other things, future events, results and performance, financial guidance and projected expectations, potential market and business conditions, our examination of operating trends, the potential commercial opportunity for our products and services, the potential timing, outcome and impact of new clinical programs, and our potential initiatives, opportunities and plans in the U.S. and globally, including timing and expectations. 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 July 30, 2025 and our subsequent SEC filings, which are available at www.sec.gov and on our website at www.transmedics.com. You can also find the company's slide presentation with information on third 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, October 29, 2025.

And with that, I will now turn the call over to Waleed Hassanein, President and Chief Executive Officer.

Thank you so much, Laine. Good afternoon, everyone, and welcome to TransMedics' Third Quarter 2025 Earnings Call. Joining me today is Gerardo Hernandez, our Chief Financial Officer.

Organ transplantation remains a key area of focus for policymakers in both the U.S. and around the world. In the U.S., the ongoing national modernization initiative is focused on growing transplant volumes, while streamlining organ donation, coordination and oversight processes. Internationally, efforts are similarly focused on maximizing utilization of donor organs for transplants, while also finding more efficient ways to manage organ procurements and improving post-transplant clinical outcomes. Globally, TransMedics is uniquely positioned as the ideal solution to address these initiatives through our differentiated OCS technology, NOP clinical and logistical services and our proprietary transplant digital ecosystem. As we will outline today, we are seeing strong signals supporting this conviction. We are now laser-focused on capitalizing on our momentum worldwide to provide our unique solutions to promote organ transplantation and save more lives.

We are extremely proud of our strong results achieved in Q3 despite the anticipated and typical transient seasonal slowdown seen in the U.S. national transplant volumes as reported by UNOS OPTN data in Q3. Specifically, we're very encouraged by the year-over-year growth trend, which we strongly believe is a more relevant and meaningful performance metric, especially in a seasonal quarter like Q3. Let me share the summary of our results for 3Q 2025.

Total revenue for 3Q 2025 was approximately $144 million, or exactly $143.8 million, representing approximately 32.2% growth year-over-year. We experienced year-over-year growth across all 3 organ segments, driven by higher overall utilization and center penetration of OCS NOP in the U.S. Specifically, we saw year-over-year growth of nearly 41% in liver, approximately 14% in heart and approximately 5% in lung revenues in Q3.

Our overall gross margins for 3Q was approximately 59%, representing 2.9% growth year-over-year. We delivered operating profit of approximately $23.3 million in 3Q, representing more than 16% total revenue -- of total revenue, up from $3.9 million or approximately 4% of total revenue in 3Q 2024. And finally, we have driven strong cash generation. We have significantly improved our billing processes and have maintained a healthy AR collections, which resulted in the addition of approximately $65.6 million of cash to our balance sheet as we ended 3Q with over $466.2 million in cash.

Shifting now to TransMedics' transplant logistics infrastructure and performance. Transplant logistics service revenue for 3Q was $27.2 million, representing approximately 35% year-over-year growth. Throughout 3Q, we owned and operated 21 aircraft before adding our 22nd aircraft in October, which we were targeting to end 2025 with 22 owned aircraft. In 3Q, we maintained coverage of approximately 78% of our NOP missions requiring air transport compared to approximately 61% in Q3 of 2024. Meanwhile, we have continued to add to our pilot crew, enabling us to experiment with double shifting a portion of our fleet by year-end. We are pleased by our strong operational 3Q performance achieved despite the expected transient seasonality. We are confident that this seasonal impact is behind us as we have seen volume rebound in September and into early Q4.

Moving now to update on our Next-Gen OCS ENHANCE Heart and DENOVO Lung clinical programs. We are thrilled to report that several U.S. heart and lung transplant centers are approaching the initiation of patient enrollment for the ENHANCE Heart and DENOVO Lung trials. We remain confident that the enrollment will start in Q4 2025. Meanwhile, our team is actively working to complete our responses to the remaining FDA questions and expect that all IDE conditions for both trials will be satisfied by early next year. We're very excited about initiating these 2 programs to demonstrate the potential positive clinical impact of our Gen 2 modification on heart and lung transplantation in the U.S. Importantly, we hope that these programs will catalyze significant OCS Heart and OCS Lung adoption in the U.S. in 2026 and beyond.

Now, please allow me to discuss our effort to expand our TransMedics NOP model outside of the U.S., which represents a key midterm growth driver for TransMedics. As I stated before, TransMedics' U.S. NOP success has been highly visible across the global transplant markets. This resulted in many international geographies engaging with TransMedics to explore the potential for replicating all or a portion of our NOP model and our integrated logistics platform to help them grow their transplant programs. Importantly, through these market engagements, we became very aware of their significant needs for a dedicated transplant logistics support for reasons similar to those we've seen and experienced in the U.S. To that end, in September, we were excited to announce our plans to launch our first OUS NOP program in Italy. We are now actively establishing up to 4 hubs to serve as launch points for that program, strategically covering both Northern and Southern Italy. We are also actively staffing up our Italian clinical support teams.

Now, it is important to note that we are planning to start building an EU air and ground transplant logistics network similar to the one we have established in the U.S., however, appropriately sized to meet the European needs. Given our current knowledge of the Italian and European transplant logistics need, we see a significant opportunity for TransMedics to capitalize on by replicating our transplant logistics service in Europe. Please allow me to repeat, we -- given our current knowledge, we see a significant business opportunity and revenue-generating opportunity by replicating our transplant logistics service in Europe to meet the growing needs for a dedicated transplant network -- logistics network in European countries.

We expect the Italian NOP program to launch in the first half of 2026. We're also currently engaged with several other European countries and also engage with regions outside of Europe to expand our program beyond Italy in the coming years. Stay tuned. This initiative will serve as an additional growth catalyst beginning as early as late 2026 and more meaningfully in '27 and beyond.

With that, let me turn to the here and now. We are laser-focused on finishing out 2025 strong to round out another great year for our business and potentially grow the U.S. national transplant volumes for the third consecutive year in a row. We are continuing to drive adoption of our OCS NOP across all organs. We are expanding our OPO partnership to increase organ utilization for transplantation around the United States. Next week, we are hosting our annual transplant leadership forums in Boston with approximately 200 transplant leaders from all transplant market segments expected to participate.

We are continuing to strengthen our clinical support staffing to meet the growing demand. And finally, we remain on track to begin double shifting a portion of our aircraft fleet by year-end to enhance operational efficiency. We are confident that all these activities will position us well to end the year strong and be in a good position for the expected ramp in adoption in 2026.

Before I conclude, please allow me to provide a status update on our long-term growth initiatives and our planned new global headquarters and manufacturing facility. First, we are very pleased with the preclinical and product development progress of our OCS Kidney program, which is underway and was announced publicly at the World Transplant Congress Scientific Conference in August. We expect to reveal the design of our OCS Kidney device in early 2026 at the American Society of Transplant Surgeons Winter Symposium. Second, the development of our Gen 3 OCS platform is well underway with significant progress already made on many of the advanced technology platforms that will be encompassed in that next Gen 3 OCS platform. We expect to share more detail on Gen 3 OCS platform in the second half of 2026. Third, as Gerardo will outline later, we are actively investing in critical business infrastructure systems to better position TransMedics to scale and grow with strong controls and efficiencies. Finally, we have narrowed down our selection for the new global headquarters of TransMedics to the city of Somerville, a northern suburb of Boston. We are in the final stages of lease negotiations for a state-of-the-art new building to combine all of our functions in one campus, and we expect to announce the location in early January 2026.

As you can see, we are not slowing down, and we are growing our technology platform and geographical outreach. As I have stated before, our near-term capital allocation strategy is a growth-oriented strategy. That said, while we expect operating margins to 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.

Now, let me conclude my remarks by commenting on our expectations for the remainder of 2025, which Gerardo will detail further. Based on our performance to date and our expectation to end the year strong, we are narrowing the range to raise the midpoint of our full year 2025 revenue guidance. We are now guiding to a range between $595 million to $605 million for full year 2025 revenue. This represents approximately 36% growth over the full year 2024 at the midpoint.

With that, let me turn the call to Gerardo to cover the detailed financial results for the quarter.

Thank you, Waleed. Good afternoon, everybody. I am pleased to be here to discuss TransMedics' third quarter results. Please note that a supplemental slide presentation with additional details on our third quarter 2025 results is available in the Investors section of our website.

