Okay. Morning, everyone. Tom Stephan with Stifel Research. Really excited to have TransMedics at the conference this year for the first time. Waleed, Fernando, thanks so much for joining.
Thank you.
I am going to jump right into Q&A, and I will start things off away from liver, and I will start on heart and lung. Big picture question to kick things off, Waleed, maybe for you. OCS's presence in liver, it has grown quickly. Heart and lung, relatively speaking, have lagged. Maybe to start, Waleed, can you talk about the challenges of the heart and the lung markets more broadly? I guess more specifically, how should OCS 2.0 address those challenges and help you compete more effectively?
Sure. First, Tom, thank you for the invite to be here. We are excited to be at your conference this year. I wouldn't call it challenges of the heart and lung as much as it is just that there is a different market dynamic in cardiothoracic versus liver. Liver have dedicated teams that do nothing but liver transplant. They do not do any other type of surgery. Heart and lung, they are busy doing regular open heart surgery, valve surgery, cancer surgery in the case of the lung. That is an inherent dynamic of the market. Also, the machine perfusion started in heart and lung first before it came to liver. I t is a busier market, a crowded market.
For us, we always knew that we need to go back and tackle heart and lung in a systematic way, but we were rapidly deploying OCS across the liver market, and the impact of OCS in liver is just, it's a game changer, and that's why we wanted to capitalize on that opportunity. W e now, with the OCS 2.0, we are able to systematically address some key areas that we know historically have caused a little bit of consternation in the heart and lung users. The area of, does the organ become edematous because of perfusion, which may compromise the post-transplant outcomes? Could we really keep the organs overnight on OCS like the liver guys are doing morning hour transplant? Could we enhance the organ function over time versus just suspended animation or preserving the organ at its current state?
We came up with a comprehensive set of enhancers and technology innovation in 2.0, and we're very, very excited about where we are and what we've seen in ENHANCE Part A is a very rapid adoption in the trial. We closed the trial, 175 patients, effectively in seven or eight months, which is one of the most fastest enrolling trial we've ever conducted. That's usually, at least our internal metric, it's usually a good sign to tell us that the technology is delivering on the promise. W e hope to replicate that in Part B and DENOVO.
We couldn't be more excited about what these two clinical programs could potentially do. At a very high level, if they succeed, that would give us access to approximately 5,000 -5 ,500 new cases every year in the United States. That's between 3,500 lungs and 2,200 hearts that today we don't access routinely.
Okay, great. Super helpful. And I think your point about cardiothoracic surgeons, different priorities, I think that's an interesting one where, as we think about daytime transplantation and 2.0, and heart potentially opening that up, does the different priorities, the variety of priorities of these surgeons, as well as probably OR constraints, since they're doing a lot of different procedures, does that possibly lessen the importance of 2.0 opening up daytime transplantation in heart or no?
Yeah. The opening up of daytime transplantation in heart is the least of our concern. It is a nice to have. The number one priority for us for ENHANCE Part B and DENOVO is to deliver a better organ transplant in heart and lungs, to increase utilization of donor hearts and donor lungs into transplant. These are the fundamental game-changing impact of 2.0. Whether or not it results in a daytime transplant, it is really up to the market to adopt that at their own pace. F or us, we are focusing primarily on the outcomes and the ability to access this very, very important market segment that we just historically didn't access.
Got it. Maybe digging into ENHANCE Part B a little bit. For DBD hearts with sub-four-hour preservation, that incremental market you are targeting, arguably it is a, I have in quotes, "easier heart" on a relative basis. W hat is the bar for 2.0 to show clinical superiority to static cold storage? Maybe as we think about survival rates, severe PGD rates, I could probably look up the literature, but what is the bar where it feels like it could be high? Talk about what 2.0 will have to show to exhibit superiority in that subgroup of hearts?
Yeah. We are tackling that very important questions from two angles. The first angle is, we designed the trial to have a primary effectiveness endpoint that combines severe PGD and survival. These are the two gold standard metrics by which an organ transplant is measured by. T hat is number one. Number two, we are comparing ourselves to another product that has clear, better capabilities than just a Styrofoam box with a phase-changing material, which is CHOPS. F or us, achieving superiority is what we hope to achieve because we believe that OCS warm, OCS oxygenated perfusion, and with the enhancers should deliver superior outcomes. E ven if that doesn't happen or if it happens, but the transplant surgeon or team would like to use cold storage, CHOPS comes into play. F or us, we really, as I said, we couldn't be more excited about where we are.
We have two tigers by the tail. We have technology that we believe should deliver superior outcomes for transplantation, increased utilization for transplantation. I f the transplant surgeon or teams would like to use cold storage, we are giving them a better cold storage technique than just a Styrofoam box with phase-changing material. I n both case, I believe TransMedics is in good place to capitalize on this opportunity.
