TransMedics Group, Inc. (TMDX) Earnings

Management highlights

- Strategic Platform & Moat Building * Transmedics operates four interconnected, hard-to-replicate assets: the first-in-class OCS organ preservation system, the National OCS Program (NOP) national procurement/clinical infrastructure, the transplant-dedicated Transmedics Logistics Network, and NOP Connect end-to-end digital transplant workflow ecosystem. Effective July 1, 2026, the company added new donor and recipient clinical screening coordination services to expand platform workflow integration. * Management's long-term target is supporting ~30,000 transplants annually by 2032, generating over $2 billion in top-line revenue with a healthy operating profile. Capital allocation prioritizes durable long-term top-line growth over near-term operating leverage. - Q2 2026 Operational Milestones * Q2 2026 was the strongest quarter in company history for both revenue and case volume. Liver segment revenue grew 28% YoY and 7% sequentially; heart segment revenue grew 6% YoY and 23% sequentially. Transmedics Logistics covered 86% of NOP air transport missions in Q2, up from 82% in Q1, driving improved operating efficiency and market share gains against competitors. * On July 1, 2026, Transmedics closed a strategic investment in PAD Aviation in Germany, the first step toward building a pan-European transplant logistics network modeled on its successful U.S. network. * Minimal Q2 2026 revenue contribution came from new initiatives (Enhanced Part B, De Novo lung), with meaningful contribution expected starting in late Q4 2026 and 2027. - Core Growth Initiatives (Next 18-24 Months) 1. Heart & Lung Expansion: The Enhance Part B program targets the 2,200 annual U.S. DBD heart transplants currently not served by Transmedics, offering OCS (improved preservation) and lower-cost CHOPS technology for cost-focused programs. The De Novo initiative aims to grow the U.S. lung perfusion market. Together, these programs add 2,000-5,000 incremental annual U.S. cases. The IDE supplement for TROPS (Controlled Hypothermic Organ Preservation System) is under FDA review, with approval expected in late Q3/early Q4 2026, followed by the lung IDE. 2. Kidney Program Development: OCS Kidney targets the largest global transplant segment (21,000+ annual U.S. deceased donor kidney transplants, with 9,200 additional recovered kidneys never transplanted annually). OCS Kidney is a portable normothermic perfusion system designed to reduce ischemia injury, lower delayed graft function (DGF) rates, and increase kidney utilization. Pre-IDE discussions with the FDA are underway (first sub-meeting held August 2026), with first clinical experience targeted for late 2027. The program is built on the next-generation Gen 3.0 OCS platform. 3. European International Expansion: Transmedics is replicating its U.S. NOP and logistics model in Europe, starting with Italy, where national reimbursement for machine perfusion and services has been secured and is expected to take effect late 2026/early 2027. The PAD Aviation investment enables Transmedics to compete for regional European transplant logistics tenders, with additional discussions ongoing in other major European markets. 4. Gen 3.0 OCS Platform: A full platform redesign engineered for improved operating leverage, supply chain independence, cloud-based remote monitoring, and global scalability to support 30,000+ annual transplants by 2032.

Guidance

- Full year 2026 revenue guidance (excluding PAD Aviation impact, and assuming no revenue from PAD Aviation and no meaningful contribution from Enhanced Part B/De Novo) has been updated to a range of $737 million to $757 million, representing 22% to 25% YoY growth; the low end of the prior guidance range was raised, while the high end was maintained. - Full year 2026 adjusted operating margin guidance (excluding PAD Aviation impact) was lowered to 12.5% to 14%, from the prior expectation of ~16%, due to accelerated planned investment in the OCS Kidney program. - Excluding PAD Aviation, 2026 H2 gross margin is expected to be ~59%, and gross margin is expected to remain around current levels over the next 2-3 years during international expansion investment; longer-term, greater scale and Gen 3.0 efficiencies are expected to support a sustainable 60% gross margin with potential for further improvement. - PAD Aviation will be consolidated starting Q3 2026, and near-term consolidation is expected to dilute both gross margin and operating margin. No standalone financial guidance for PAD Aviation is provided at this time, with additional color expected in Q3 2026. - 2027 guidance will not be provided until Q4 2026, as the company waits for clearer visibility into the progress of 2026 strategic programs.

