TransMedics Group Q1 2025 Earnings Report

TransMedics Group EPS Results

• Actual EPS: $0.70
• Consensus EPS: $0.29
• Beat/Miss: Beat by +$0.41
• One Year Ago EPS: $0.35

TransMedics Group Revenue Results

• Actual Revenue: $143.54 million
• Expected Revenue: $123.39 million
• Beat/Miss: Beat by +$20.14 million
• YoY Revenue Growth: +48.20%

TransMedics Group Announcement Details

• Quarter: Q1 2025
• Date: 5/8/2025
• Time: After Market Closes
• Conference Call Date: Thursday, May 8, 2025
• Conference Call Time: 4:30PM ET

TransMedics Group (NASDAQ:TMDX), a commercial-stage medical technology company, engages in transforming organ transplant therapy for end-stage organ failure patients in the United States and internationally. The company offers Organ Care System (OCS), a portable organ perfusion, optimization, and monitoring system that utilizes its proprietary and customized technology to replicate near-physiologic conditions for donor organs outside of the human body. Its OCS includes OCS LUNG for the preservation of standard criteria donor lungs for double-lung transplantation; OCS Heart, a technology for preservation of DBD donor hearts deemed unsuitable due to limitations of cold storage and for ex vivo reanimation, functional monitoring, and beating-heart preservation of donation-after-circulatory-death hearts; and OCS Liver for the preservation of DBD and DCD of donor livers. The company also developed national OCS program, a turnkey solution for outsourced organ retrieval; and provides OCS organ management and logistics services, including aviation and ground transportation, and other coordination activity. The company was founded in 1998 and is headquartered in Andover, Massachusetts.

TransMedics Group Q1 2025 Earnings Call Transcript

Key Takeaways

• Record Q1 performance: Revenue reached $143.5 M (+48% YoY, +18% sequential), gross margin improved to 61.5%, and operating profit hit $27.4 M (19% of revenue).
• Raised full-year 2025 guidance to $565 M–$585 M, implying approximately 30% growth and at least 400 bps of operating margin expansion over 2024.
• Transplant logistics services revenue jumped 80% YoY and 20% sequentially, average aircraft availability rose to 15.4, and the company plans to own 22 jets by year-end.
• Next-gen OCS Heart and Lung IDEs have been filed with the FDA, targeting H2 2025 trial starts, though these programs are not expected to contribute materially to 2025 results.
• New disposable design center and manufacturing facility in Mirandola, Italy will vertically integrate key components, ensure business continuity and mitigate potential tariff impacts.

Presentation

[Operator]

Good afternoon, and welcome to TransMedics First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. We will be facilitating a question and answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Lane Morgan from the Gilmartin Group for a few introductory comments. Please go ahead.

[Laine Morgan, Associate Vice President at Gilmartin Group]

Thanks, operator. Earlier today, TransMedics released financial results for the quarter ended 03/31/2025. 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 contained in this call that relate to expectations or predictions of future events, results or performance are forward looking statements.

[Laine Morgan, Associate Vice President at Gilmartin Group]

All forward looking statements, including without limitation, future results and events, including financial guidance and projected estimates, our examination of operating trends, the potential commercial opportunity for our products and services, the potential timing, outcome and value of new clinical programs, the potential impact of tariffs on our business, our expectations for growth and opportunities in our operations and financial guidance and or expectations including revenue, gross margins and operating trends, operating expenses in 2025 and beyond are based upon our current estimates and various assumptions. These statements include 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 ks filed with the Securities and Exchange Commission on 02/27/2025, our subsequent SEC filings and the forward looking statements, in today's earnings press release, which are available at www.sec.gov and on our website at www.transmedics.com. Transmedics disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward looking statements, whether because of new information, future events or otherwise.

[Laine Morgan, Associate Vice President at Gilmartin Group]

This conference call contains time sensitive information and is accurate only as of the live broadcast today, 05/08/2025. And with that, I will now turn the call over to Waleed Hassanein, President and Chief Executive Officer.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

Thank you so much, Lane. Good afternoon, everyone, and welcome to TransMedics' first quarter twenty twenty five earnings call. Joining me today is Gerardo Hernandez, our Chief Financial Officer. As we discussed previously, we view 2025 as an important year for TransMedics, mainly to transition and shift into our second year of growth for TransMedics OCSNOP platform. Despite external distractions in January, we remained laser focused throughout Q1 on our business fundamentals, operational execution and our unwavering support for our clinical transplant partners and users.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

In doing so, we continued to be successful in expanding the utilization of available donor organs for transplantation and increased OCS NOP adoption, all resulting in our core mission of delivering what we believe to be the best possible clinical outcomes and the most cost efficient therapy for our transplant recipients. The results speak for themselves. Our 1Q performance demonstrates that the strength of our business fundamentals, the effectiveness of our strategy and the unrivaled value of our business model. Importantly, our ability to execute at a very high level despite unexpected external pressures is a testament to the strong support of the transplant clinical community to TransMedics mission and the resilience of our incredible team. Now let me proceed to discuss our business performance throughout the first quarter of the year, which was our strongest quarter to date in the history of TransMedics.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