As Waleed highlighted, we sustained momentum through the third quarter with disciplined execution across the entire TransMedics team. Despite the typical seasonal slowdown in the U.S. transplant activity, where Q2 tends to be one of the strongest periods followed by some moderation, our performance remained strong. Continued benefits from our ongoing strategic investments drove solid performance across both product and service lines, along with continued margin expansion and improved profitability versus Q3 of 2024. It's worth noting that in our earlier years, our rapid growth trajectory offset the natural seasonality in the U.S. transplant activity. As we've reached greater scale, our results have started to follow those underlying market dynamics more closely, even as the business continues to expand at a healthy pace.

Total revenue for the third quarter was approximately $144 million. U.S. transplant revenue was approximately $139 million, up 32% year-over-year and down 9% sequentially. By organ, liver contributed $108 million, heart with $27 million and lungs with $4 million. OUS revenue was $3.6 million, up 41% year-over-year and down 13% sequentially. OUS revenue by organ was $3.2 million in heart, $0.3 million in lungs and $0.1 million in liver.

Product revenue for the third quarter was $88 million, up 33% year-over-year and down 9% sequentially, reflecting continued momentum across both liver and heart programs and solid underlying activity levels compared to 2024. The sequential decline was in line with the typical seasonality moderation in transplant activity during the third quarter.

Service revenue for the third quarter was $56 million, up 31% year-over-year and down 8% sequentially. The primary driver of growth was logistics revenue, which increased 35% year-over-year, reflecting continued expansion and strong utilization of our aviation fleet compared to 2024. Sequentially, logistics revenue declined 9%, consistent with the expected seasonal slowdown in transplant volumes during the third quarter.

Total gross margin for the quarter was approximately 59%, up nearly 290 basis points year-over-year and down roughly 260 basis points sequentially. The year-over-year improvement was driven by higher fleet utilization, cost efficiencies in logistics and limited unplanned aircraft downtime. We are also starting to see early benefits from spreading the scheduled maintenance more evenly throughout the year. Sequentially, the decline mainly reflects lower activity levels in the quarter and the impact of investments we are making in infrastructure to drive future efficiencies and support our anticipated growth in 2026.

Total operating expenses for the third quarter of 2025 were $61 million, up 8% year-over-year, and the increase was primarily driven by a 7% increase in R&D expenses, reflecting continued investment in our innovation pipeline and the ramp-up of our product development capabilities. SG&A expenses grew 8% year-over-year, reflecting ongoing expansion of our IT infrastructure and investments in strategic growth initiatives. Sequentially, total operating expenses were up 2%, primarily driven by an increase in SG&A in support of our ongoing expansion activities.

Operating income for the quarter was $23 million, up 494% year-over-year and down 36% sequentially. Operating margin expanded to 16% compared to 4% in the prior year. Net income for the third quarter was $24 million, representing a 477% year-over-year increase and a 30% sequential decrease. Earnings per share were $0.71 and diluted earnings per share were $0.66 for the third quarter of 2025.

We ended the quarter with $466 million in cash, up $66 million from June 30, 2025. This increase was driven by strong operating cash generation, supported by continued improvement in our billing processes and healthy collections, reflecting our focus on efficiency and disciplined working capital management.

Overall, our third quarter performance reflects the same disciplined execution, efficiency gains and progress across our clinical and innovation programs that we've demonstrated throughout the year. Together with the scalability of our model, these results continue to validate our ability to deliver strong financial performance and sustained momentum through the rest of 2025 and beyond.

Looking ahead, as Waleed mentioned before, we are narrowing our full year revenue guidance to a range of $595 million to $605 million. With only 1 quarter left in the year, this reflects our increased visibility and continued confidence in the strength of the business. At the midpoint, this represents roughly 36% growth over 2024, driven by expanding transplant volumes and sustained momentum across our service platform.

In terms of gross margin, as mentioned in previous calls, we expect overall margins to remain around 60% over the coming years. This outlook reflects the various factors influencing both product and service margins beyond just mix. As we expand internationally and continue investing ahead of growth, we may experience some near-term pressure on margins. However, we expect those impacts to normalize and margins to recover as volumes scale across markets.

In terms of capital allocation, our focus is on driving long-term value. We are concentrating our investments in 3 key areas: first, fueling growth through continued R&D investments and targeted expansion into selected international markets; second, building a stronger foundation by implementing systems that simplify and optimize processes across the business, improving efficiency and scalability as we grow; and third, enhancing our infrastructure to support long-term scalability, including our planned move to a new global headquarters to accommodate growth, ongoing upgrades to expand our manufacturing and product development capabilities, and our continued evaluation of strategic opportunities that could further strengthen our platform for the future. Collectively, these initiatives play an important role in preparing TransMedics for its next stage of expansion as we move towards the 10,000 transplant milestone and beyond and reinforce our global leadership in transplantation.

Aligned with our focus on efficiency, we have also made progress on our double shifting pilot program to improve fleet utilization. Pilot hiring and training are advancing well, and we continue to expect early results in the first half of 2026. This insight will help us determine the appropriate fleet size and utilization model to maximize efficiency and capital returns. Recently, in October, we achieved our goals of owning 22 jets by the end of 2025. Looking ahead, we remain open to acquiring additional jets when the right conditions are in place, whether to enhance U.S. capacity or to support our international expansion efforts.

Finally, with stronger top line performance, continued efficiency gains and disciplined spending, we expect to deliver at least 750 basis points of operating margin expansion for the full year of 2025 compared to 2024. While there could be additional upside, that will depend on our final sales performance and the timing of our investment plan for Q4 of 2025. We continue to expect operating margins to reach or approach 30% by 2028.

While we may see some fluctuations as we expand internationally and invest ahead of growth, we remain confident in the long-term direction and scalability of our model. Our OCS technology, together with NOP platform and integrated logistics network, give us a clear advantage in expanding access to transplantation worldwide. With the scalability of our model and strong execution across the organization, TransMedics is well positioned to sustain growth, expand margins and deliver long-term value, while giving more patients a second chance at life.

And with that, I'll turn the call over to Waleed for closing remarks.

Thank you so much, Gerardo. Overall, we're very pleased with our third quarter performance and the significant progress our team continues to make across multiple growth initiatives. Importantly, we are now laser-focused, as I stated earlier, on ending 2025 on a strong note and better position TransMedics for another strong growth year in 2026. It's becoming increasingly clear that TransMedics is uniquely positioned with unparalleled attributes that include OCS technology, NOP clinical services, the transplant logistics network and our proprietary NOP Connect digital platform. All of these collectively enable us to deliver unrivaled life-saving solutions to global transplant markets.

Of course, none of this would have happened without our dedicated world-class TransMedics team that are working around the clock to make organ transplantation more accessible to patients who are waiting for a new lease on life in the form of a new organ. We are inspired and committed to continue our drive to expand the access to organ transplantation and improve post-transplant clinical outcomes of organ transplant therapy around the world.

With that, I will now turn the call to the operator for Q&A. Operator?

[Operator Instructions] We have the first question from the line of Allen Gong from JPMorgan.

I guess, my first is just on the trajectory into 4Q and then after that into 2026. So based on your guide, you're expecting to get to roughly just under 30% in fourth quarter, around [ $155 million-plus ] sales. So how should we think about that as a run rate looking forward into 2026? And should we think about 2025 as being an appropriate year when it comes to seasonality, given we've seen you kind of normalizing more towards market growth as you've grown larger?

Thank you, Allen. Let me start with the second part of the question first, if you allow me. As I've stated publicly before, I think seasonality in organ transplant is something that we all have to be comfortable with and anticipate year after year, especially as we continue to grow and be a dominant player in the U.S. transplant market. As Gerardo mentioned, we see this seasonality every year, and we saw the seasonality every year nearly for the past almost a decade. And so, we should expect that going forward.

Now, let me turn to the first part of your question. We plan to issue our guidance for 2026 at our next earnings call. I think 2025, our focus right now is to end 2025 strong and achieve our stated guidance. And then, that gives us time to evaluate our initiatives, the clinical programs that are underway, then we will issue guidance for 2026, which we fully expect to be a growth year for TransMedics over 2025, but allow us the time to state our 2026 expectations with the benefit of finishing the year and adding these data points that will be crucial to providing guidance for the full year 2026.