Okay. Fantastic. And then maybe last one here on heart and lung. For the OCS volumes in DENOVO and ENHANCE B, DENOVO we can sort of think about all OCS within that as incremental since you're relatively small there. O n ENHANCE B, how much of the 400 OCS will be truly incremental volume? Is it all—
100%.
100%.
Actually, I would argue all 600 cases, the 400 OCS—
Right.
—and the 200 on CHOPS, these are all incremental because that is an indication that we currently don't have in the U.S.
Got it. That's very helpful. In total, between DENOVO and the incremental volumes in ENHANCE B, I think DENOVO is 300 OCS and 100—
150.
and 150—
150 CHOPS.
150 CHOPS. Between those two studies, what is the range investors should be modeling from a revenue standpoint when thinking about cumulative incremental OCS-specific revs for TransMedics? Alternatively, what is a reasonable average revenue per case for these OCS cases?
Given how early we are in the clinical programs, we need to focus on the outcomes. We need to focus on the success of the clinical program. We will talk about guidance for 2027 in our first earnings call next year. We are not going to split it between trial and non-trial cases because again, we are doing this because we believe this is going to have a significant impact on, positive impact on patients' lives, on utilization of organs for transplant. That is the number one priority of this business. We make money when we transplant more organs. We make money when we have better outcomes for patients.
The last thing I want is anybody to use my public statements against the great work that the TransMedics team is doing to increase organ transplantation in this country by 25% over the last three years, and bring it into a commercial front. It is not a secret. There is a lot of broad policy changes in organ transplant, and we have to be very careful that at the end of the day, this is about patients and about delivering better outcomes and more organs for patients in the United States.
Got it. Fantastic. Maybe to shift gears, I wanted to talk about Europe. Preparing to launch OCS NOP in a few European countries in the first half of next year. To start off, what are the next steps there before NOP cases and revenue generation can commence, and what is the timing? Is there reimbursement you need to secure? Just talk about next steps for OCS NOP in Europe.
Sure. That is a very important question, Tom. I want to clarify one thing. The OCS has been in Europe for a few years, so this is not a launch. What we are launching is two things. We are launching NOP Europe to replicate what we did in the U.S., and we are launching Transplant Logistics Europe. These are the two new launches, but the OCS has been in Europe for several years. We always tackle new geographies in Europe or outside of Europe, starting with reimbursement for the device and the services. Now, we are also looking at logistics as a potential first step that could open the door for transplant-related revenue generation, service revenue generation in Europe while we are building our footprint in the device section or case volume in Europe. V ery exciting times. Tamer and the team in Europe is doing a great job.
We should expect to see Europe beginning to contribute meaningfully in the second half of 2027 and definitely into 2028. A gain, we couldn't be more excited about where we are in Europe, and we really believe that transplant logistics is going to play the leading role to open the door to get new geographies, new centers comfortable with NOP. They could witness the value, and then we can expand from there.
Got it. Really helpful. Staying in Europe, and maybe taking a step back, Waleed, can you talk a bit about the potential challenges of replicating NOP in Europe, such as with factors like, I think, shorter procurement distances relative to the U.S., centralized transplant programs, cost sensitivity, reimbursement, et cetera? Maybe if you can compare and contrast U.S. and Europe, and perhaps there's easier elements relative to the U.S., but it'd be helpful just taking a step back and giving some more context on the market.
Sure. First, let's start with the most important reason why we are in Europe, and why we have to be in Europe, and why we have to have a good beachhead in Europe. Europe is a mirror image of the United States from a transplant volume standpoint, we cannot ignore the European market. If we do that, we'll find ourselves two or three years from now, the market is seeded by much more inferior technology, fragmented, and it will be very difficult for us to displace. W e have to be in Europe. It's not a question. That's number one. The challenges in Europe is well-known. You're not dealing with a unified system. You need to face the reimbursement challenge country by country, and in some regions, like Italy, region by region. T hat's fine. We've been operating in Europe for several years.
We have been dancing with the reimbursement challenge for several years. What's unique about Europe is transplant logistics is something that's already established at a fairly high budgets that's already secured in place. F or us, that gives us, as I said, the first entryway into Europe to begin allowing the European community to feel the benefit of NOP. Again, it's not a question of, should we be in Europe? Yes, it's different. Yes, it could be more challenging in some areas. Yes, it could present new opportunities in other areas. F or us, Europe is a must. Europe is 50% of the global transplant volume. TransMedics is a global company in organ transplantation. We have to deliver our life-saving technology and services to patients in Europe, as we're doing in the U.S.