Here are the key operational highlights for 1Q. Total revenue for 1Q twenty twenty five was $143,500,000 representing approximately 48% growth year over year and approximately 18% sequential growth from 4Q twenty twenty four. Growth was driven primarily by higher overall utilization and center penetration of OCS and OP in The U. S. For liver and heart transplants, and that happened across both DVD and DCD organs.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

This enabled us to achieve a new high watermark for overall case volume in 1Q twenty twenty five. Meanwhile, TransMedics transplant services revenue for 1Q was approximately $55,300,000 up from $35,500,000 in Q1 twenty twenty four and up from $46,700,000 in Q4 twenty twenty four, representing approximately 56% year over year and 18.5% sequential growth. Our overall gross margins for 1Q improved to 61.5%, up from 59% in 4Q twenty twenty four. Finally, we delivered operating profit of $27,400,000 in 1Q, representing approximately 18% I'm sorry, 19% of total revenue and up from $8,600,000 or 7% of total revenue in 4Q twenty twenty four. Shifting now to TransMedics' transplant logistics infrastructure and performance for the quarter.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

Transplant logistics services revenue for 1Q was $26,100,000 representing approximately 80% year over year and 20% sequential growth. Throughout 1Q, our daily average aircraft availability was approximately 15.4, up from 14 in 4Q twenty twenty four. Given that we reached a critical mass of owned aircraft capacity, we will retire the reporting of this metric going forward. Throughout the first quarter, we were able to cover 78% of our NOP emissions requiring air transport compared to 75% in Q4 of twenty twenty four. As we've discussed previously, we are now focusing our effort in 2025 on efficiently operating our fleet by double shifting a portion of our planes to the extent possible before investing in additional aircraft to the fleet.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

We will be opportunistic, however, in adding one or more aircrafts in 2025 to reach our stated goal of 22 owned aircraft before year end. Overall, we are very pleased with our strong performance in 1Q. We are focused on maintaining this momentum throughout 2025. In addition, we are planning to launch two new heart and lung clinical programs later in the year to further catalyze our growth in 2026 and beyond. Our 1Q performance underscores the unique attributes of TransMedics business.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

TransMedics is not only a top line grower, but also an increasingly profitable business capable of generating significant bottom line leverage. We remain confident that this is just the beginning, and we believe we are well positioned to deliver sustainable long term financial results as we gain more efficiency of scale and continue to drive leverage throughout the operation. Moving now to provide a quick status update on our next gen OCS Heart and OCS Lung clinical programs. We filed both OCS Lung and Heart IDEs and are actively discussing the final details with FDA. Based on our interactions, we feel we are on track to initiate both programs in H2 twenty twenty five as we communicated earlier in the year.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

However, the precise launch time of the next gen lung and heart clinical programs is still fluid and depends on the exact timing of the FDA approval followed by the center's IRB processes. As we highlighted at our ISHLT symposium in April and previously at our Investor Day in December of twenty twenty four, we are planning to run a relatively large sized trial aimed at building the next generation of Level one clinical evidence that is unrivaled in our industry. As stated above, we see these new clinical programs as potential major growth catalysts for TransMedics twenty six and beyond, and we are not counting on these two clinical programs to contribute materially to our financial results in 2025. Now, I'd like to address the potential impact of geopolitical, macroeconomic and tariff policies on TransMedics business in 2025. Let me start with impact of tariffs that may have negatively impacted many device companies.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

I want to remind all of you that TransMedics is and will continue to be a proud U. S. Manufacturer of the OCS technology platform. Importantly, we also are focused on vertically integrating most of the critical technology blocks to minimize supply chain risks on our business. Based on what we know today, we believe that the currently proposed tariffs will have a minimal impact on our business.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

That said, this is a fluid environment and may change should policies change. Additionally, we are leaning forward and have announced publicly our strategic plan to open a disposable design center of excellence and a new manufacturing facility in the premier biomedical device district of Mirandola, Italy. This district is renowned for its deep expertise in polycarbonate injection molding and disposable perfusion technologies. We expect this plan to give TransMedics several key strategic advantages. First, it enables us to leverage their unique talent to rapidly integrate many of the key disposable critical components for OCS perfusion circuit.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

Second, provide an alternate disposable manufacturing source to ensure business continuity to our Andover facility. And finally, to provide us maximum flexibility in supplying OCS product OUS, while reducing the potential impact of tariffs on our international business. Now, let me share our perspective on the impact of potential economic downturn on organ transplantation in general and our business in specific. Our experience over the past two decades reinforces our belief that organ transplantation is a lifesaving procedure that is largely insulated from economic cycles. This is due to two important facts: one, the best clinical outcomes associated with the transplant procedure and the highly cost effectiveness of the therapy for payers managing very expensive chronic disease conditions that lead to organ failure.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

Let me now conclude my remarks by discussing our expectation for the remainder of 2025. As seen in our 1Q results, we began the year with a very strong performance. We are confident that we can maintain this momentum for the overall 2025 annual performance. However, we may experience some level of variability or quarterly seasonality that could impact performance quarter to quarter as we've experienced last year. As a result of our strong 1Q performance and the full year considerations I just outlined, we are raising our full year 2025 revenue guidance to between $565,000,000 and $585,000,000 representing approximately 28% to 32% growth over full year 2024.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

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

[Gerardo Hernandez, Chief Financial Officer at TransMedics Group]

Thank you, Warit. Good afternoon, everybody. I'm pleased to be here to walk through TransMedics' strong first quarter results. As Walid mentioned, Q1 twenty twenty five was a strong start to the year, reflecting our disciplined execution, continued commercial momentum and the positive impact of our strategic investments. We saw solid performance across both product and service lines and positive sequential margin expansion and profitability gains.