And then, a quick follow-up just on international. I know the Italy announcement was definitely a pleasant surprise. And I guess, when we think about your efforts to expand beyond that to cover the breadth of Europe, I imagine it won't be quite as straightforward as you can call it that as your efforts in the U.S. But what kind of challenges do you anticipate ahead of you for that? And how long do you think it will take before you can get your NOP and your logistics services in Europe to the same level as they are in the U.S.?

Thanks, Allen. Again, Europe is not a homogeneous geography. We have to be respectful and design our NOP to be tailored to each country's specific clinical and regulatory requirements. Italy is going to be a very important first step. We're very encouraged by where we are in Italy right now, and we hope to be able to deliver Italy early -- or in the first half of 2026. We're heavily engaged with other geographies in Europe. And as I said, every geography has its own specific requirements. However, the -- what's universal in Europe is the need for a dedicated transplant logistics network. It's not going to be at the scale of the U.S. for sure. It's going to be smaller. But that has a huge opportunity to even facilitate clinical adoption for the OCS in many of the European geographies that we're engaged with, as well as other regions outside of Europe. So we need to focus on our first kind of beachhead in Italy, deliver on our promises and deliver world-class service, achieve success there. And we believe wholeheartedly, especially in Europe, success delivers success. And if it works in Italy and it works well, this is going to propagate across Europe. And if it works in Italy, it will work anywhere in Europe, just given how the Italian environment is very complicated and very -- has a lot of needs.

We have the next question from the line of Bill Plovanic from Canaccord.

I'm going to just start off -- first, I just wanted to get clarity. So you believe that you'll have the final IDE sign-off from FDA on the ENHANCE and DENOVO and enroll -- when you say enroll, treat the first patients or book the first revenue in the first half of '26, is that what you're saying at this point?

No. Bill, thank you for the question. We are going to enroll the first patients and probably first handful of patients and book the revenue in Q4 of 2025. What we are saying is we have conditional approval for a fairly sizable initiation of the trial, so especially for the heart. So we can -- that's going to happen in Q4. What I'm saying is that limitation or cap is going to be removed or these conditions will be removed once we address all the remaining questions for FDA, and that will come in Q1 of 2026 or early 2026. And then -- and now, the trial will be uncapped and unconditional. It's going to be open. But we're going to enroll and book our first revenue in Q4.

Okay. Perfect. And then, just trying to understand, on the operating margin guide, you're saying 750 bps, which is 16% for the year, which is $96 million, which -- that's like $10 million on the midpoint of the fourth quarter is only 6.5%. So I'm just trying to understand, as you talk about the build-out of Europe logistics, like can you put a dollar amount on this for us? Is this $10 million, $100 million? Like how should we think about the CapEx required and the timing of those investments?

Bill, this is Gerardo. In terms of CapEx and investment for the European NOP, we will be providing a little bit more color next year in our next call. However, for my anticipated forecast on operating margin in 2025, it assumes that it has certainly space to improve upside. It assumes that we land in the low end of our guidance range and that we actually deliver on our investment plan in the U.S. in Q4. So I believe we have space to surpass what I shared, but we'll see where we land.

We have the next question from the line of Ryan Daniels from William Blair.

This is Matthew Mardula on for Ryan Daniels. So I want to touch up with HHS decertifying an OPO in the middle of the year. Have you seen any disruptions from the OPO decertification? And I understand that HHS wants to increase the number of transplants and not have organs go to waste. But could the continued decertification of OPOs impact the number of organ transplants? Or do you just view this as a kind of small minimal risk?

Thank you for the question. At the first part of the question, we do not see any disruption to organ transplantation in the U.S. based on the actions taken by HHS. That's number one. Number two, we believe wholeheartedly that if the stated goals and vision of HHS and HRSA and CMS to be achieved, actually, we believe it actually could provide a tailwind to organ transplant efficiency in the United States by having more performance metrics that everybody could get behind and be held accountable to. So we have to wait and see, and we have to allow the time for these initiatives to materialize, but we are confident in our ability to operate in the current OPO model or any other modernization model that will come -- that may come out from this initiative. And frankly, we see this as a potential opportunity, not a potential risk, but we have to wait and see.

We have the next question from the line of Chris Pasquale from Nephron Research.

Waleed, logistics penetration has been in the high-70s for 3 straight quarters now. Curious how you think about where that goes over time. Is 80% a bit of a ceiling because the other 20% are drivable? Or do you think that, that number could still go higher as you guys continue to roll out the service?

Thank you, Chris. I want to clarify, Chris, that 79% -- or yes, 78% or 79% or 80%, it's our planes for only the mission requiring air transport. So we expect that number to go up definitely in the low-to-mid 80s. I think in 2025, we see a ceiling in the low-80s or 80%, roughly speaking, just because of some of the existing contracts that are supporting other logistics providers in the United States. The other element to that is the long-distance transport. Remember, our planes are short distance or relatively speaking, they're light jets. So any Alaska or Puerto Rico or -- I'm sorry, any Hawaii missions, we have to do it on third-party aircraft because that's a longer jet. But Alaska and Puerto Rico, we can do on our jet. So to summarize, we expect that number to go up in the mid-80s at least in the foreseeable future as we continue to gain market share and we continue to prove to the community that TransMedics logistics is providing not just the safest, the most efficient, but also cost-effective logistics partnership in organ transplant.

And then, sort of related to that, you guys rolled out the new NOP Connect kind of digital ecosystem earlier this year. I'm curious whether we have enough experience with that now to see what impact that's having, either on your collection or sort of cash conversion cycle being simplified or on adoption of the broader services that you put into place?

Chris, that's an excellent question. We are -- not only we feel very excited about the rollout of this new ecosystem, we are already taking some very good feedback from the community, and we are rolling our 2.0 or 0.2 version of it in Q4. We are seeing some great efficiencies. I wouldn't go as far as saying we're seeing the full efficiency or the full impact yet. We expect that to come throughout 2026.

We have the next question from the line of Josh Jennings from TD Cowen.

I wanted to circle back just on the 2025 guidance, revenue guidance update and just the increase of $5 million at the midpoint. Waleed, maybe help us think through, and Gerardo, some of the assumptions baked in there. I mean, was 3Q results better than TransMedics' internal expectations with stronger start than expected? In October, you have another plane. But maybe just help us think through what's driving the guidance increase, a little bit more detail.

Thank you, Josh. As you know, we don't give that much detail. All I can say is, we are confident. One, we are pleased by the results of Q3. Two, we are confident in the trends we saw at the end of Q3, into early Q4. But we have to be prudent. We're still early in Q4. We still have 2 more months to go, and we have to be respectful of that.

Gerardo, do you want to add anything else?

Well, no, I think we have a number of tailwinds, as Waleed was mentioning, [ Chris ]. What we're seeing in terms of OCS adoption, organ utilization, it's really fueling the momentum of the OCS. So we're confident to get to the number. Of course, as you know, our philosophy has been to not only achieve, but as much as we can, go above and beyond. But we're confident with where we are right now.

Great. And just a follow-up. I think it's clear that there really hasn't been an overhang in terms of some of the headlines that came out on DCD donors and some of the New York Times expose, but wanted to just confirm that. Any impact to donor registrations that you're seeing? And then, maybe give us the status of the wait list for liver, heart and lung transplants. We just anecdotally talked to -- some heavy OCS users have talked about their waitlist going down because volumes have increased dramatically, but I think those have refilled, but maybe help us on those 2 topics.

Thanks, Josh. Let me address the second piece first. We can't comment really on the waitlist because the waitlist is a very dynamic situation, as you know, Josh, and all that data is published. The facts are, for the last 3 years when we were operating NOP, many centers wiped down the waitlist and rebuilt it half a dozen to a dozen times. The growth in the national transplant volume speaks for itself. So the fact that centers are wiping down the waitlist, yes, that's a transient effect. It takes a quarter, maybe sometimes in very -- in large or midsized centers that are efficient with their outreach, they could rebuild it within a quarter, and some centers take a quarter to rebuild. So for that, we don't -- we are actually -- we're focusing on one thing. We're focusing on opening up the supply of available suitable organs for transplants, and we -- and the centers are responsible of rebuilding their waitlist because these are life-saving transplant procedures, as you know. So that's our answer to the second half.

