TransMedics Group, Inc.

Good afternoon and welcome to Transmedic's second quarter 2026 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 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, are 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. 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 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 Thank you for joining us. 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, deriving more than $2 billion in top-line annual revenue with a healthy operating profile. Our capital allocation priority has always been and 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 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 enhanced 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 operating efficiency. Taking share in this highly competitive transplant logistics market is the 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 initiative. 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. and 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, and it was achieved with minimal contribution from enhanced Part B or de novo, which we expect to begin 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 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 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 enhanced function ex vivo. Second is using CHOPS, a lower-cost technology alternative for transplant programs who may be focusing on controlling cost. De Novo is our focused effort to re-establish or frankly resurrect the lung perfusion market in the U.S. and broaden OCS lung adoption. Together, Enhance and De Novo 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 TROPS, which is the Transmedics Controlled Hypothermic Organ Preservation System into the enhanced 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 disease 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 transplants. 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 transplants. 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, normal thermic 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 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 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 US IDE. The third initiative is international expansion to expand our total addressable market. As we've discussed, we are replicating the successful US 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. were 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 NLP and logistics. The opportunity in Europe leverages capabilities we've already built, materially expanding our addressable market, extends 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 review of our execution track record. Over the last four 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. Transmedics is and remains a growth-oriented business. We are funding these four 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 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 enhanced Part B or de novo 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 Transmedic's second quarter 2026 results. A supplemental slide presentation with additional detail is available in the investor sections of our website. The second quarter delivers strong revenue growth, sequential gross margin improvement, and an adjusted operating margin of 13.6%. Our results reflect continuous 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 LIBER. 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 transmedic 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 transmedic 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 enhanced and renewable 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, or 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 SD&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, SD&A declined as non-recurrent 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 Summerville headquarters. We expect headquarters-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 our headquarters lease, which is reported separately. Now let me turn to PAD Aviation. The transaction closed in July and Pat will be consolidated in our financial statements beginning in the third quarter. Pat's existing third-party charter business will be reported within non-OCS revenue. Future transplant logistics revenue generated by Pat in support of our European platform will be reported within service revenue consistent with our U.S. transplant logistics business. While we understand PATH's historical performance and its charter business, we have not yet established an operating track record under Transmedics to provide a standalone estimate with the level of confidence and precision we expect from our guidance. PATH 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 diluted 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 deviation, 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 enhanced Part B and the novel. 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 two years. For the second half of 2026, We expect gross margin excluding the impact of path deviation of approximately 59%. Looking beyond 2026 and excluding path deviation, we expect gross margin to remain broadly around current levels over the next two to three 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 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 path deviation to $737 million to $757 million. and we expect full-year adjusted operating margin excluding path deviation of approximately 12.5 to 14% while maintaining a strong liquidity position. And 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 an 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?

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. We ask that you please limit yourself to one question and one follow-up. Thank you. Your first question comes from Alan Gong with JP Morgan. Your line is open.

Thanks for the question, team. 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 of pace 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, Alan. 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 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 these all combined lead to that picture.

Your next question comes from Josh Jennings with T.D. Cowan. Your line is open.

Hi. Good afternoon. Thanks, William and Rhoda, for taking the question. Congratulations on a strong quarter. It seems that the third quarter is starting off strong, too, looking at some of the public transplant volume data. And that's a continuation on 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're cautiously optimistic about Q3. We need to see how the rest of the quarter and others. 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. And we feel 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 two more months to go. And August, we're starting to see some kind of, you know, we know what happened in August. People take vacations and centers go, you know, 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 I missed this, but any updates just on the 510k pathway? And maybe help us think about when you could have clearance in hand and just the commercial opportunity outside of the benefit you'll receive from CHOPS being included in Enhanced Part B and de novo, but just the overall commercial opportunity. Help me frame that up for us.

Thanks for taking the question. 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 unlock the trial. The next frontier for us will be the 510K. I think, realistically speaking, this is an H1 2027 horizon for us. As far as the opportunities that it unlocks, as I stated earlier, at least 2,200 annual cases in the U.S. DBD hearts that are done with approximately four hours of preservation. So that's why we framed it as such in 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 leave it at that.

Your next question comes from Bill Plavanik with Canaccord. Your line is open.

Great, thanks. Good evening and thanks for taking my questions. Waleed, first question is, I was wondering if you could unpack the statement that you're adding donor and recipient screening services starting July 1st. I'm trying to understand the potential impact from that from a 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 healthcare system in Boston. We are going to experiment with that, pilot that over the next 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 enhanced heart trial and the de novo lung trials, you know, 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 de novo lung before year end and get into the enhanced 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? Thanks for taking my questions.

Thank you, Bill. Listen, again, there's a reason why we don't comment on our discussions with FDA. FDA owns the timeline. 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 in the IDE for HART, we will use that as a stepping stone to get the Lung IDE amendment approved. We have to remind the audience that what I'm talking about is not the IDE approval per se, Everybody knows that an 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.

Thank you.

Your next question comes from Ryan Daniels with William Blair. Your line is open.