[Gerardo Hernandez, Chief Financial Officer at TransMedics Group]

U. S. Transplant revenue was $139,000,000 up 51% year over year and 19% sequentially. By organ, liver contributed with $109,000,000 heart with $26,000,000 and lung with $4,000,000 OUS revenue was 4,000,000 down 1% from Q1 of twenty twenty four and up 4% sequentially. OUS revenue by organ was $3,500,000 in heart, 400,000.0 in lung and $100,000 in liver.

[Gerardo Hernandez, Chief Financial Officer at TransMedics Group]

Product revenue for the first quarter reached $88,000,000 up 44% year over year growth and 18% sequentially. Growth was driven by increased organ utilization in liver and continued OCS adoption across both liver and heart. Service revenue came in at $55,000,000 reflecting 56% year over year growth and 18% sequential increase. The primary driver was logistics, which grew 80% year over year and 20% sequentially, fueled by the continued expansion and utilization of our aviation fleet. Total gross margin for the quarter was approximately 61%, representing a decrease of 45 basis points when compared to Q1 of twenty twenty four and a sequential improvement of two twenty six basis points.

[Gerardo Hernandez, Chief Financial Officer at TransMedics Group]

The 45 basis point decline was driven by a higher proportion of service revenue, which carries a lower margin profile, partly offset by improvement in product gross margin. The sequential two twenty six basis point improvement was primarily driven by a recovery in product margin, which increased three fifty nine basis points driven by the absence of Q4 related charges Q4 inventory related charges and better cost absorption. Compared to Q1 of twenty twenty four, product gross margin improved four forty eight basis points driven by cost efficiencies and the absence of non recurring inventory charges. Service gross margin declined six thirty two basis points versus Q1 of twenty twenty four, primarily driven by the higher proportion of Aviation business. However, sequentially, service gross margin remained stable and we continue opportunities for margin expansion through operational efficiencies.

[Gerardo Hernandez, Chief Financial Officer at TransMedics Group]

Total operating expenses for the first quarter of twenty twenty five were approximately $61,000,000 up 28% year over year. The growth was primarily driven by a 51% increase in R and D as we continue to invest in our innovation pipeline and a 21% increase in SG and A, reflecting investment to strengthen our NOP and command center along with non recurring legal and consulting expenses tied to internal processes reviews conducted in Q1 of twenty twenty five. Sequentially, total operating expenses declined four percent, largely due to lower SG and A following one time expenses recorded in Q4 of twenty twenty four and timing of spend, partially offset by the non recurring legal and consulting expenses I mentioned before. R and D grew 4% sequentially consistent with our ongoing investment plan. Operating income for the quarter was $27,400,000 up 121% year over year and more than tripled sequentially.

[Gerardo Hernandez, Chief Financial Officer at TransMedics Group]

Operating margin expanded to 19.1% compared to 12.8% in prior year. Net income for the quarter was $25,700,000 representing 111% year on year increase and 275% sequentially. These results demonstrate that our business model can scale efficiently, drive meaningful financial improvement and positions the company for sustained momentum in 2025 and beyond. We ended the quarter with $310,000,000 in cash, down $26,500,000 from 12/31/2024. During Q1, we invested approximately $24,000,000 in the purchase of two additional aircraft and we remain on track to purchase one more this year to reach our target of 22 owned jets by the end of twenty twenty five.

[Gerardo Hernandez, Chief Financial Officer at TransMedics Group]

Earnings per share were $0.76 and diluted earnings per share were $0.70 for the first quarter of twenty twenty five. In summary, we are off to a strong start. We feel confident in our momentum and remain focused on execution to continue to grow the number of transplant, advanced key projects and programs and deliver strong results through the rest of the year. Looking ahead, based on the strength of the business, as Walid mentioned before, we are raising our full year revenue guidance to a range of $565,000,000 to $585,000,000 up from our prior range of $530,000,000 to $552,000,000 This reflects approximately 30% growth over 2024 at the midpoint of the guidance. Growth is expected to continue to be fueled by the expansion of total transplant volumes, the increased OCS adoption and continued momentum across our service platform.

[Gerardo Hernandez, Chief Financial Officer at TransMedics Group]

We continue to expect some quarterly variability in terms of transplant volume growth. However, we are confident in our updated full year guidance. In terms of gross margin, we continue to expect expansion across both product and service gross margin, driven by benefits of scale and operational efficiencies. However, the increasing proportion of service revenue, which operates at a lower margin, will moderate the overall gross margin expansion in 2025. In Aviation, we are expecting scheduled maintenance activity to increase in the second half of the year, ramping in Q3 and more significantly in Q4.

