TransMedics Group, Inc. Q1 FY2025 Earnings Call

Good afternoon, and welcome to TransMedics First Quarter 2025 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 Laine Morgan from the Gilmartin Group for a few introductory comments. Please go ahead.

Thanks, Operator. Earlier today, TransMedics released financial results for the quarter ended March 31, 2025. A copy of the press release is available on the company's website. Before we begin, I would like to remind you that management will make statements during this call, including during the question-and-answer portion of the call that include forward-looking statements within the meaning of federal securities laws. Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements. All forward-looking statements, including without limitation future results and events including financial guidance and projected estimates are examinations of operating trends, the potential commercial opportunity for our products and services, the potential timing, outcome, and value of new clinical programs, the potential impact of tariffs on our business, our expectations for growth and opportunities in our operations, and financial guidance and/or expectations, including revenue, gross margin, and operating trends, and operating expenses in 2025 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 27, 2025. 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 or forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 8, 2025. And with that, I will now turn the call over to Waleed Hassanein, President and Chief Executive Officer.

Thank you so much, Laine. Good afternoon, everyone, and welcome to TransMedics first quarter 2025 earnings call. Joining me today is Gerardo Hernandez, our Chief Financial Officer. As we discussed previously, we view 2025 as an important year for TransMedics, mainly to transition and shift into our second year of growth for TransMedics OCS NOP platform. Despite external distractions in January, we remain laser focused throughout Q1 on our business fundamentals, operational execution and our unwavering support for our clinical transplant partners and users. In doing so, we continue to be successful in expanding the utilization of available donor organs for transplantation and increased OCS NOP adoption, all resulting in our core mission of delivering what we believe to be the best possible clinical outcomes and the most cost-efficient therapy for our transplant recipients. The results speak for themselves. Our first quarter performance demonstrates the strength of our business fundamentals, the effectiveness of our strategy, and the unrivaled value of our business model. Importantly, our ability to execute at a very high level despite unexpected external pressures is a testament to the strong support of the transplant clinical community for TransMedics' mission and the resilience of our incredible team. Now let me proceed to discuss our business performance throughout the first quarter of the year, which was our strongest quarter to date in the history of TransMedics. Here are the key operational highlights for the first quarter. Total revenue for Q1 2025 was $143.5 million, representing approximately 48% growth year-over-year and approximately 18% sequential growth from Q4 2024. Growth was driven primarily by higher overall utilization and center penetration of OCS NOP in the US for liver and heart transplants, and that happened across both DBD and DCD organs. This enabled us to achieve a new high watermark for overall case volume in Q1 2025. Meanwhile, TransMedics transplant services revenue for Q1 was approximately $55.3 million, up from $35.5 million in Q1 2024 and up from $46.7 million in Q4 2024, representing approximately 56% year-over-year and 18.5% sequential growth. Our overall gross margins for Q1 improved to 61.5%, up from 59% in Q4 2024. Finally, we delivered operating profit of $27.4 million in Q1, representing approximately 19% of total revenue and up from $8.6 million or 7% of total revenue in Q4 2024. Shifting now to TransMedics transplant logistics infrastructure and performance for the quarter. Transplant Logistics services revenue for Q1 was $26.1 million, representing approximately 80% year-over-year and 20% sequential growth. Throughout Q1, our daily average aircraft availability was approximately 15.4, up from 14 in Q4 2024. Given that we reached a critical mass of owned aircraft capacity, we will retire the reporting of this metric going forward. Throughout the first quarter, we were able to cover 78% of our NOP missions requiring air transport compared to 75% in Q4 of 2024. As we've discussed previously, we are now focusing our effort in 2025 on efficiently operating our fleet by double shifting a portion of our planes to the extent possible before investing in additional aircraft