Yeah, hello. This is Matthew Mardula. I'm for Ryan. Thank you for taking the questions and thank you for all the details on the call. And I kind of want to follow up on the previous question but asked it in a different way. Can you give us an update on the percentage or amount of the de novo enhanced clinical trials that have been completed so far? I know in your prepared remarks you discussed a minimal contribution from enhanced Part B and de novo and Q2, but any update on that contribution and then just overall the 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. Enhanced Part B will be completed before year-end. There's no question in our mind. But Enhanced Part A, I'm sorry, Part A, I apologize if I stated B. Enhanced Part A is going to be completed before year-end this year. There's no doubt about it. The slow to take control here is Part B for the HART and the NOVA. 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 are all 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 timelines we outlined.

Perfect. Thank you for that. And one very quick follow up regarding the international growth. You talked about securing reimbursement for both machine profusion and services internationally that should take effect later this year or early 2027. Sounds like initial conversations internationally are going better than expectations. Can you give us some insights into that growth internationally? And I know it's still early, but any big picture ideas as well as with 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 the regional budgets have been ratified in Q2, and we expect going through the bureaucratic steps to get that budget dispersed. 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 UK, 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.

Perfect. Thank you for all the clarification.

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

Hi, this is Sam on for Matt. Thank you so much for taking our question. I guess we still waiting on the CMS final role regarding OPO recertification. You know, 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. are 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 two 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 our growth opportunities, you notice, does not include us becoming an OPO 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. Thanks for that. 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. You know, 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's two 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.

Your next question?

How durable it is? We think it's durable. And again, we let the print speak for itself.

Your next question comes from Patrick Wood with UBS. Your line is open.

Awesome. Thanks, guys. 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 and patience? Why was that the right next move after Italy?

Thanks. 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 two hours of flight from Paderborn. We make the investment, but we're 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.

Gotcha. Very clear. Thanks, guys.

Your next question comes from Daniel Markowitz with Evercore ISI. Your line is open.

Good afternoon. Thanks for taking my questions. 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 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. Thank you.

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 roadmap 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 carry on the name.

Very helpful. Thank you. And then just a follow-up. On pad aviation, all the guidance metrics were kind of XPAD, 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're 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 Pad Aviation Investment is not Summit Aviation Investment. Summit Aviation, we had a huge bent up demand in the United States. Pad is just the beginning. It's the first step towards establishing that. So we're 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.

That makes sense.

Thank you for the directional color.

Your next question comes from Young Lee with Jefferies. Your line is open.

All right, great. Thanks for taking the question. I'll just keep it at once. Maybe just to 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 timelines and expectations there, as well as, you know, you talked about OPO pressures in, you know, 1Q, This year, how has that dynamic evolved? How much have you seen in 2Q and expectations for second half impact?

Thank you, Young. 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, you know, we printed Q2. Everybody's looking at the OPTN data like we all do. I think we are where I don't see that dynamic impacting the overall numbers. And as I said, I 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 is 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. Understood. Thank you.

Your next question comes from Suraj Talia with Oppenheimer and Company. Your line is open.

Hi, Waleed, Gerardo. Can you hear me all right?

Loud and clear.

Gentlemen, congrats on a nice quarter. So, Waleed, a couple from my side, and I'll pose them up front. You mentioned about the census that you all had signed for additional service platforms. and the value that transmedics provides. If you could shed for us, how do you define value in this specific context? That is question number one. And Waleed, question number two would be the 10,000 organs by 2028. Look, kidneys seems highly unlikely to contribute by that time and enhance part B, oh 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. Gentlemen, thank you.

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. 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 transplants has any of enhanced Part B or CHOPs. No, those all came after that goal was set. So our expectation is to meet that goal with or without CHOPs, with or without enhanced Part B. So that's number two. Number one, 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, is 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.

That's simply stated. That's the approach. Thank you.

Your next question comes from Mike Mattson with Needham. Your line is open.

Yeah, thanks. I'll just limit it to one, but, you know, 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 non-medical charter business, sounds like that's going to continue, but I assume that'll 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, 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 Thank you very much. Our next question comes from David Rescott with Baird. Your line is open.

Oh, great. Thanks for taking the questions here. I guess I'll also limit it to one and congrats on the results here. I appreciate the comments on this, you know, 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, you know, as to whether or not that was You know, seeing more either on the heart or liver side or DCD versus DVD, just curious to hear, you know, 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, you know, should remain into the back half of the year? Thank you.

David, I'm sorry, can you please repeat the first part of the question about DBD and DCD? I missed that. I apologize. Oh, yeah, can you hear me still? Yeah, yeah, I can hear you now.

Yeah, yeah, yeah, just curious, excuse me, if this higher service revenue dollar, you know, was seen more or more specifically coming from either liver or heart or DCD liver, DVD liver. Just curious if any of those specific organs were seeing a higher service utilization.

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, 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.

Yeah, thank you.

Your next question comes from Tom Stefan with Stifel. Your line is open.

Great. Hey, guys. Thanks for taking the question. I'll leave it to Juan. 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 percent last year was I think 18 to 19 percent so do we think about 2027 op margins somewhere in between maybe closer to either of those ends being 13 or 19 percent just any directional commentary would be helpful you know 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? Thanks.

Thank you. Thank you for the question. Operating margin is clearly linked in the case of transmedics to basically three 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 three elements will drive a long-term operating margin that will be sustainable to the levels 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 evolved 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. We, for instance, the clinical programs, we had significant investment in 2026, but now that we have delays, that those programs are delayed, that investment is going to next year. We need to see how the rest of the programs evolved, 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 better view and provide guidance on 2027.

Understood. Thanks.

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.