[Gerardo Hernandez, Chief Financial Officer at TransMedics Group]

While this may introduce some quarterly noise, it does not change our expectation for modest gross margin expansion. In terms of capital allocation, we will remain focused on R and D and targeted investment that advance our pipeline, strengthen product development and enhance logistics efficiency and process simplification. We are balancing strategic growth with financial discipline to drive sustainable long term profitability. Finally, with stronger expected top line performance, continued efficiency gains and spend discipline, we now expect to deliver at least 400 basis points of improvement in operating margin in 2025 versus 2024. While quarterly variability is expected, we are confident in the full year step up, driven largely by gaining leverage across our operating expense base.

[Gerardo Hernandez, Chief Financial Officer at TransMedics Group]

I'm encouraged by a strong start to the year and the disciplined execution across the organization. While there is more work to do, the momentum we are seeing across the business combined with clear growth drivers give us conviction in our ability to deliver sustainable growth and continued margin expansion. And with that, I'll turn the call over to Walid for closing remarks.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

Thank you, Gerardo. As I said before, we're very pleased by our strong start of the year and performance in Q1 that we expect to carry this forward for the remainder of the year. As we stated before, our 1Q results demonstrate the unique and unrivaled attributes of TransMedics business. We remain confident that this is only the beginning and we are well positioned to continue to drive profitable growth while generating leverage to drive strong sustainable financial results. In conclusion, we are humbled and proud of the strong clinical user support for TransMedics and the resilience of our wonderful team.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

We remain committed to delivering the highest quality OCS NOP products and services to expand access to our lifesaving transplant technology. With that, I will now turn the call to the operator for Q and A. Operator?

[Operator]

We will now begin the question and answer session. The first question comes from Alan Gong from JPMorgan.

[Allen Gong, Vice President at JP Morgan]

Congrats on just what's really a really strong quarter. I guess starting with where I think it looks like a lot of the upside came from in liver. It's kind of funny, one of your main competitors in that space actually had some news announced today as well. But how should we think about the main drivers of your growth in liver? We know that you're seeing more morning adoption, continued growth in DCD.

[Allen Gong, Vice President at JP Morgan]

But if you could just break down the drivers of that outperformance in liver and what you're seeing so far in April as well.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

Thank you, Alan, for the question. I cannot comment on the news that came out today from the other technology out there. I can only comment on our dynamic as you'd expect me to do. We're extremely confident in our liver platform. We're seeing growth across the verticals, DVD, DCD.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

We're seeing more utilization of deceased donors across both DVD and DCD. We're gaining share. We're gaining momentum. Again, it's early in the year, but we are bullish about our ability to continue to execute and continue to deliver the results we're delivering because we are convinced that we have the best, I repeat again, the best platform for liver preservation. All the pseudo competitors out there cannot deliver the value that the OCS can deliver in liver transplantation.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

And the upcoming publications will prove it unequivocally based on data and evidence, not just based on opinions.

[Allen Gong, Vice President at JP Morgan]

Got it. And then just a quick follow-up. Just curious what you're seeing so far in April. You raised the guide by more than the beat, but still given the outperformance in the quarter, it looks like there could be some room for upside if you carry some of that momentum forward. So just curious about what you're seeing so far in April. Thank you very much.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

Thanks, Alan. I think you and others know that we are we take guidance very seriously. Q1 results speak for themselves. It's still early in the year, and we wanted to make sure that we also are putting guidance that can be achieved and factor in some potential headwinds coming up in Q2 or Q3 or Q4. So we feel very strongly that the momentum we experienced in Q1 will continue for the full year results, but we expect some variability between quarters, potential seasonality as we've seen last year.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

That's why the guidance accommodated for all of that. Based on April results, feel confident in the guidance range we put out in front of the community. Gerard, would you care to comment on that?

[Gerardo Hernandez, Chief Financial Officer at TransMedics Group]

No. I feel we have plenty of tailwinds not only in product sales, but also in service revenue. We have our adoption has increased consistently. We saw adoption increase in Q4. We saw adoption increase in Q1 as Walid mentioned.

[Gerardo Hernandez, Chief Financial Officer at TransMedics Group]

It's not only the adoption, but it's organ utilization. It's penetration of organs in different centers. It's power adoption. So, of tailwinds.

[Operator]

The next question comes from Matthew O'Brien from Piper Sandler. Please go ahead.

[Samantha Munoz, Medtech Equity Research Analyst at Piper Sandler Companies]

Hi. This is Sam on for Matt. Thank you for taking our question. I guess first I want to touch on your next your two Nextgen products for the heart and lung. We know that you can generate product revenue when these trials are ongoing, can you talk a little bit about anticipate product and service margins could be impacted during these trials?

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

Thank you for the questions. I'd like to comment only on the product revenue at the moment until we have all the trial design completed and approved by FDA. We know we have high degree of confidence that we will be incurring product revenue. We expect to incur service revenue certainly on the OCS arm, but we have to stay silent on what should we expect on service revenue on the control arm. That remains to be an area of discussion, so I do not like to comment on it just yet.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

But we certainly feel very confident that we will be incurring product revenue throughout the heart and lung clinical programs.