Got it. That's great. And maybe last one on Europe and OUS. 3Q 2026 international revs, I think were nearly $7 million, so a nice quarter there. You have the Italy logistics contract, NOP launching in a few countries next year, so there's tailwinds in the near to intermediate term. Can we start to think about OUS, maybe when including the PAD non-charter revenue, as at least a $10 million per quarter business next year? Maybe I'll start there and one quick follow-up.
Again, we're not giving guidance for 2027 in this meeting, I think you're very close to it, Tom. I think exiting 2027, yes, we need to see Europe contributing meaningfully, beginning to contribute meaningfully to our revenue. Is it going to be EUR 10 million a quarter? Is it going to be a little bit less, a little bit high? We will map this out, Fernando and I, when we give guidance for 2027. D efinitely, we should see the ramp starting in the second half of 2027 into 2028. That's why we're making the investments we're making.
That's why we're establishing the NOP infrastructure, the logistics infrastructure. The winning of that tender in Emilia-Romagna is important first step. We are engaged in several other tenders in Italy and outside of Italy. It's exciting times. I really mean this, guys. This is not a marketing statement. It's truly an exciting time in TransMedics.
Absolutely. Then sort of a modeling-ish question, just to wrap up here. PAD charter revenue guiding to, I think it's $14 million in 2026. What should that look like in 2027? Is that business going to wind down quickly? Any even directional commentary on PAD charter and what that should look like next year?
Yeah, I think that —Can you hear me okay?
Yeah.
Yeah. Next year, to Waleed's point, we are not guiding just yet. T he way to think is we will see this business translating into an organ transplant business just like we have here in the U.S., and hopefully we are going to see a slowdown of the charter business in the first half, and then gradually getting more and more into the organ. What is going to be the size of the business? We are working through this right now.
The way we thought about the fourth quarter specifically, we were very conservative. We do not have a lot of data in terms of how to compare the seasonality, we are seeing things moving in line with the expectation quarter to date, so we are pretty happy with the way it is performing. O nce again, we have got to wait and see how we do this as we get into 2027. E specially second half of next year is when we expect to see more of what we want to be going forward.
Got it. Okay. Very helpful, Fernando. I will go to another growth initiative, kidney. Big opportunity in the U.S. Waleed, I will start kind of big picture again. Talk about some of the differences of this market versus liver, heart, lung, as we think about maybe kidney economics, the more prominent role of the OPO, commercial transportation versus private charter, et cetera. Maybe if you can compare and contrast kind of kidney with your existing markets.
Absolutely. Kidney is the largest transplant market segment across the globe, U.S. and Europe. What is unique about kidney, it is a single-payer market. CMS is responsible for all renal failure costs in the United States. As we all saw there in late October, HHS released the National Kidney Initiative , where they estimated if we could increase the annual transplant volume in kidney by 2,000 kidneys, that would have a $250 billion impact on CMS budget in 2040. I have got news for CMS. Last year in the United States, we lost 9,000 kidneys for one reason and one reason only, prolonged ischemic time. The OCS could transform that overnight. We could at least grow kidney transplant by 5,000, 6,000, 7,000, 8,000 kidneys a year. That will have a humongous cost reduction implication on CMS. This is very exciting for us in the kidney.
OPO play a key role, we are working very collaboratively with OPOs, and the bottom line is NOP infrastructure is going to be the infrastructure we are going to launch the kidney with. We will work collaboratively with OPOs. Again, OPOs today are being judged and weighted by how many more organs they can deliver for patients. We could help OPOs deliver more organs. We have proven that, heart, lung, and liver, and we cannot wait to prove that unequivocally in kidney. Again, if you want to continue to be in the organ transplant business in the United States as an OPO, you have to think about what type of technology you are going to partner with to increase your yield rate. W e can think of only one that has proven over and over again our ability to grow the transplant market, which is the OCS.
This is what has given us the confidence, and this is what is really exciting us about when the kidney program hits the impact on patients' lives, impact on CMS costs, and impact broadly on organ transplantation.
Got it. That was super helpful. Maybe digging a layer deeper, Waleed, talk about with OCS Kidney, the device, and TransMedics with NOP, working collaboratively with OPOs. Maybe if we can dig a little deeper into your level of confidence in your ability to succeed and notably address maybe some of the potential challenges with the kidney market, like cost, like program economics, et cetera.
Again, Tom, I am not sure how to answer that question other than, again, we point to our track record. We do not tackle a problem to fail in, and we are not going to tackle the kidney to fail. We are going to tackle the kidney to succeed. We are going to tackle the kidney with the best technology that is designed for the high volume, high scale of kidney transplantation that will add tremendous value, and the value will be witnessed by all stakeholders involved, recipients, transplant programs, OPOs, and CMS. Again, you characterize it as challenges. We see these as huge opportunities, we have high degree of confidence based on our track record of execution that this is going to be another feather in TransMedics cap and OCS cap, and the team that will deliver the kidney to the marketplace.