For first half, listen, it's a very unfortunate expose that came out. But as we've stated numerous times, we cannot allow either intentional or unintentional bad behavior from certain players in the transplant community to be taken out of context and negatively impact the national transplant volume, which is helping a lot of patients who are waiting anxiously on the waiting list for an organ transplant. So -- and I hope that some of these investigative reporters understand that, that, yes, it's important to highlight some bad acts, but we have to remember that these are very, very few, very, very limited. And ultimately, the #1 focus for us and anybody else who is involved in organ transplantation is to focus on the patients. And it is not in the best interest of the patients to portray transplantation as the Wild Wild West because it isn't. The U.S. organ transplant system remains to be, in my humble opinion, one of the best, if not the best, transplant system on planet Earth. So we have to be cognizant of that.

We have the next question from the line of Suraj Kalia from Oppenheimer & Co.

Waleed, can you hear me all right?

I can.

So Waleed, one for you and one for Gerardo. So Waleed, I'll start out with you. Look, short-term gyrations aside, you guys have delivered on your numbers. Waleed, there is this pervasive belief that incremental liver share gains are -- will be difficult to come by. Can you argue the reverse is true for FY '26? Or your confidence for FY '26 is you would characterize that it's predicated on heart and lung contribution through the trials, the OUS endeavor that you talked about? Just set the stage for us as how you guys are thinking as you shift gears in FY '26?

Suraj, thank you so much for the thoughtful question. Let me dissect that important question into different pieces. First, it is, in my view, a false assumption propagated by some of the bear thesis out there that the penetration in liver will be difficult to come by. We see it completely different. We think we are early in our liver penetration, and we have a long greenfield opportunity in liver transplant to grow our adoption rate over the next several years, not just 2026. Where is it coming from? It's going to be coming from DBD penetration. It's going to be coming from more DCD penetration. It's going to be coming from more challenging -- from expansion potentially of the DCD wait period. So we are very, very much believers that -- the notion that growth in liver is going to be difficult to come by, we believe that's a false assumption, propagated by the wrong narrative. So that's number one.

Number two, we fully believe and expect that the next-gen heart and lung clinical programs will generate significant momentum in the adoption of both DBD and DCD heart and lung. And listen, we are all going to experience that as it materializes throughout 2026. But that is our expectations going into '26. And that's where we stand from a U.S. perspective. Again, the initiation of NOP OUS will be a potential catalyst, albeit in the second half of 2026, but it is going to become a catalyst for us in next year. A lot of publications are in the launching pad or in review that will generate that evidence that will be required or will facilitate the adoption picture that I just described, Suraj. I hope I addressed your question.

Fair enough. And Gerardo, if I could, look, our math is your liver shares, you gained by almost 100 bps in the quarter, but your service revenues were obviously down, right? And one of the things that you and Waleed have been telegraphing for some time now is third-party ground transport and third-party flights picked up in the quarter. Gerardo, what -- how should we think about -- is this a blip of the screen? Is this something structural as we look forward? Just help us understand both qualitatively and quantitatively. It would be great.

Suraj, if you allow me, I'll address one point, and then I'll turn it on to Gerardo to address the rest of it. We never telegraphed or articulated or suggested that third-party service or transportation is growing in Q3. That was a misunderstanding, or it is a misunderstanding if somebody thinks that way. All what we wanted to clarify is 2 important points, and I'll repeat them again if you allow me. One, tracking tail numbers alone is not 100% reflective of our revenue within the quarter for a variety of different reasons. Two, there is -- a good portion of our clinical missions are done using car transport alone. This was the only 2 simple facts that we wanted to highlight to the community who are just laser-focused on tracking tail numbers. And so, that's just a clarification.

Gerardo, can you please address the rest?

Yes. Well, in reality, there is not much to add, Waleed, more. Suraj, we didn't see any, I would say, significant change in the, let's say, split between ground and air transportation through the quarter compared to what we've seen earlier in the year. And we are assuming more or less the same thing for Q4. I think that's what I would say, not much more to add.

We have the next question from the line of Patrick Wood from Morgan Stanley.

Amazing. I'll keep it to one, just given the time. Waleed, you mentioned double shifting twice at the start in the comments. And just curious how you're seeing that as an opportunity, what that means both financially for you guys, but then also for your customers and the ability to potentially service them faster? Is that a valid thought process? Just how do you see that affecting the business overall?

Thank you, Patrick. Double shifting, Patrick, will give us at least -- in '25, we're just experimenting or piloting this program. The concept is to maximize the efficiency of our existing fleet and truly sweat the assets that we have before we think of adding any additional investment in our fleet. So from an impact standpoint, and this is just my perspective, and Gerardo, please correct me if I'm wrong, the idea is, at scale -- at a certain scale, we will start seeing efficiencies in the bottom line and the margin contribution of the service with that model.

But Gerardo, please correct me if I'm wrong.

No, that's right. And basically, what will be happening, Patrick, there is that the same number of planes will fly higher number of missions, maximizing the return on capital. That's basically the concept.

We have the next question from the line of Matthew O'Brien from Piper Sandler.

This is Samantha on for Matt. I guess, first, I know the 10,000 transplant target has been out there for a while, but we're now seeing you start to communicate potentially even surpassing that target. I guess, what gives you the confidence that you can get there? And then, how much of that is dependent upon these next-gen heart and lung programs?

Thank you for the question. We have a very high degree of confidence that we will get there. And we -- when we set that target, we set that target without the expectation of acceleration of heart and lung. So our hope is to get to 10,000 transplants even without the contribution of the next-gen heart and lung programs. The contribution of heart and lung transplant, the new programs, will be to accelerate the path or increase the contribution of the heart and lung in the mix. So that's -- we have a very high degree of confidence. And please, I want to reiterate what I've stated before. If we continue on the current trajectory of growth without any catalyzation of growth in U.S. transplant volumes, in 2028, 10,000 transplants will represent approximately 50% to 55% of the national heart, lung and liver volumes, which means we have not saturated the market. The opposite is true. We have another probably approximately half of the market to continue to grow heart, lung and liver through.

On top of that, what we said is, the kidney program being introduced in 2027 will give us an access to an additional 23,000 to 25,000 procedures in 2027 and beyond, and that could even catalyze our growth beyond the 10,000 target into 20,000 by 2030. So that's what we stated. So we have a very high degree of confidence reaching the 10,000 transplants. Our results are pointing in that direction. Our growth rates are pointing in that direction. And we are hoping that the next-gen heart and lung clinical programs will accelerate the path to getting there. And again, we remain convinced that 2028, at 10,000 transplant with the current market growth, we would be at approximately half of the U.S. heart and lung and liver transplant market, leaving room for growth even beyond that.

That's perfect. If I could sneak in one more also on the next-gen heart and lung programs. It's great to hear that those are going to start enrolling this quarter. How are you thinking about the duration of these trials and how long they're going to take to enroll?

The duration of these trials, for us, it really -- it doesn't really matter what the duration is. We expect it to be somewhere between 12 to 18 months. But what is important for us is to see the trajectory or the impact -- to see the impact of these trials in the form of trajectory of penetration of heart and lung volumes every quarter. Given that these are -- these trials are revenue generating, the numbers will count in our quarterly report. That is what we are excited to see because we will know the impact even before the trial is completed.

We have the next question from the line of David Rescott from Baird.

Waleed, I wanted to follow up on some of your comments around the timing of the trial. I'm just looking for maybe some more color on what the -- the difference between starting enrolling the trial in Q4 and having these full conditional limitations, I don't know if limitations, but the full conditions on the trial that gets the IDE fully cleared in Q1. Is it something similar for both heart and lung? Would it be fair to assume maybe the Part A of the heart trial is good to go and start enrolling in Q4 and maybe it's Part B that comes in, in 2026? Just trying to understand what's going on there and maybe whether or not there is any change in the contribution you have baked in from clinical trials in Q4.