for the fleet. We will be opportunistic, however, in adding one or more aircraft in 2025 to reach our stated goal of 22 owned aircraft before year-end. Overall, we are very pleased with our strong performance in Q1. We are focused on maintaining this momentum throughout 2025. In addition, we are planning to launch two new heart and lung clinical programs later in the year to further catalyze our growth in 2026 and beyond. Our first quarter performance underscores the unique attributes of TransMedics business. TransMedics is not only a top line grower, but also an increasingly profitable business capable of generating significant bottom-line leverage. We remain confident that this is just the beginning, and we believe we are well positioned to deliver sustainable long-term financial results as we gain more efficiency of scale and continue to drive leverage throughout the operation. Moving now to provide a quick status update on our next-gen OCS Heart and OCS Lung clinical programs. We filed both OCS Lung and Heart IDEs and are actively discussing the final details with the FDA. Based on our interactions, we feel we are on track to initiate both programs in the second half of 2025, as we communicated earlier in the year. However, the precise launch time of the next-gen lung and heart clinical programs is still fluid and depends on the exact timing of the FDA approval followed by the center's IRB processes. As we highlighted at our ISHLT Symposium in April this year and previously at our Investor Day in December of 2024, we are planning to run relatively large-sized trials aimed at building the next generation of Level 1 clinical evidence that is unrivaled in our industry. As stated above, we see these new clinical programs as potential major growth catalysts for TransMedics in 2026 and beyond, and we are not counting on these two clinical programs to contribute materially to our financial results in 2025. Now, I'd like to address the potential impact of geopolitical, macroeconomic, and tariff policies on TransMedics business in 2025. Let me start with the impact of tariffs that may have negatively impacted many device companies. I want to remind all of you that TransMedics is and will continue to be a proud U.S. manufacturer of the OCS technology platform. Importantly, we also are focused on vertically integrating most of the critical technology blocks to minimize supply chain risks for our business. Based on what we know today, we believe that the currently proposed tariffs will have a minimal impact on our business. That said, this is a fluid environment and may change should policies change. Additionally, we are leaning forward and have announced publicly our strategic plan to open a disposable design center of excellence and a new manufacturing facility in the premier biomedical device District of Mirandola, Italy. This district is renowned for its deep expertise in polycarbonate injection molding and disposable perfusion technologies. We expect this plan to give TransMedics several key strategic advantages. First, it enables us to leverage the unique talent to rapidly integrate many of the key disposable critical components for the OCS perfusion circuit. Second, it will provide an alternate disposable manufacturing source to ensure business continuity for our Andover facility. And finally, it will provide us maximum flexibility in supplying OCS products internationally while reducing the potential impact of tariffs on our international business. Now, let me share our perspective on the impact of potential economic downturn on organ transplantation in general and our business in specific. Our experience over the past two decades reinforces our belief that organ transplantation is a life-saving procedure that is largely insulated from economic cycles. This is due to two important facts; one, the best clinical outcomes associated with the transplant procedure and two, the highly cost-effectiveness of the therapy for payers managing very expensive chronic disease conditions that lead to organ failure. Let me now conclude my remarks by discussing our expectations for the remainder of 2025. As seen in our Q1 results, we began the year with a very strong performance. We are confident that we can maintain this momentum for the overall 2025 annual performance. However, we may experience some level of variability or quarterly seasonality that could impact performance quarter-to-quarter as we've experienced last year. As a result of our strong Q1 performance and the full-year considerations I just outlined, we are raising our full-year 2025 revenue guidance to between $565 million and $585 million, representing approximately 28% to 32% growth over the full year 2024. With that, let me turn the call to Gerardo to cover the detailed financial results for the quarter.

