TransMedics Group, Inc. Common Stock 2026 Q2 Earnings Call

Thank you. Earlier today, TransMedics released financial results for the quarter ended June 30th, 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 24th, 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 4th, 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 four distinct assets. These four 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 U.S. 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 1st, 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, deriving 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. 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 with 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 Heart 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 U.S. 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 operating efficiency. Taking share in this highly competitive transplant logistics market is the unequaled real cost efficiency to transplant centers relative to the other transplant logistics providers in the space.

Adjusted income from operation 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 equivalent, giving us great confidence in our ability to self-fund our growth investment from the balance sheet and operations. Finally, on July 1st, 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, it was achieved with minimal contribution from ENHANCE Part B or DENOVO, which we expect to begin contribute meaningfully late in the fourth quarter and definitely into 2027. 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, 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 four hours of preservation time. We designed ENHANCE Part B to serve that segment in two distinct ways. The first is using the OCS for its improved preservation capabilities and enhance 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%-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 transplants.

The estimated incremental cost is approximately $25,000-$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 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.