David, thank you for the question. I just want to remind you that we really didn't account for much contribution in Q4 from the trial, pretty much 0 contribution for the trial. We're actually -- we appear to be ahead of schedule. So let me clarify, however, the difference between the 2 trials as we know them today. The heart conditional approval is for both Part A and Part B. We have a sizable conditional approval, so we can start enrolling in both Part A and Part B in Q4. The lung is slightly different. It's more a limited -- the lung is one part, so it's not 2 parts. And it's a fairly limited condition for approval because the questions that are asked for the lung is pretty straightforward, and we think we will overcome it fairly quickly. And the FDA conditions were limiting, given that the questions are fairly straightforward. So what I'm saying on this call is, we should -- we are expecting to enroll our first patients or cohort of patients in heart and lung in Q4 and hoping that by early Q1, we will remove all conditions from both IDEs and now will be -- the trials will be wide open across all indications, across the 2 parts for heart and the 1 part for lung. And then, we will not be capped. That's really the message I was telegraphing in the prepared remarks.

Okay. That's very helpful. And maybe on Europe, a 2-part question. I know you provided some comments on it already. But I know the market in Europe is pretty fragmented and there's different agencies, maybe we'll say, that control organ donation and allocation across different end markets, so I guess -- or different countries. I guess, the first part, for Italy, is the assumption that organs that are transplanted through the new service in Italy will likely stay in Italy? Or is it possible that those are going to get moved around transplants in Europe? And then, as it relates to the margin comments there, I know you called out gross margins staying in this 60% range in general, but maybe some near-term headwinds as you expand in Europe. I'm just trying to get a context for the timing of this maybe step-down in margins and step back up in margins and still staying consistent in the 60% range. Maybe there's a difference between gross and operating, but any clarity there would be helpful.

Sure. Thanks, David. So I'll address the first part, and Gerardo will address the part around the margins. So we are not planning, at least early on, to impact the movement of organs at all within each geography in Europe that we will be operating on. Everybody needs to be aware that -- and let me be very specific about Italy. Italy today, there is movement of organs across Italy. There's movement of organs from Switzerland to Italy. There's movement of organs from Italy to Switzerland. The same for some select other European countries. Our role is not to change any of the current dynamics that are routinely happening today. Our role is to facilitate the utilization of these organs to actual transplant successfully. Our role, even if it's a local transplant within Italy, based on our knowledge today, David, that they are having significant challenges of even securing logistics to move organs even within Italy. So for us, that's a huge opportunity and a huge business opportunity to solve that problem as we've solved it here in the U.S. at a much bigger geographical scale.

And now, I'll turn it to Gerardo to address the margin question.

David, in our Q4 call, we're going to be providing a little bit more details on what to expect in the margin. But what I can confirm to you is, I remain confident that our long-term margin is around 60%. I believe that, that's the level that we're going to be seeing as volumes scale across in the U.S. already, but mostly outside of the U.S. But more importantly, we are laser-focused on the operating margin. That is -- because of the way we operate, operating margin is more relevant than the gross margin. Yes, so Q4 is when we're going to provide a little bit more details.

We have the next question from the line of Mike Matson from Needham & Company.

So I had a question on the heart trial design, and this may apply to lung, too, but I wasn't able to find lung in the clinicaltrials.gov yet. But the endpoint is patient and graft survival at 30 days. And so, my understanding is that that's typically, even without using TransMedics in the -- well into the 90s. So -- and I think you're running this study with the intention of showing superiority. So are you going to have -- I mean, is this trial powered enough to actually show superiority from a high-90s number or mid-90s number versus what you're actually going to get with your -- using OCS for those organs?

Thank you, Mike, for the question. I want to clarify one important point. The primary effectiveness endpoint is not actually patient and graft survival at 30 days alone. It's patient and graft survival at 30 days with freedom of primary graft dysfunction within the first 72 hours after heart transplant. When you combine these 2, you end up not in the high-90s as just a patient survival, but probably in the low-to-mid 80s. And that gives us the signal, the wider signal to enable us to power the study appropriately to aim for superiority. So a great point you raised, however. I think the clarification is that we are not -- that primary endpoint is not just patient and graft survival. It's patient and graft survival with freedom of primary graft dysfunction. That -- these 2 combination is what makes this powered enough for -- to hopefully demonstrate superiority. So we're very excited getting the trial launched. And both lung and heart are of the same design or the same selection of primary effectiveness endpoint to exactly achieve the goal and avoid the statistical anomaly of the very high patient survival numbers in the United States.

Okay. That makes a lot of sense. And then just for kidney, I think you said you're going to unveil the design in early '26. But I imagine you're going to have to run a trial there as well, so -- before you can get it approved. So just can you talk about the timing of that? And then, is that also a trial where you would -- when you started, you would actually get paid for those organs as well, like we are with the heart and lung trials?

Yes. Mike, excellent question. Yes, we are unveiling the design of the technology and the product. There will be a significant trial in the United States and maybe even international trial. But this is all going to be revenue-generating trial. And we're excited about that trial because this trial is also going to be powered for superiority, and it will have a huge ramification not only on the clinical outcome for patients, but also financial ramification, given that CMS is the sole payer for end-stage renal failure expenses in the United States. So this is a trial that I hope and I believe CMS will be watching very keenly, and they will support it because it will have huge cost efficiencies, given the increased -- improved outcomes and higher utilization of kidneys that should be afforded by this.

We have the next question from the line of Daniel Markowitz from Evercore.

The first one, you mentioned that the prior guide wasn't assuming anything for 4Q from next-gen heart and lung trials. It's nice to hear that's running a bit ahead of schedule. Just confirming, does the new guide assume some contribution since that's running ahead of schedule now that you're closer and have visibility to it?

That's an excellent question. Yes and no. The answer is, from a contribution, no. Yes, we're ahead of schedule. But realistically speaking, if we start enrolling in November, the impact is going to be miniscule. That's why we always guided without any meaningful contribution. All what we want to achieve is having the first handful of patients enrolled gives us an early signal of how the trial is rolling out and really teeing up to early 2026.

Got it. Okay. And then, the second one, I wanted to ask on recent industry news. We had OrganOx takeout announcement. I just wanted to give you an opportunity to kind of react to this announcement. What do you think this means for the market and more specifically for TransMedics over the coming years?

Thank you, Daniel. This is an excellent question. As I stated publicly before on my call with investors, we're very, very pleased, and congratulations to OrganOx and the OrganOx team about this acquisition. We're very pleased because it shows 3 things. One, it shows that TransMedics have created a multibillion-dollar industry in organ transplantation that didn't exist before. We're very pleased because it shows how undervalued TransMedics stock is, given the huge difference and improvement in OCS Liver and market share that OCS Liver have over any other platform in the market in the U.S. And number three, it validates that this is an area of the market that is now becoming an exciting opportunity for med tech industry. So again, congratulations to OrganOx, but we feel very confident in our position. We feel very confident that we are way undervalued, given our leadership position, given our outcomes, given our numbers, given our market share, and we are determined to go and continue to execute and grow our market share in liver, heart, lung and soon kidney.

We have the next question from the line of Tom Stephan from Stifel.

Apologies if any of this has been asked; jumping between calls. But maybe just one for me. Waleed, market slowed in the third quarter for the second straight year, and we saw somewhat of an accompanying deceleration in OCS. So maybe can you talk about why OCS seemingly faces, I'd just say, a bit of incremental pressure during times when the U.S. transplant market seems to slow down? And then, how should we be thinking about that dynamic maybe if market softness persists?

I'm sorry, I missed the second part of the question.

Yes. I was just wondering how we should think about that dynamic, I guess, if market softness persists.

That's an interesting question. So we believe that the market softness and the seasonality, as I stated before, this is something that is endemic in organ transplants, and we've seen this for several years. I think what's changing is, TransMedics is taking a bigger market share in the market. And that market share is not -- is spread between top users and the current users, and we're expanding organically to newer centers. And when we look at Q3 this year, what we saw is our market share within our repeat users and top 20 accounts and consistent users was maintained, was well maintained within the institution. Any variability happens with the centers that are still coming new to the NOP or not constant users in NOP, we're tracking that dynamic. And again, we are not too concerned about it because we are maintaining our growth year-over-year. That's why I said it's much more relevant for us to look at our growth year-over-year. It's very relevant to us to track our penetration within DBD and DCD. And all of these metrics are pointing in the right direction. It's just we're becoming a bigger player in the market, and that's why it impacts us on the Q-to-Q variability. That's all I can comment on at this point. And again, we should expect this variability every year and especially in Q3, especially if we see a significant uptick in Q2. Usually, this variability happened after a very strong Q2.