Segment performance

Total Q2 2026 revenue was $190 million, up 21% year-over-year (YoY) and 9% sequentially. U.S. transplant revenue was $184 million, up 21% YoY and 10% sequentially, broken down by organ: liver contributed $148 million, heart contributed $33 million, and lung contributed $2 million. International revenue was $5 million, up 26% YoY. Product revenue totaled $111 million, up 16% YoY and 3% sequentially, representing 58% of total revenue. Service revenue totaled $79 million, up 29% YoY and 19% sequentially, representing 41% of total revenue. Transmedics Logistics service revenue was $41 million, up 39% YoY and 30% sequentially. Total gross margin was 59.6%, up 140 basis points sequentially and down 180 basis points YoY; service gross margin improved to 35% from 27% in Q1 2026, while product gross margin held steady at 77% sequentially. Adjusted income from operations was $25.8 million (13.6% adjusted operating margin), and adjusted net income was $16.2 million ($0.44 adjusted diluted EPS). Ending cash and cash equivalents were $473 million.

Risks & headwinds

- FDA approval timelines for IDE supplements and new indications are controlled by the agency, and delays could push revenue contribution from Enhanced Part B and De Novo further than currently expected. * Seasonal softness in transplant procedure volume (traditionally seen in Q3, particularly August) could impact quarterly results even with a strong start to the quarter. * European expansion and PAD Aviation integration are in early stages, with near-term uncertainty around revenue contribution, tender win outcomes, and margin profiles. Reimbursement approval in new European markets (including Germany) is still pending, limiting near-term growth in those markets. * The outcome of CMS OPO recertification rules and potential opportunities for Transmedics to operate as an OPO remains uncertain, with a final decision still pending from CMS, and the company does not include any potential OPO revenue in current growth plans. * Strategic growth investments in new programs (kidney, Europe, Gen 3.0) will pressure near-term operating margins below historical levels, and market adoption of new products and services may not meet management expectations.

Analyst Q&A

• Q: What drove the larger-than-expected growth of service revenue relative to product revenue in Q2, and is this higher revenue per transplant sustainable for H2 2026? /

  A: The gap comes from market share gains in logistics, improved operating efficiency, pricing adjustments to offset higher fuel costs, and new center wins. The service margin improvement in Q2 was driven by higher volume; Q3 is expected to see lower seasonal volume, so Q2 service margins will not be repeated. Service gross margin will normalize in H2 but remain above historical levels, and the higher service revenue per transplant dynamic is expected to persist. Growth is seen across all organ segments, as service is required for all OCS use.

• Q: What is the timeline for CHOPS 510(k) clearance, what is its commercial opportunity, and could it be used for other indications beyond heart? /

  A: Management is currently focused on securing IDE approval for the Enhanced Part B trial; 510(k) clearance for CHOPS is expected in H1 2027. CHOPS unlocks access to 2,200 annual U.S. DBD heart cases that Transmedics does not currently serve. While there are no public updates on additional indications, management notes there is no clinical reason CHOPS could not be expanded to other organs in the future, pending FDA discussions.

• Q: What is the purpose of the PAD Aviation investment in Germany, and what can investors expect for near-term investment levels and P&L impact? /

  A: PAD Aviation is based in Paderborn, Germany, for its central European location that allows access to any European donor site within two hours of flight. It provides the operating license and existing aviation infrastructure (pilots, fleet) Transmedics needs to compete for European logistics tenders, minimizing early capital expenditure. Transmedics is not yet active in the German organ transplant market due to pending reimbursement and local regulatory dynamics, so Germany is not a near-term growth catalyst. Management cannot provide specific financial guidance for PAD yet, but will share additional details in Q3. Capital deployment will be gradual until demand justifies further investment, unlike the U.S. Summit Aviation investment which had immediate pent-up demand. Over time, the business will transition from existing third-party charter to 100% transplant-focused operations as demand grows.

• Q: What is the current status of Enhanced Part B and De Novo clinical trial completion, and when can meaningful revenue contribution be expected? /

  A: Enhanced Part A is on track to be completed by the end of 2026. Only a handful of cases have been completed for Enhanced Part B (heart) and De Novo (lung), so there was no meaningful revenue contribution in Q2, matching prior guidance. Management expects to complete trial enrollment 12-18 months after IDE approval is received and enrollment begins, putting full completion within 2027. Meaningful revenue contribution is expected to start in late Q4 2026 and ramp through 2027.