Thank you, Waleed. Good afternoon, everybody. I'm pleased to be here to walk through TransMedics' strong first quarter results. As Waleed mentioned, Q1 2025 was a strong start to the year, reflecting our disciplined execution, continued commercial momentum, and the positive impact of our strategic investments. We saw solid performance across both product and service lines and positive sequential margin expansion and profitability gains. US transplant revenue was $139 million, up 51% year-over-year and 19% sequentially. By organ, liver contributed with $109 million, heart with $26 million and lung with $4 million. OUS revenue was $4 million, down 1% from Q1 of 2024 and up 4% sequentially. OUS revenue by organ was $3.5 million in heart, $0.4 million in lung, and $0.1 million in liver. Product revenue for the first quarter reached $88 million, up 44% year-over-year growth and 18% sequentially. Growth was driven by increased organ utilization in liver and continued OCS adoption across both liver and heart. Service revenue came in at $55 million, reflecting 56% year-over-year growth and 18% sequential increase. The primary driver was logistics, which grew by 80% year-over-year and 20% sequentially, fueled by the continued expansion and utilization of our aviation fleet. Total gross margin for the quarter was approximately 61%, representing a decrease of 45 basis points when compared to Q1 of 2024 and a sequential improvement of 226 basis points. The 45 basis point decline was driven by a higher proportion of service revenue, which carries a lower margin profile, partly offset by an improvement in product gross margin. The sequential 226 basis point improvement was primarily driven by a recovery in product margin, which increased 359 basis points, driven by the absence of Q4 related charges for inventory-related charges and better cost absorption. Compared to Q1 of 2024, product gross margin improved 448 basis points, driven by cost efficiencies and the absence of nonrecurring inventory charges. Service gross margin declined by 632 basis points versus Q1 of 2024, primarily driven by the higher proportion of aviation business. However, sequentially, service gross margin remained stable, and we see continued opportunities for margin expansion through operational efficiencies. Total operating expenses for the first quarter of 2025 were approximately $61 million, up 28% year-over-year. The growth was primarily driven by a 51% increase in R&D as we continue to invest in our innovation pipeline, and a 21% increase in SG&A, reflecting investments to strengthen our NOP and command center, along with non-recurring legal and consulting expenses tied to internal process reviews conducted in Q1 of 2025. Sequentially, total operating expenses declined by 4%, largely due to lower SG&A following one-time expenses recorded in Q4 of 2024 and timing of spend, partially offset by the nonrecurring legal and consulting expenses I mentioned before. R&D grew 4% sequentially, consistent with our ongoing investment plan. Operating income for the quarter was $27.4 million, up 121% year-over-year and more than tripling sequentially. Operating margin expanded to 19.1% compared to 12.8% in the prior year. Net income for the quarter was $25.7 million, representing a 111% year-on-year increase and 275% sequentially. This result demonstrates that our business model can scale efficiently, drive meaningful financial improvement, and positions the company for sustained momentum in 2025 and beyond. We ended the quarter with $310 million in cash, down $26.5 million from December 31, 2024. During Q1, we invested approximately $24 million in the purchase of two additional aircraft, and we remain on track to purchase more this year to reach our target of 22 owned jets by the end of 2025. Earnings per share were $0.76 and diluted earnings per share were $0.70 for the first quarter of 2025. In summary, we are off to a strong start. We feel confident in our momentum and remain focused on execution to continue to grow the number of transplants, advance key projects and programs, and deliver strong results through the rest of the year. Looking ahead, based on the strength of the business, as Waleed mentioned before, we are raising our full-year revenue guidance to a range of $565 million to $585 million, up from our prior range of $530 million to $552 million. This reflects approximately 30% growth over 2024 at the midpoint of the guidance. Growth is expected to continue to be fueled by the expansion of total transplant volumes, the increased OCS adoption, and continued momentum across our service platform. We continue to expect some quarterly variability in terms of transplant volume growth. However, we are confident in our updated full-year guidance. In terms of gross margin, we continue to expect expansion across both product and service gross margin, driven by benefits of scale and operational efficiencies. However, the increasing proportion of service revenue, which operates at a lower margin will moderate the overall gross margin expansion in 2025. In Aviation, we are expecting scheduled maintenance activity to increase in the second half of the year, ramping in Q3 and more significantly in Q4. While this may introduce some quarterly noise, it does not change our expectation for modest gross margin expansion. In terms of capital allocation, we will remain focused on R&D and targeted investments that advance our pipeline, strengthen product development, and enhance logistics efficiency and process simplification. We are balancing strategic growth with financial discipline to drive sustainable long-term profitability. Finally, with stronger expected top-line performance, continued efficiency gains, and spending discipline, we now expect to deliver at least 400 basis points of improvement in operating margin in 2025 versus 2024. While quarterly variability is expected, we are confident in the full-year step-up driven largely by gaining leverage across our operating expense base. I'm encouraged by our strong start to the year and the disciplined execution across the organization. While there is more work to do, the momentum we are seeing across the business, combined with clear growth drivers give us conviction in our ability to deliver sustainable growth and continued margin expansion. And with that, I'll turn the call over to Waleed for closing remarks.