We have the next question from the line of Young Li from Jefferies.

I'll just keep it to one. So I appreciate all the clarifications and color on the trial enrollment. I guess, I'm kind of curious what factors allow you to enroll these trials faster than the prior trials that you have run?

I think we're not saying it's going to enroll faster. I think our fastest enrolling trial was the DCD Heart trial when we enrolled 90 patients in 9 months. We're not saying it's going to be faster. And all what we're saying is, given the impact, given the anticipated impact, given the momentum we're seeing in centers, how rapidly they're going through the initiation process, demonstrating their excitement about these trials that usually -- that excitement, that momentum is usually coupled with rapid enrollment. That's all what we're saying. We need to go and execute it. We need to go and deliver on that. That's all what we're saying. It's all a reflection of how successful the program is. And we're looking forward to launching this program. And again, we'll be looking at the execution as it happens.

Any follow-up question, Young Li?

I'm okay.

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

Thank you all very much, and look forward to chat again early next year. Thank you very much. Have a great evening.

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

Hi, everybody. Welcome and thanks for joining. Welcome to the -- I guess, the first day of the Morgan Stanley Global Healthcare Conference. So very excitedly, for important disclosures, morganstanley.com/researchdisclosures. So yes, that's very exciting. And very excited today to have TransMedics, we've got Waleed, who's the Founder and CEO; and Gerardo, who's the CFO here. And so I really appreciate the time. Thanks for coming guys.

Thank you, Patrick.

Thank you.

We were just saying how thematically appropriate having Staying Alive on the soundtrack was for an organ transplant company. So it kind of works well.

I guess -- so maybe starting kind of big picture. It's been a strong year. There's a lot on the pipeline. Sitting here today and you had that original target of 10,000 organs. And how are you feeling about 1,000-foot view, the world and where the business is today, just big picture?

We feel great. We -- as Gerardo said, a few weeks back, we are already past the 10,000 target internally. We're already setting our eyes at 20,000, 30,000 transplants by 2030. Yes, we feel great, and we're looking forward to just continuing to execute.

If you think of the journey that you guys have been on getting to where you are now, is anything that sort of surprised you? I mean, relative strength of liver versus heart or how the aviation network integration is going versus how you originally envisaged the business? Does it look today like you thought it would?

It's a very interesting question. From where we are as a leader in the market, from a market share, from an impact on organ transplant, it could not be more exactly the same as we envisioned. However, the path to get there, we accelerated the NOP 5 years compared to what we originally planned. The vertical integration of aviation and logistics, again, we accelerated that quite a bit. So from an impact, it's exactly what we envisioned. How we got there? We got there a lot quicker with NOP and the vertical integration than with -- than we originally planned.

Yes. Makes sense. Q3 always has some seasonality associated with it, that's just always how it is. And I'll ask a sort of slightly new question. But as you know, people sometimes track the flights, and that's a dangerous thing to do, but there's an argument out there that, that's been fairly soft. On the other hand, it hasn't escaped people's notice that you made a fairly sizeable investment in TransMedics stock yourself very recently. How should we think about Q3 seasonality in the context of those things?

That's an excellent question. We've always said Q3 is transiently choppy, underscore the word transiently. We're not concerned about it. Obviously, the data is clear. Yes, we're -- quarter-to-quarter, it appears that national transplant volume is down. But when you look at the first half of the year this year versus the first half of the year last year, we're actually doing great nationally.

So as we stated publicly, we expect seasonality in Q3. We expect that TransMedics will be impacted by that. But we think this is a transient impact and that we will finish the year strong and we're still focusing on executing the plan and the guidance as we outlined it at least as of today. We'll see where the quarter ends, there's still several weeks to execute.

Even transplant docs need a vacation at some stage, right?

Exactly. And as far as tracking the tails, it's an interesting way for someone who doesn't have much to do, but we are moving, as more and more people getting comfortable with how long organs could stay in OCS, we shifted ground transportation from 20% or lower to now approaching 40% of the total NOP missions. So yes, it's a secondary measure, but it doesn't tell the full story.

Also, we still have 20% of the aviation requirement done by third party. So again, I'm not saying Q3 is not going to be impacted, I'm just saying that it is not the be all, end all, it's not the gold standard indication of how the business is doing. We still are a transplant company and that cases are the #1 priority for us, not necessarily the logistics piece of it.

Yes. How do you think about the -- it's obviously very different from organs in totality, but the existing, let's say, waitlist backlog? How do you want to -- can we get to a point where we make really meaningful progress pulling that back with DCD organs and DBD organs and just the whole infrastructure are getting a lot better.

Yes. Patrick, we're doing that today. We've been doing that for the last 2 years. We've seen many, many big institutions that wipe down their waitlist and they rebuild it again. As we've always said, it will happen. When we deliver more organs, the waitlist is a dynamic picture that gets replenished because the demand for organ transplant is not slowing down. It's growing. It's just the waitlist is -- you do not want to give false hope to patients in need. So that waitlist gets replenished as it gets depleted with additional organs.

But we're still early in the journey of really flexing the capabilities of OCS to deliver more organ transplants in the U.S., and we're now beginning to expand outside of the U.S. to do the same thing.

To your point, how many of the missions end up being -- the NOP missions end up being sort of longer dated versus however you want to define it, shorter distance in that way proportionately?

We -- I need to refresh my memory with the exact numbers. But we are -- we do both missions because it's not just about how far the donor is anymore. It's about how the OCS has transformed the timing of the surgical procedure. So we get called for missions that the donor is an hour away, and we get called for missions -- like this week, we got called for donors in Hawaii and Alaska for recipients in the East Coast.

So I would say 50-50, the thing that is so transparent and so obvious that OCS now is transforming the timing of the surgical procedure from being a middle-of-the-night [ emergency ] procedure to a more semi scheduled procedure in the morning hours. And that's, again, it's early innings, and it's going to continue to grow, and we're hoping that we can bring that success that we are experiencing in liver for heart and lung as well with our next-generation clinical programs.

It might be a sort of off-the-wall question, but the ability to have the surgery, just function to be a little bit more planned. Are there other efficiencies for the hospital side that, that enables like faster OR turnarounds that kind of thing, you know what I mean?

Of course, there's several. The -- shifting organ transplantation to a morning procedure has huge impact on hospital financial resource management. Rather than paying double time or more in the middle of the night, they pay regular time; two, they give the hospital the ability to do more than one transplant a day, which used to be something unheard of because you're doing it in the middle of the night, you can't have the team working around the clock. Today, we're seeing our centers doing two, three, sometimes four for a large volume center and doing them between 7:00 in the morning and 7:00 at night.

That is huge, huge value to -- and that the hospital administrators are recognizing. It's not just about work-life balance of the clinical staff, it's really about the better quality of the surgical procedure and better financial management to the hospitals.

I mean, on the topic of financial management, for you guys, as the ground missions proportionally have gone up a little bit because you more flexibility on the organ transplantation time, how should we think about that capital investment spend of the aviation network and the spend on that side?

Yes, to get to our 10,000 transplant goal and beyond, we certainly will need an additional fleet. We are running our double shifting program where it's going to help us to really rightsize the fleet. And based on that, we'll be opportunistic, right? I mean if we see jets that are at the right price, we'll move forward. Otherwise, we'll hold on when we find the right opportunity. But we will need to get more jets to get to the 10,000 and beyond.

Yes. And just to build on what Gerardo said, I don't want the community to misunderstand what we're saying. There will always be -- the majority of the organs will always be flying, especially with OCS because we can go further distance. But we just saw that interesting shift from 20% to 40% or near 40% and we wanted to highlight that. But the majority still is flying. And the more the OCS will take more of the lion's share of the market, we will fly more as we continue to expand the outreach -- the reach of transplant programs to reach donors and organs across the country and across the world.

There's some areas of health care that I've seen over the years get maybe unfair undue amounts of, how to put it, emotional or political attention like nursing homes, dialysis and to some degree, organ transplants, right? It just gets that extra focus because there's an emotive quality associated with it. There's been a few articles in the press, not connected to you but to the DCD area in general. Like how do you feel about that? Do you think that has any impact at all? Or what should we think about when we read some of those articles?

