TransMedics Group, Inc. Q2 FY2025 earnings call

2Q performance was a new high watermark for both clinical cases and revenue, demonstrating the operating leverage potential of the business despite continued investments in growth initiatives. Organ transplant therapy is experiencing a renaissance globally, with the U.S. and Europe driving modernization initiatives. TransMedics is driving transformation through OCS technology, NOP service model, and dedicated transplant logistics network. Transplant logistics service revenue in 2Q was $29.8 million, up 56% year-over-year and 14% sequentially. 2Q covered 79% of NOP air transport missions, near the target of 80%-85%, and is adding pilot crew to optimize operations. Next-gen OCS heart and lung clinical programs: OCS Lung IDE got conditional FDA approval in July, with plan to start trial initiation after summer vacation; OCS Heart IDE is close to reaching agreement with FDA, expected to launch clinical program before year-end, seen as potential growth catalyst in 2026 but not contributing to 2025 financial results. Addressed market confusion, stating TransMedics' execution won't negatively impact peers unexpectedly, and next-gen OCS Lung program designed to overcome historical concerns with large randomized controlled trial. Engaged in U.S. transplant system modernization, investing in digital NOP ecosystem, expanding leadership team, and communicating with stakeholders. Addressed New York Times article on DCD cases, clarifying death declaration responsibility. Ongoing strategic initiatives include expanding infrastructure, advancing OCS platform pipeline, expanding U.S. OCS NOP clinical and logistics team, capitalizing on national modernization initiatives, and strategically exploring geographical expansion in Europe.

Total revenue for 2Q 2025 was $157.4 million, a year-over-year growth of approximately 38% and a sequential growth of about 10% from 1Q 2025. Product revenue in the second quarter reached $96 million, up 34% year-over-year and 9% sequentially, driven by increasing organ utilization in liver and OCS adoption across both liver and heart. Service revenue for the second quarter reached $61 million, a 44% increase year-over-year and 11% sequentially, with the primary driver being logistics revenue, which grew 56% year-over-year and 14% sequentially due to the continued expansion and utilization of the aviation fleet. U.S. transplant revenue was approximately $152 million, up 40% year-over-year and 10% sequentially. By organ, liver contributed $116 million, heart $32 million, and lung $4 million. OUS revenue was $4 million, down 12% from Q2 of 2024 and up 2% sequentially. OUS revenue by organ was $3.5 million in heart, $0.4 million in lung, and $0.2 million in liver. The overall gross margin for 2Q was steady at 61.4%, similar to Q1. Operating profit in 2Q was approximately $36.6 million, representing more than 23% of total revenue, up from $27.4 million or 19% of total revenue in 1Q 2025.

Raised full-year 2025 revenue guidance to between $585 million and $605 million, representing approximately 35% growth over 2024 at the midpoint. Expect overall gross margin to remain approximately 60% in the coming years. Focus on capital allocation for long-term value, prioritizing R&D, system implementation, and logistics optimization. Target to own 22 jets by end of 2025, with opportunistic approach to fleet expansion. Expect at least 650 basis points of operating margin expansion for full year 2025 compared to 2024, with long-term target of operating margin at or approaching 30% by 2028.

Forward-looking statements involve risks and uncertainties that could materially differ from expectations, as detailed in SEC filings. Market dynamics may cause misunderstandings and emotional fluctuations, such as concerns about OPOs or TransMedics' role. Uncertainties in clinical program advancement, like FDA approval delays or trial initiation delays. Seasonal factors may impact business in Q3.

Q: About seasonality, how does the situation in July compare to expectations?

A: Seeing some seasonality signs, maybe not as pronounced as last year, but still early. August is coming, and some seasonality is expected in Q3. Saw some in July, but less impact than last year so far, but too early to determine trend.

Q: About recent news like New York Times article, worried about impact on TransMedics?

A: Believes some organization and oversight benefit the transplant market, TransMedics' business model is unique and can operate in current or future systems, collaborates with OPOs with aligned goals, no significant headwinds.

Q: U.S. heart market flat recently, reason and contrast with liver's growth?

A: Heart transplant market has ups and downs, normal organ transplant fluctuation. Will rebound with clinical programs, heart transplant growth is temporary, related DCD factors will normalize with increased oversight.

Q: Communication with CMS on clinical trial reimbursement?

A: Not engaged with CMS currently as existing technology is approved and current modifications don't require CMS involvement.

Q: How next-gen OCS helps penetrate lung transplant?

A: Designed to overcome historical concerns with large randomized controlled trial, comparing to cold storage, if successful will establish OCS Lung as new standard of care, reducing lung edema etc.

Q: DCD organ utilization and revenue in cold storage arm of next-gen clinical program?

A: DCD organ utilization is 50%-55% progressing to DCD, 45%-50% not. Both arms of next-gen program will go through NOP, control arm expected to have logistics revenue, service fee waived for surgeons and team as sign of good faith.

Q: New competition in liver market?

A: Not aware of new competition entering.

Q: Early feedback on NOP Access and relation to OCS Connect?

A: Early feedback exceeded expectations, NOP Access is expanded version of NOP Connect, part of same ecosystem, customer-facing part is Access, backend is Connect, working seamlessly with logistics and route mapping.

Q: Contribution of clinical trials to 2025 revenue and parameters of next-gen OCS Lung trial's superiority?

A: 2025 not expecting substantial contribution from clinical trials due to trial initiation timing, existing organic growth meets guidance. Parameters and assumptions of superiority trial will be outlined in clinicaltrials.gov posting, based on preclinical testing reducing lung edema etc.

Q: Comparison of 2023 July seasonality with this year's?

A: 2023 July seasonality and this year's July have no difference so far, Q3 expected to have seasonal deceleration but will return to guidance range, full-year guidance set with upside potential.

Q: Operating margin guidance and impact of clinical trials on P&L?

A: This year's operating margin increase mainly from operating expense leverage, not from clinical programs. 2026 not discussed in detail now, long-term target is near 30% operating margin by 2028.

Q: Will heart and lung clinical programs cannibalize existing business?

A: Patients in trials are mostly not accessible currently, not cannibalizing existing volume, but increasing indications.

Q: Impact of OrganOx's approved flight use on competition?

A: OrganOx's device can't fly due to size etc., won't change competition dynamics, its model is back-to-base which is not competitive.