[Samantha Munoz, Medtech Equity Research Analyst at Piper Sandler Companies]

Okay, perfect. Thank you. And then we are just going to touch on liver again. Obviously, it continues to do really well in The U. S.

[Samantha Munoz, Medtech Equity Research Analyst at Piper Sandler Companies]

There are a couple of competitors anticipated to enter the market later this year. So just what kind of gives you that confidence in your guidance and any impact, if any, that you anticipate in the second half of this year?

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

As I stated earlier, the community needs to step back and understand why is the liver doing so well for us. There is a good reason for that. The good reason is TransMedics and OCS Liver platform is delivering the best results in the history of liver transplantation. And we're doing that while providing the most convenient, the most cost efficient way of delivering the liver transplantation at the transplant institute. This is why the market is adopting our platform.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

Anybody could claim that they have a potential competing technology. They need to prove it. We stand by our product. We stand by our data. And as I said, this is all going to be coming out to light very soon in major publication in peer reviewed journal that highlights all the value that I just outlined.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

That's why the liver program is doing well and that's why we expect the liver program to continue to do well. And I'm going to go on a limb and I say TransMedics is not just stopping at where we are. TransMedics is working very hard to ensure that the OCS Liver platform is the next standard of care in DVD and DCD liver transplantation in The United States and around the world. Anybody could claim anything. We have the evidence to support us, and we are not stopping.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

We are continuing to push innovation, clinical programs, data to ensure that this leadership position of our liver platform will continue to lead from the front.

[Samantha Munoz, Medtech Equity Research Analyst at Piper Sandler Companies]

Great. Thank you.

[Operator]

The next question comes from Bill Plowvanic from Canaccord. Please go ahead.

[William Plovanic, Managing Director - Equity Research at Canaccord Genuity - Global Capital Markets]

Great. Thanks. Good evening. Thanks for taking my question. So as we look at the quarter, mean, liver was fantastic and we've talked about that already.

[William Plovanic, Managing Director - Equity Research at Canaccord Genuity - Global Capital Markets]

We did see receivables go up pretty significantly from the fourth quarter. Just any commentary there? And then on the guidance, know, Hamed, you basically it assumes flat line the rest of the year. You did make some commentary about the trials. Do you still think that the clinical trials will add 2% to 5% to the numbers this year or have you pulled that out and are basically saying it's next year?

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

Let me start with the last part, Bill. We've always stated that the clinical trials for this year will be a very, very small contributor. We estimated it to be between 2% and five percent. We think it's still within that range, maybe towards the lower end of that range. But really, what we have always stated that these clinical programs are the catalyst for 2026 and beyond. And I'll let Gerardo specifically address the AR question.

[Gerardo Hernandez, Chief Financial Officer at TransMedics Group]

Hi, Bill. Yes. The increase in receivable basically is really related to the timing of billing. We had a couple of elements that affected Q1 and the billing that we have to do through the quarter actually was done later in the quarter. So we delayed that process.

[Gerardo Hernandez, Chief Financial Officer at TransMedics Group]

And what I can tell you is that now we're in well, let's say recovering the receivables and we're in good position to go back to our original plan. We are expecting to end the year more or less in somewhere around our forty five to sixty day DSO. And we should see recovery already in Q2.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

Bill, if you allow me to just add one additional commentary to Gerardo's points. As we've stated before, we are transitioning our entire NOP platform to be managed completely through our new NOP digital ecosystem. Part of that transition is a full automated billing mechanism that will significantly reduce that time between the completion of the case and the bill being generated. And that's coming in the second half of the year. That will help achieve the goal as stated by Gerardo.

[William Plovanic, Managing Director - Equity Research at Canaccord Genuity - Global Capital Markets]

Okay. And I just want to just to go back to the first question on the guidance, Willy. You did that 143,000,000 and change in the first quarter. It's basically flat line for the year. Is that how we should think of the second quarter to be very similar to the first quarter?

[William Plovanic, Managing Director - Equity Research at Canaccord Genuity - Global Capital Markets]

Or is it like last year where it kind of went up a little and then kind of the back half of the year slowed down a lot? I mean, how should we just think about the second quarter here?

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

I really think, Bill, we can comment in the second quarter given that we're already close to the mid of second quarter. But from a high level expectation, expect we always expect to do better. That's not a secret. But we also expect some seasonality. Maybe it will hit in Q2, maybe it will hit in Q3.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

So that's why the guidance is structured the way it's structured. But we're trying to reflect in the guidance the way we see how the business is operating. But based on the early signals in Q2, we expect to see a little bit a modest improvement over Q1. But we still have some weeks to go.

[William Plovanic, Managing Director - Equity Research at Canaccord Genuity - Global Capital Markets]

Thanks for taking my questions.

[Operator]

The next question comes from Justin Wang from Morgan Stanley. Please go ahead.