Sure. Again, what we're seeing in the press is really a poor reflection of what really happened in the field. These cases happened 2 years ago in the early days of implementing DCD donation. There's a lot that we can talk about to improve. But these two cases are not really the be all, end all. We think that DCD donation is here to stay. The community is sophisticated enough to understand that these were in the early days when these OPOs were just trying to implement DCD programs. And with anything new, there's always some missteps.

So we're not seeing a significant negative impact as we were afraid that it might result in because it's old and now DCD is here to stay and it's growing. And you can see it in the national numbers. DCD is nearly 50% of the donors in the United States. So -- and we hope that doesn't change.

Do you think there's an adequate understanding in the system and the administration that those organs, which ended up mostly saving people's lives wouldn't just not have been used before. Is that well understood?

I think it's very well understood. And I think the -- specifically in the HRSA and CMS side, they definitely understand that, and what they're trying to do is just to bring a higher level of accountability that didn't exist in the transplant system in the United States. And it's something to be applauded, but we got to be careful not to throw the baby with the bathwater and make sure that, yes, there are some areas of improvement, but the transplant system in the United States is one of the best in the world, so -- and that remains to be a fact. So...

When you're thinking about the industry, the transplant industry as a whole, obviously, there was a fairly big bit of news flow recently with Terumo coming in and buying one of your peers. What did you think when you first saw that news flow? What about -- what was the instinctive feeling on your end?

Well, as I stated before, I mean, first, congratulations to the team from OrganOx and the team from Terumo in this great deal. The three points that we thought about is, well, great, this proves that, that space that was very not well understood in the early days of TransMedics, now as we created a multibillion-dollar global opportunity that Terumo and others are focusing on. Two, it proves how undervalued TransMedics stock is today and justifies the investments I made personally in the TransMedics stock. And three, it shows that that transplant is living a period of renaissance. And again, it proves that we're in the early innings of this. This is really going to continue to grow. And we are fully committed to continue to innovate and be on the front end of this and drive the field forward as the pioneers that invented that field from [indiscernible].

So we were very excited to see this. And again, we welcome Terumo to the field, and it keeps us honest from a competitive dynamic standpoint, and it will invest innovations into this field that we love.

Still a lot of DCD organs end up not getting used. Does it help having another player actively pushing because people always focus on the cannibalistic nature of competition, but there's also one of growing the market. How do you think about that interplay?

Yes, there is a lot of DCDs that are not being used, but we're not waiting for anybody to come in and allow them to be used. We're not stopping that. We are investing a lot to continue to innovate, and we are going to be the company that delivers innovations to continue to grow organ transplant. We're not waiting for Terumo or anybody else to tell us how to do the things we developed to make them be interested in the field.

But obviously, competition keeps us -- it keeps us always on our toes and it's a healthy competition, and we love it. But we're not waiting for another company to show us how to do it. We are investing in our own programs to deliver more organ transplant, more DBD, better outcomes, more DCD organs and continuing to innovate on that front.

If I think about the -- one of the things that distinguishes you, one of the things, is the aviation network. And it's been what? 18 months, 2 years since you really started that...

2 years. Yes.

Yes, it's been -- yes, I remember the first one. And how has that gone versus your expectations? And also, where are we on the journey because there's definitely just like scale network effect of number of aircraft and number of missions and the liquidity of the capacity that you have? Like where are we at on that journey?

We're -- I would say we're in, I would say, the early phases of that journey. We're very excited that we finally have a critical mass to be able to operate with a network effect in the United States. Now as Gerardo said, we are experimenting with double shifting the planes or portion of our planes to really maximize the utilization of our fixed assets before we invest in more fixed assets or more aircraft, which we know we have to do. The question is, do we buy 10 more or 5 more. And the double shifting will give us the answer to that.

What's exciting about this is the success of the NOP logistics and NOP clinical services in the U.S. Now it's catalyzing a lot of international interest that was dormant for a long time thinking that TransMedics is only selling medical technology. Today, when we see the success of TransMedics -- that TransMedics is achieving in the United States and the ability to manage a turnkey service, we're getting a lot of interest from international markets that -- wanting us to replicate that in their local geographies.

I definitely want to touch on OUS in a second. When we think of like missions in the middle of night, you're always thinking about the surgeon and how difficult that is. How easy is it to find and hire pilots? Because again, they're also having to do -- I mean, on the one hand, they're saving lives rather than flying billionaires around, which is kind of cool. But then it might always to be the middle of night, how hard is that?

Listen, our pilots, we love our pilots. They're very proud of their mission and mission of TransMedics. You can see them on LinkedIn, we were concerned about that dynamic. Today, we're approaching close to 150 pilots and growing rapidly. They're very, very motivated by the mission. And we can't speak highly enough of our pilots.

We know it's not for everybody. We've been very transparent with our crew from day one when we made the acquisition of Summit, that this is different than flying high net worth individuals. But to our pleasant surprise, the mission is resonating well with our pilots, and we are not having -- knock on wood, we're not having any issues retaining them. Also, we are very competitive in our compensation package. And I promised our crew that they will be one of the top -- because of the demand, they're going to be one of the top compensated crew in the industry, and we're delivering on that promise.

The -- where are we at -- because obviously, NOP got rolled out, it's basically full coverage now. Where are we at in terms of the concept of pricing? I don't mean the absolute price level, I mean the distinguishing between service and products, actually just becoming an end-to-end thing where the customers are really thinking about it as just, I need an organ, this just a price rather than distinguishing between OCS and NOP?

I want to remind everyone that TransMedics is very unique in the fact that we have not increased our prices for the last 7 years, really since before the FDA approval. We intentionally priced NOP service at a nominal price to what the value we're delivering because we did not want that to be an impediment for adoption. And we have to charge fairly and actually, we are the most efficient pricing on logistics.

So the total combination now, we feel very strongly to my original statement, a few calls back that we are delivering -- we believe wholeheartedly that we are delivering the most cost-effective transplants in the world because of the technology cost has not grown by a dime. We're delivering high, high value for fair pricing, the clinical service is appropriately priced, and the logistics is the most competitive pricing that we can do because we are managing the network.

So I feel now it's not an issue for the centers that are adopting NOP, it's just they're ordering the service across all three levels. There's no distinguishing between, oh, I only want the clinical service but not the logistics, or not -- the logistics without clinical service that -- obviously, that won't fly.

Yes, it's basically all combined anyway.

Yes.

Okay. That makes sense. And we -- obviously, we can all see how Medicare works. We understand how that -- the mechanics are there and the coverage, but the bit that we will get much less visibility on is the commercial side. How are most of those contracts typically structured mechanistically? And where is the pricing relative today for the newer contracts versus Medicare...

Yes. I think for anyone who's tracking organ transplant, as you know -- you may know that transplant contract is one of the most coveted secrets in every transplant -- major transplant institution. And every institution thinks that they have the most generous, most competitive contracts on the planet. That's a fact that -- they think that way.

From our side, the only comforting comment that we can offer is we wouldn't be here. We wouldn't show the success and adoption rates and the revenue growth that we have if the commercial payers don't understand the value of OCS. And we started with this, if you remember, from the early days of NOP, we've reached out to every commercial payer in the United States to make sure they understand what we're doing, why are we doing and potential economic impact on their network.

And they all get it, including CMS by the way. CMS gets the value in spades. And in every interaction we have with the CMS team, they bring up when are you coming with the kidney. Kidney is very important for us. There's hundreds of billions of dollars being spent that we need to make sure that we get similar outcomes from OCS in the kidney that could change -- transform the financial profile of kidney transplants in the United States. So that gives us comfort and gives us confidence in what we're doing.

But we're continuing to keep open dialogue, not just with payers, but also hospital administrators to make sure they understand the economic value. But they're clearly doing a great job reaching out to their third-party commercial payers and the contracts are being appropriately scaled. Otherwise, we wouldn't see the adoption and scale of adoption that we're seeing.

I'd love to pivot actually to some of the individual organs. Maybe starting with kidney. Kidney is obviously a little bit different because there's a known donor component to kidney relative to receiving [ liver ]. And so -- how much of that market do you think is just site-to-site known donor versus like it's going to have to be transported somewhere?