Thank you, Gerardo. As I said before, we're very pleased by our strong start of the year and performance in Q1 that we expect to carry forward for the remainder of the year. As we stated before, our Q1 results demonstrate the unique and unrivaled attributes of TransMedics business. We remain confident that this is only the beginning, and we are well positioned to continue to drive profitable growth while generating leverage to drive strong, sustainable financial results. In conclusion, we are humbled and proud of the strong clinical user support for TransMedics and the resilience of our wonderful team. We remain committed to delivering the highest quality OCS NOP products and services to expand access to our life-saving transplant technology. With that, I will now turn the call to the operator for Q&A.

We will now begin the question-and-answer session. The first question comes from Allen Gong from JPMorgan. Please go ahead.

Hi. Thanks for the question. Congrats on what is really a very strong quarter. I guess starting with where I think it looks like a lot of the upside came from in liver. It's kind of funny; one of your main competitors in that space actually had some news announced today as well. But how should we think about the main drivers of your growth in liver? We know that you're seeing more morning adoption and continued growth in DCD. But if you could just break down the drivers of that outperformance in liver and what you're seeing so far in April as well?

Thank you, Allen, for the question. I cannot comment on the news that came out today from the other technology out there. I can only comment on our dynamic, as you'd expect me to do. We're extremely confident in our liver platform. We're seeing growth across the verticals, DBD, DCD, and we're seeing more utilization of disease donors across both DBD and DCD. We're gaining share. We're gaining momentum. Again, it's early in the year, but we are bullish about our ability to continue to execute and continue to deliver the results we're seeing because we are convinced that we have the best, I repeat again, the best platform for liver preservation. All the pseudo-competitors out there cannot deliver the value that the OCS can deliver in liver transplantation. The upcoming publications will prove it unequivocally based on data and evidence, not just based on opinions.

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

Thanks, Allen. I think you and others know that we take guidance very seriously. Q1 results speak for themselves. It's still early in the year, and we wanted to make sure that we are also putting guidance that can be achieved and factor in some potential headwinds coming up in Q2 or Q3 or Q4. So we feel very strongly that the momentum we experienced in Q1 will continue for the full year results, but we expect some variability between quarters, potential seasonality as we've seen last year. That's why the guidance accommodated for all of that. Based on April results, we feel confident in the guidance range we put out in front of the community. Gerardo, would you care to comment on that?

No, I believe we have a lot of advantages, not just in product sales but also in service revenue. Our adoption has been consistently increasing. We observed a rise in adoption in the fourth quarter and again in the first quarter. As Waleed pointed out, it's not just about adoption; it's also about organ utilization and the penetration of organs in various centers. Overall, we have plenty of positive factors in our favor.

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

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

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

Okay. Perfect. Thank you. And then just want to touch on liver again. Obviously, it continues to do really well in the US. There are a couple of competitors anticipated to enter the market later this year. So just what kind of gives you that confidence in your guidance? And any impact, if any, that you anticipate in the second half of this year?