[Justin Wang, Equity Research Associate at Morgan Stanley]

Hey, thanks for taking our questions. I'm stepping in for Patrick here. I was wondering if you can talk a little bit more on the durability of OCS and NOP pricing. I understand that it adds solid value to transplant centers and payers, but do you think that competitive entries in a more cost sensitive CMS could pressure your pricing here? Thank you so much.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

Justin, thank you for the question. I think as I've stated before, the question is not about pricing. The question should be about value. We priced our technology based on the significant value that the OCS delivers to the transplant center, to the payer and to the patient. In fact, we believe that we're leaving some value on the table because it's always been our culture not to gouge the market.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

We're there to be their long term partner. We're there to be the next standard of care for organ transplant in the long term. Unfortunately, because of our value, any how do I state this, any potential competitor is just taking a 20% discount from our price and saying I'm cheaper than TransMedics. People need to step back and say, what is your value? Most of these competitors, specifically in the liver, we should ask, what is your value?

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

What are you delivering? You should be at zero or near zero from a price standpoint because you're not delivering much value. What is the value of a machine perfusion that deliver has to be preserved on ice for six or eight hours before you perfuse it? So where is the value of machine perfusion? You've just killed the value of machine perfusion.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

And why do you do that? Because the technology is not capable of being portable. Even if it is has wings to it, it's not delivering the physiologic perfusion and value of preservation and assessment that the OCS is delivering. So based on this, based on these facts and based on the significant economical efficiency that is gained throughout the paradigm of organ transplantation from reducing the waitlist time to improving the post transplant complication rate to increasing the survivability of the recipient with the originally transplanted organ and significantly reducing the retransplant rate, we are delivering significant cost efficiency to payers, to transplant programs and certainly the best quality of life and the best life expectancy for the patient. Based on that, we think CMS will continue to reimburse for OCS and commercial payers, not just CMS, because we're delivering significant economic value to these payers. And again, the data speaks for itself.

[Justin Wang, Equity Research Associate at Morgan Stanley]

Thank you so much.

[Operator]

The next question comes from Chris Pasquale from Nephron Research. Please go ahead.

[Chris Pasquale, Partner - Medical Devices & Supplies at Nephron Research LLC]

Thanks. I wanted to ask a couple of questions about margins. The updated guidance for four points of full year operating margin expansion represents great progress, but you actually delivered more than seven points here in 1Q. So was there any spending that got pushed out of 1Q and is going to come later in the year to drive that dynamic? Or are there other margin headwinds that you're contemplating with that outlook?

[Gerardo Hernandez, Chief Financial Officer at TransMedics Group]

Hi, Chris. No, the majority as I mentioned, the vast majority of the operating margin increase is going to be driven by gains in operating leverage, in operating expenses. So basically what is happening most of the or a large part of investment is planned for later in the year. And that's what basically is going to balance out. So that's why we're comfortable on the full year 400 basis points at least. That's what I mentioned at least.

[Chris Pasquale, Partner - Medical Devices & Supplies at Nephron Research LLC]

Okay. That's helpful. And then on gross margin, nice result this quarter on the product side of the business. The service gross margin was similar to what we saw in 4Q even though service revenue improved sequentially. What's the real gating item to get that service gross margin higher?

[Chris Pasquale, Partner - Medical Devices & Supplies at Nephron Research LLC]

You've got basically the fleet of planes that you would like to have. Is it just a matter of really increasing the utilization of those assets? Or is there something else that sort of triggers a change in the profitability of that piece of the business?

[Gerardo Hernandez, Chief Financial Officer at TransMedics Group]

No. That's exactly what you mentioned. It's doing the utilization of the assets. Let me give you a couple of examples. In Q1 last year, I mean, just to share.

[Gerardo Hernandez, Chief Financial Officer at TransMedics Group]

In Q1 last year, we own 14 planes. The average operating aircraft per day was nine. And we were servicing only 49% of our NOPs missions. Today, we own 21 planes. We have around 16 average operational aircraft in Q1 and we are servicing 78%.

[Gerardo Hernandez, Chief Financial Officer at TransMedics Group]

So, what I'm trying to say here is, there is plenty of room to continue to utilize our fixed assets. And as long as we as much as we continue to do so, we will be able to expand the margins. That's why we are exploring double shifting project. That's why we are exploring other elements within the logistics team to improve the efficiency of the fleet. But it's basically volume. It's basically volume, Chris.

[Chris Pasquale, Partner - Medical Devices & Supplies at Nephron Research LLC]

Okay. Thank you.

[Operator]

The next question comes from Suraj Kalia from Oppenheimer. Please go ahead.

[Suraj Kalia, Managing Director at Oppenheimer & Co. Inc.]

Waleed, Gerardo, congrats on a fantastic quarter. So Waleed, thank you for giving all the details. On the external disturbance you referenced in your remark, Waleed, there was probably not one surgeon or hospital administrator who had not heard of the allegations and there was fear this could lead to softness. Yet the math implies you guys actually picked up share. Maybe if you can help us understand how new stores, same stores sales shaped up in the quarter?

[Suraj Kalia, Managing Director at Oppenheimer & Co. Inc.]

Did you see pockets of softness? How you'll overcame, if any, the disturbance, as you mentioned, external disturbance that you mentioned?