And connected to kidney as well, President Trump had previously been a big supporter of increasing kidney donation on the record in his first term. I cover the [ dialysis] [indiscernible] does that play into, in effect, to how successful do you think it will be to get more donor registry?

So kidney is a huge, giant in organ transplant. It's the largest transplant organ by volume, the living donor kidney program, which you're focusing on only represents about 20% of the total volume. In the United States, there's approximately 23,000 to 25,000 deceased donor kidneys being transplanted every year. Those are the ones that we're targeting. And that's what gives us the focus on our kidney program to focus on those 20,000 to 25,000 deceased donors.

Why are we doing kidney program with OCS today? Because today, kidneys have two major problems that are at all-time high, the post-transplant clinical outcomes are now approaching 50% to 55% delayed graft function rate, which means the kidneys that are transplanted are not functioning well and the patient is back on dialysis. It's costing significant amount of dollars and frankly, comorbidities to the patients.

Two, the kidney utilization is at all-time low. We're only utilizing kidneys at a rate of about 60%. When I started TransMedics, the kidney utilization was 90%. So we need newer technologies that can better protect kidneys to maximize the utilization of kidneys and reduce the post-transplant delayed graft function. If we can achieve these two, there's no doubt in my mind that we will be a gold standard for preserving kidneys in the United States and around the world. And that's the target for the OCS kidney program.

The -- yes, I guess, dialysis is like $90,000 to $100,000 a year for a Medicare patient. So [indiscernible] longer to get payback on having better transplant on that side. Okay. That makes a ton of sense.

When you're thinking about kidney and the rollout? Would that be incremental investment? Like is there anything different about that market that you would then have to do to activate it relative to what you've already done in lung and liver?

Yes. It's a much bigger market. Yes, the technology will be completely different. In fact, we always said, the kidney device will be the front edge of Gen-3 OCS technology, and I'll leave it at that because we haven't talked about it publicly yet. And we're working very hard right now to finalize the design and get that kidney device ready for clinical implementation by early '27. So 2026 is going to be a very busy year for our kidney team in TransMedics from a development standpoint.

Maybe then pivoting in towards liver, obviously, a critical organ for you guys. How are you finding things? Have you seen anything from incremental competition? How is the base market looking? How do you feel about the liver franchise?

We feel very good about the liver franchise. I think the market perceives anything that moves and does anything in the kidney as the case of death for TransMedics franchise. Guys, we are the lion's share of the kidney -- of the liver market in the United States, especially in DCD. And the DBD segment is growing.

Competition is competition. You need to remember that this competition existed in the market from day one when we started. The reason why we've taken market share and maintaining market share is the outcomes. If we don't have the better outcomes, we wouldn't be here. Our rate of utilization is the highest reported in the entire history of liver transplant compared to the known competitors out there. With their -- our rate is 97.6%, their rate is somewhere between 50% and 65%. Our rate of the most complicated, the most costly post-liver transplant complication is 2.1%. Their rate is, just announced at the WTC, at 15% -- anywhere between 10% and 15% depending on the way they cut the data.

So yes, there are competitors, but they are much inferior to the OCS with inferior outcomes, and that's why they're priced at a lower price. So we're not concerned about competition. We welcome competition. But our results speak for themselves. We're not threatened by any competitor. Sometimes we actually encourage centers that they bring up the price and say, "If I buy this x device, it's $5,000 or $10,000 cheaper than OCS." We say, "Go, try it, experience the outcome, you will come back." And that's exactly what happens.

We need to be patient. We need to make -- we need to remember that we're early in this. We're only at 40%, 45% penetrated in the liver market. We still have a long way to go, and we're growing the top line in that market. So we just need to be patient. We stick to our knitting and continue to support our technology, and we continue to invest in innovation in that field because as you said earlier, Patrick, we're still losing 50% of the DCD livers today. We're going to be the company and the technology that can improve that rate of DCD donation. That will add significant top line growth to the liver transplant market as well. Do you see it differently, Gerardo?

Absolutely the same.

I guess the -- with transplants as well, the negative outcomes are much more visible for the surgeon than, I don't know, like putting a TAVR valve in and 15 years later it degrades. It's more immediately discernible. So to your point around switching a little more sensitive maybe. Yes, that's interesting.

You did also mention earlier OUS. And I know it's less of a priority for frankly, all of us for many reasons, at least for your market. But I'd love to hear like which markets you feel would be particularly suited and the national systems that have reached out for you to help?

I will keep it high level. I think Europe is very important for us. The Middle East is very important for us. Australia is very important for us, and I'll leave it at that. And stay tuned. We want OUS to be a meaningful enough revenue that this group here focuses on, but we still have some work to do.

How much does geography matter? I can't imagine the politics of taking a liver from Switzerland to Germany. If you see what I mean, like the national borders. Is it just like large land mass that -- or are we just coming at it in the wrong way? And actually, all these countries have DCD organs that need to be used, and they're not getting used.

All of the above. All of the above. Many of the countries, except generally have DCD organs but we need to remember -- that they're not using. But we need to remember one important fact. European donors are a lot more challenging than U.S. donors. The average donor age in Europe is at least 10 years older. The complication of the donor dynamic with the high rate of smoking and high rate of hypertension, it's a much more challenging donor environment. So utilization rate is lower, the post-transplant outcomes are a lot worse than the United States and the management of transplant logistics is a lot more complicated because they don't have the critical mass to manage this.

I was just in Italy meeting with the head of the equivalent of UNOS and he's telling me, "Waleed, every organ for me is a national allocation. I need planes. I need a logistics network like the NOP you have in the United States because I'm losing organs every day because I don't have access to transportation." So TransMedics and NOP can help many of the European geographies.

One point you mentioned, Patrick, which is the sharing of organs among member states or nonmember states, this is actually something that's happening today. And if the OCS and NOP would to be active in Europe, that will increase sharing of organs across member states or nonmember states in Europe. It's something that's already happening because they want to maximize every organ to be transplanted because just the utilization rate is much lower than the U.S.

I've got a slightly hedge fund question for you guys, including on the guide, which is basically, you've obviously got the heart and lung trials that they're ongoing. And the numbers aren't small in terms of number of patients. How do we think about those volumes relative to your existing outlook and guide? Because -- are they incremental? Would they have been patients that you would have, to your mind, collected anyway, do you see what I mean? It's not a small number of...

Yes, they're not impacting the guide for this year. They're impacting the growth for next year for sure. Just the timing is not going to really make any meaningful impact in '25. But yes, the numbers are large, and they should impact growth for 2026.

And no, we're not cannibalizing our existing market because if you look at the two trials, the lung is a complete -- it's -- literally, it's we're resurrecting the lung completely. So every organ is an incremental organ. On the heart, the bulk of the heart trial is an indication that we currently do not have in the United States. So these are incremental organs.

I just wanted it on paper. The -- I always -- I ask everybody this, but I feel like especially for your company, like the market focuses on very specific areas and very specific topics. I won't ask what you think people focus on too much because I think I already know the answer to that. But instead, it will be like, what do you focus on and you're surprised that other people don't bring up? Do you -- like what doesn't get the attention that you think is worth it?

I think, listen, if you're going to focus on every month-to-month variability, quarter-to-quarter variability in organ transplant, you should really -- you should not hold TransMedic stock, seriously. It's about looking at the long term, look at TransMedics at 20,000 or 30,000 organ under our wing in the United States alone and doubling that worldwide. That's what we're building in TransMedics. And yes, there will be seasonalities. There will be variabilities. There is a reason why TransMedics doesn't announce the full penetration except at year-end because we know there's variability, we've said that from day one. That's number one.

Number two, we are still early. Yes, we've achieved significant success in a short period of time, but it's still early. We got to allow the time for the health -- the transplant market to digest the level of innovation that TransMedics has injected into it in the U.S. and watch what the potential is for OUS.

We're very, very excited about where we are. And again, this is not just a word of mouth. My personal action in this quarter speaks for itself. And somebody asked me earlier today, "Waleed, why now?" Guys, I wanted to buy stock a lot earlier than now. But I was prohibited by corporate counsel because I made a 10b5-1 transaction last October, and I had to wait 6 months. Otherwise, I would trigger some bad thing. So...

Perfect timing, actually. Gerardo and Waleed, thank you so much.

Thank you, Patrick.

Thank you.

Appreciate it. Thank you.