As I stated earlier, the community needs to step back and understand why the liver is doing so well for us. There is a good reason for that. The good reason is TransMedics and OCS liver platform is delivering the best results in the history of liver transplantation, and we're doing that while providing the most convenient, the most cost-efficient way of delivering liver transplantation at the Transplant Institute. This is why the market is adopting our platform. Anybody could claim that they have a potential competing technology. They need to prove it. We stand by our product. We stand by our data. And, as I said, this is all going to come to light very soon in a major publication, in a peer-reviewed journal that highlights all the value that I just outlined. That's why the liver program is doing well. And that's why we expect the liver program to continue to do well. TransMedics is not just stopping where we are. We are working very hard to ensure that the OCS Liver platform is the next standard of care in DBD and DCD liver transplantation in the United States and around the world. Anybody could claim anything; we have the evidence to support us. And we are not stopping. We are continuing to push innovation, clinical programs, and data to ensure that this leadership position of our liver platform will continue to lead from the front.

Great. Thank you.

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

Great. Thanks. Good evening. Thanks for taking my question. So, as we look at the quarter, I mean, liver was fantastic. And we've talked about that already. We did see receivables go up pretty significantly from the fourth quarter, just any commentary there? And then on the guidance, basically, it assumes flat line the rest of the year. You did make some commentary about the trials. Do you still think that the clinical trials will add 2% to 5% to the numbers this year? Or have you pulled that out, and they are basically saying its next year?

Let me start with the last part, Bill. We've always stated that the clinical trials for this year will be a very, very small contributor. We estimated it to be between 2% and 5%. We think it's still within that range, maybe towards the lower end of that range. But really, what we have always stated is that these clinical programs are the catalyst for 2026 and beyond. And I'll let Gerardo specifically address the AR question.

Hi, Bill. Yeah, the increase in receivables basically is really related to the timing of billing. We had a couple of elements that affected Q1, and the billing that we have to do throughout the quarter was actually done later in the quarter. So, we delayed that process. And what I can tell you is that now we're well into, let's say, recovering the receivables, and we're in a good position to go back to our original plan. We are expecting to end the year more or less somewhere around our 45 to 60 days DSO, and we should see recovery already in Q2.

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

Okay. I just want to revisit the first question regarding the guidance, Waleed. You reported $143 million and change in the first quarter, and it seems to be flat for the year. Should we expect the second quarter to be quite similar to the first quarter? Or is it more like last year, where there was a slight increase followed by a significant slowdown in the latter half of the year? How should we approach the second quarter?

I believe we can't comment on the second quarter since we're approaching the midpoint. However, generally speaking, we always aim to perform better. That's well known. We also anticipate some seasonality, which might affect either Q2 or Q3. This is why the guidance is set up as it is. We're aiming to align our guidance with our observations of business performance. Based on initial indicators in Q2, we expect to see some modest improvement over Q1, but there are still a few weeks left.

Thanks for taking my questions.

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

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

Justin, thank you for the question. I think as I've stated before, the question is not about pricing. The question should be about value. We priced our technology based on the significant value that the OCS delivers to the transplant center, to the payer and to the patient. In fact, we believe that we're leaving some value on the table because it's always been our culture not to gouge the market. We're there to be their long-term partner. We're there to be the next standard of care for organ transplant in the long term. Unfortunately, because of our value, how do I state this? Any potential competitor is just taking a 20% discount from our price and saying, I'm cheaper than TransMedics. People need to step back and say, what is your value? Most of these competitors, specifically in the liver, we should ask, what is your value? What are you delivering? You should be at 0 or near 0 from a price standpoint because you're not delivering much value. What is the value of machine perfusion that the liver has to be preserved on ice for six or eight hours before you perfuse it? So where is the value of machine perfusion? You've just killed the value of machine perfusion. And why do you do that? Because the technology is not capable of being portable. Even if it has wings to it, it's not delivering the physiological perfusion and value of preservation and assessment that the OCS is delivering. So based on this, based on these facts and based on the significant economical efficiency that is gained throughout the paradigm of organ transplantation, from reducing the waitlist time to improving the post-transplant complication rate to increasing the survivability of the recipient with the originally transplanted organ and significantly reducing the retransplant rate, we are delivering significant cost efficiency to payers, to transplant programs, and certainly the best quality of life and the best life expectancy for the patient. Based on that, we think CMS will continue to reimburse for OCS and commercial payers, not just CMS because we're delivering significant economic value to these payers. And again, the data speaks for itself.