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

Thank you, Suraj. If you allow me to correct you, I didn't say disturbance. I said distraction. Fair frankly, it's a nuisance distraction. I think the results speak very loudly that the clinical transplant community voted with their action, not with their word.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

We reached out to every user of the OCS platform and non user in The United States across all three platforms when this garbage came out in January. And we've made our points clear and the results shows their position. So we look at these results with a high degree of pride and humility, and we are continuing to laser focus on our users, servicing our users' need and making sure that we're there for them as they have been there for us throughout Q1. And again, we're doing this because we're delivering significant value to the transplant community across all three platforms. And we're looking forward to the next phase this year, later this year when we get the heart and lung programs kicking to start getting momentum in the cardiothoracic aspect of this.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

We did not see any softness. The opposite is true. And again, now the focus of our entire team is to making sure that we are here and have the capacity to meet the demand. The demand is continuing to grow day over day, week over week, month over month.

[Suraj Kalia, Managing Director at Oppenheimer & Co. Inc.]

Fair enough. And Waleed, one of the other things obviously is OCS economics, almost every discussion that comes up, right? And in one of our recent events, you know, some of the physicians said, hey, it would really help hospitals because they are not billing properly. And the point was raised, it would really help if TransMedics develops a reimbursement team that can help us understand reimbursement and guide us through the process because there you all have stepped in, it seems like it's helped the site. So walk us through if that is on the docket in terms of just helping transplant sites walk through the reimbursement steps.

[Suraj Kalia, Managing Director at Oppenheimer & Co. Inc.]

Gentlemen, congrats again and thank you for taking my questions.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

Thank you, Suraj. Suraj, unfortunately, that tells me that, that particular view comes from a new user or a new partner to TransMedics OCS. TransMedics has always had reimbursement experts, both full time internal and external that work and help all transplant programs in The United States and in Europe do the market access and billing work. In fact, we are the only entity, only technology that formed the National Transplant Administration Working Group assembled from leading transplant programs that are highly utilizing OCS with and have secured additional reimbursement from commercial payers to help other transplant programs in The U. S.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

Achieve the same results, completely unpaid, completely independent of TransMedics. So it's a great idea. We agree with that view for sure and we have been implementing that. And again, it our results and our growth could not be achieved, could not have been achieved without making headway on the proper billing as you outlined.

[Operator]

Next question, The next question comes from David Rescott from Baird. Please go ahead.

[David Rescott, Senior Research Analyst at Baird]

Great. Thanks for taking the questions and congrats on the really strong quarter here. Waleed, I wanted to follow-up on, some of your comments already on just the way you're thinking about the rest of the year, in the guide. I know historically you've called out just the unknowns around whether or not Q2 or Q3 sees more seasonality. I think if you look at the past two years, Q2 was a seasonally stronger quarter, Q3 was a seasonally weaker quarter.

[David Rescott, Senior Research Analyst at Baird]

And so if we were to pretty much take that mid single digit market growth that's played out in liver and heart the past two years, it puts you around $150,000,000 or so in Q2. So I guess my question is, at this point, is there anything in your mind that leads you to believe that what we've seen in the past two years, meaning stronger Q2 kind of weaker Q3 on a seasonality basis, would not play out again this year?

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

At this point, David, thank you for the question. At this point, you perfectly outlined, it's either Q2 or Q3. And yes, the odds are looking at Q3 just because of the summer vacations. But we are also living in very volatile times. So one has to be prudent and but if not nothing, If we just looking at the past two years, I agree with you.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

The Q2 should be an uptick from Q1 and Q3 is probably the higher probability where we see a little bit of slowdown because of the summer vacation impact and summer vacation on the overall transplant volume. But we don't see any more tangible evidence that points us in one direction over the other at this point.

[David Rescott, Senior Research Analyst at Baird]

Okay, great. And then on the two clinical trials, liver sorry, lung and heart, I understand the value to hospitals or physicians in participating in that trial. When you think about the potential for on the heart side, accounts to interested in doing a heart transplant as a part of this trial versus doing a heart transplant not a part of the trial? How do you think about the potential for the revenue coming in for heart patients to be incremental or something on top of the growth that you already would have as opposed to it maybe cannibalizing some of the underlying heart transplants that you likely were going to capture in the future at some point as well? Thank you.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

Excellent question, David. I think we need to point out that we have two segments of the heart trial. One that is focusing on our current indication and one much larger that is focused on a brand new indication that we currently don't have. And that cannot be cannibalized since we don't have that indication in The U. S.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

Anyway. And that's the indication that happens to be a seven fifty patient trial versus the current indication segment of the trial is only 200. So we do not see this as cannibalization. We see this as an advancement on both trials. But I just wanted to be giving you the black and white answer is, there's a seven fifty patient trial that is an indication we currently do not have in The U.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

S. So we're looking forward to the start of these trials. And hopefully, the results will validate our view that this is not going to be cannibalizing. This is going to be additive because the significant advancements that users will see with the next gen technology and solutions that we are deploying as a part of these programs.

[David Rescott, Senior Research Analyst at Baird]

All right, perfect. Thanks and congrats again.

[Operator]

The next question comes from Mike Matson from Needham and Company. Please go ahead.

[Mike Matson, Senior Equity Research Analyst at Needham & Company]

Yes, thanks. Just curious on the decision to open the facility in Randola, Italy. I mean, don't have a lot of international business at least right now. I mean, I understand you're growing so fast, probably need to add capacity somewhere, but why there versus somewhere in The U. S. Or elsewhere?