Again, we couldn't be more excited about what the kidney program could mean for patients, for the U.S. transplant ecosystem, and for TransMedics.
Got it. That's great. Then pivoting a bit maybe to the core business a little bit. Service revenue growth has outpaced product growth in recent quarters. Sort of a two-parter. Can you elaborate a bit on the drivers of the higher total revenue per case? Then more importantly, how do you view the sustainability of this higher revenue per case figure that's now flowing through our models? Maybe if you can discuss those.
Sure. I will start with the first part, and I will give my two cents in the second part, and Fernando can weigh in. The driver of the increased service revenue really in 2026 is driven from two major areas. One, we launched a brand new service, which is donor and recipient coordination. That is a pure clinical service to support transplant program to run their transplant service line using our coordination and our digital ecosystem. We launched that on a pilot program with one major healthcare system in Boston. We are managing their entire transplant program for them, and we are very excited about where we are, and we expect that to grow in 2027. The second part is, we secured a major service contract for a major transplant program that is a very highly adopted OCS already.
This came in as a— This is a center that is using OCS at 95%-97% of their transplant volume, and they were not using our logistics. We won the logistics for that program, which added a bump in the service revenue line in 2026. Ultimately, as I stated before, TransMedics is a transplant technology company and transplant-enabling company. We see as the new clinical programs ramping up, the volume is kind of balance that across. We expect to see the rate of growth to be equivalent between product and service going forward.
Waleed, I think the only thing I would add to that is, as we continue to ramp our capabilities in Europe and outside of the U.S. at large, you will see, at times, the service business growing slightly faster than the product in those specific locations. W e are always going to catch up to the point that Waleed said. It is the entry point to make sure that we have NOP implemented in places like Italy, as an example.
Yep.
Additional to that, I think that we are very focused on the channel dynamics that we discussed into the earnings call and the making sure that we have the services business becoming more and more efficient in the way we do things. That is why we saw the improvement in the margin in third quarter, vis-a-vis what we have done the year before. We will continue to have that same focus going forward, then we bring the profitability of that service business to the same, the levels at least that we want to see this going forward.
Okay.
Okay?
All right. Fantastic. Then I guess sticking with trends, Waleed, you mentioned on the call, I think it was to my question actually, that the second half of the fourth quarter for TransMedics is typically better than the first half. I guess, can you explain why that is? I only ask that because it is a bit contrary to the overall U.S. transplant market declining in November and December on average versus October. So what is it specific to TransMedics that you historically see the back half of 4Q stronger than the first half of 4Q?
Sure. I think you are right, Tom. That was a question you asked me in the call, and what I meant to address is the following. For the last three or four years, we always saw the second half of Q4 to be stronger for TransMedics, regardless of what the national volumes do. We attribute that to two things. One, TransMedics happened to host the annual Transplant Leadership Forum, usually in November, early November, where we have two-day meetings with every user of OCS across the United States for heart and lung and liver and kidney. Those forums are happening in Boston this week. U sually we see a significant opportunity for the users to cross-pollinate and share their experience with OCS, and that usually results in a strong ending of the year. Also, as we all know, transplants and transplant programs are judged by their annual volume.
U sually there is an intense focus in the second half of Q4 to making sure that the internal metric and KPIs for the transplant programs are met from an annualized volume standpoint. These are the two things that drive it. There is no equivocality that, yes, we saw softness in October, and it is well described based on the tail number, but we are hoping that we see the same trend that we have seen for the last three or four years happen in the second half of Q4. N o matter what happens, we stand by our guidance for the rest of the year.
Got it. That is really helpful. Then maybe last question or two, kind of almost putting this all together, not going to ask for 2027 revenue guidance, but more sort of the framework or the structure. Waleed, you have talked about the company as a 20%-25% revenue growth business. Since the incremental revenues associated with ENHANCE B and DENOVO are trials, but still somewhat new products, per se. I mean, still as we think about 2027 revenue, should we look at this as base business growth still 20%-25%, then ENHANCE and DENOVO incremental revs layer on top of that? I guess I am just curious on kind of the company's guidance framework or structure. Or is it no, ENHANCE Part B and DENOVO incremental revs are a part of that 20%-25%? Does that make sense?
Yes. Again, we are not issuing guidance in this meeting, but our expectation is the 20%-25% range that we talked about, that is at least for the first guidance we will issue in 2027, it is going to be inclusive of everything. Then we let the pace of ENHANCE and DENOVO guide us throughout the year, and titrate up or down based on what we see.
Really helpful.
Yeah.
Great note to end on. Waleed, Fernando, thank you guys for coming.
Thank you so much.
Thank you, Tom.
Appreciate it.
Appreciate it.
Thank you.