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

Mike, I can speak more granular other than saying that Mirandola, Italy happens to be the Mecca for cardiopulmonary or perfusion technologies and plastics innovation. Every major perfusion technology company, whether in the dialysis, in the cardiopulmonary bypass or ECMO company on the planet has a major R and D and manufacturing headquarter in Mirandola, Italy. Guess what? Our main revenue generating product is perfusion disposable unit that is made of polycarbonate and polyurethane. And it has the same components that has significant engineering and design and manufacturing talent that exists in Mirandola, Italy.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

So that's one of the main reasons why I have to leave it at that. The second is we are as we grow and we're growing very rapidly, we need to start thinking about business continuity. And given that we're putting that infrastructure in Mirandola for R and D, it made perfect sense for us to add the manufacturing component to it given the talent that exists in that region. Specifically on the vertically integrating key technology blocks that requires that talent that doesn't exist in The U. S.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

And frankly, doesn't exist in The U. S. As much as it is available in abundance with significant expertise in Miranda, Italy.

[Mike Matson, Senior Equity Research Analyst at Needham & Company]

Okay, got it. So it sounds like you're probably bringing something in house that you're having made in that kind of region to begin with and just deciding to kind of do it yourselves now. Is that fair?

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

That's fair.

[Mike Matson, Senior Equity Research Analyst at Needham & Company]

Okay. All right. And then just one on from a policy perspective, I know there's all the constant headlines out of TC, but I know there's some effort underway to kind of revamp the transplant policy at the federal level. So I was just wondering if there were any updates there, if you're hearing anything about the way things could potentially move? Thanks.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

Mike, we are not aware of anything imminent, but we're keeping our eyes and ears wide open and we are actively engaged with many of the policymakers and the decision makers that are involved in that particular topic. So I'll leave it at that.

[Mike Matson, Senior Equity Research Analyst at Needham & Company]

Okay. Thank you.

[Operator]

The next question comes from Josh Jennings from TD Cowen. Please go ahead.

[Josh Jennings, Managing Director at TD Cowen]

Hi, good afternoon. Strong quarter. I was hoping to talk about ask about the clinical trials will lead at ISHLT. You made some at the symposium, you obviously presented some high level details on the lung and heart trials. First on the lung trial, maybe you can just help us or report back on the enthusiasm or buzz that was generated within the lung transplant surgeon community and impetus or desire to get involved in this clinical program?

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

Thanks, Josh. I think the buzz was pretty loud and it's not just in the lung. I think the buzz with the heart was as loud as the lung, if not louder. So we're it was unfortunate that we could not declare the two IDEs approved by the time of the ISHLT, but the buzz was loud. And what I tell you from our perspective, not just in The U.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

S, but as you've seen in our symposium, the buzz even OUS is becoming louder and saying why we need access to these innovations in Europe and Australia. So, our team is working hard since the ICHLT trying to kind of garner harness that momentum. First things first, we need to get FDA approval in hand and move forward to executing our plans in The U. S. And definitely try to capitalize on the momentum and interest generated OUS as well.

[Josh Jennings, Managing Director at TD Cowen]

Understood. And maybe on the heart program, there was a question kind of symposium from the surgeons just about the risks of designing the trial for superiority in low risk and low risk CBD trial, lower risk head to head against standard of care practice. Maybe you can just talk about your confidence level on OCS delivering superiority over standard of care. Thanks a lot.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

Josh, I think, again, we don't want to comment from our perspective. That's why we designed the trial. That's why we are going to generate that first level one evidence head to head to standard of care. No other technology in the field from cold storage to cold perfusion to cold controlled cold storage have done that. We're the only technology that is going to put it put that question to the test.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

And it's a very high bar, the test of a level one FDA pivotal PMA trial. And we'll let the data speak for itself.

[Josh Jennings, Managing Director at TD Cowen]

Appreciate that. And looking forward to tracking along.

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

Thank you, Josh.

[Operator]

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

[Waleed Hassanein, Founder, President, CEO & Director at TransMedics Group]

Thank you, operator. Thank you all for your time this evening and we're looking forward to meeting again in few weeks and months here. Have a wonderful evening everybody.

[Operator]

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

Participants

Executives

• Waleed Hassanein, Founder, President, CEO & Director
• Gerardo Hernandez, Chief Financial Officer

Analysts

• Laine Morgan, Associate Vice President at Gilmartin Group
• Allen Gong, Vice President at JP Morgan
• Samantha Munoz, Medtech Equity Research Analyst at Piper Sandler Companies
• William Plovanic, Managing Director - Equity Research at Canaccord Genuity - Global Capital Markets
• Justin Wang, Equity Research Associate at Morgan Stanley
• Chris Pasquale, Partner - Medical Devices & Supplies at Nephron Research LLC
• Suraj Kalia, Managing Director at Oppenheimer & Co. Inc.
• David Rescott, Senior Research Analyst at Baird
• Mike Matson, Senior Equity Research Analyst at Needham & Company
• Josh Jennings, Managing Director at TD Cowen