Thank you so much.

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

Thanks. I wanted to ask a couple of questions about margins. The updated guidance for four points of full-year operating margin expansion represents great progress, but you actually delivered more than seven points here in Q1. So was there any spending that got pushed out of Q1 and is going to come later in the year to drive that dynamic? Or are there other margin headwinds that you're contemplating with that outlook?

Hi, Chris. The majority of the increase in operating margin is going to be driven by gains in operating leverage in operating expenses. Most of our investment is planned for later in the year, which will help balance things out. That's why we're confident in the full-year guidance of 400 basis points.

Okay. That's helpful. And then on gross margin, nice result this quarter on the product side of the business. The service gross margin was similar to what we saw in Q4, even though service revenue improved sequentially. What's the real gating item to get that service gross margin higher? You've got basically the fleet of planes that you would like to have. Is it just a matter of really increasing the utilization of those assets? Or is there something else that sort of triggers a change in the profitability of that piece of the business?

No, that's exactly what you mentioned. It's about the utilization of the assets. Let me give you a couple of examples. In the first quarter last year, we owned 14 planes. The average operating aircraft per day was nine, and we were servicing only 49% of our NOP missions. Today, we own 21 planes, have around 16 average operational aircraft in the first quarter, and we are at 78%. What I'm trying to say here is that there is plenty of room to continue to utilize fixed assets. As we continue to do so, we will be able to expand the margins. That's why we are exploring the double-shifting project and other elements within the logistics team to improve fleet efficiency. But it's basically about volume. It's basically about volume, Chris.

Okay. Thank you.

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

Waleed, Gerardo, congratulations on a great quarter. Waleed, I appreciate the details you provided. Regarding the external disturbance you mentioned, it seems like not a single surgeon or hospital administrator was unaware of the allegations, and there was concern about potential softness. However, the numbers suggest that you actually gained market share. Could you clarify how new store and same-store sales performed during the quarter? Did you notice any areas of softness, and how did you overcome the external disturbance you referred to?

Thank you, Suraj. If you allow me to correct you, I didn't say disturbance. I said distraction. And frankly, it's a nuisance distraction. I think the results speak very loudly that the clinical transplant community voted with their actions, not with their words. We reached out to every user of the OCS platform and non-user in the United States across all three platforms when this information came out in January. And we've made our points clear, and the results show their position. So we look at these results with high pride and humility. We are continuing to laser focus on our users, servicing our users' needs, and making sure that we're there for them as they have been there for us throughout Q1. And again, we're doing this because we're delivering significant value to the transplant community across all three platforms. We're looking forward to the next phase this year, later this year when we get the heart and lung programs kicking to start getting momentum in the cardiothoracic aspect of this. We did not see any softness. The opposite is true. And again, now the focus of our entire team is to making sure that we have the capacity to meet the demand. The demand is continuing to grow day over day, week over week, month-over-month.

Fair enough. Waleed, one of the other topics that often comes up is OCS economics. At a recent event, some physicians mentioned that hospitals struggle with their billing processes. They suggested that it would be beneficial if TransMedics established a reimbursement team to help them navigate this system, as it seems that your involvement has positively impacted the site. Could you provide insights on whether this is a priority for you, specifically in guiding transplant sites through the reimbursement process? Congratulations once again, and thank you for addressing my questions.

Thank you, Suraj. Suraj, unfortunately, that tells me that particular view comes from a new user or a new partner to TransMedics OCS. TransMedics has always had reimbursement experts, both full-time internal and external, that work and help all transplant programs in the United States and in Europe with the market access and billing work. In fact, we are the only entity, only technology that formed the National Transplant Administration working group assembled from leading transplant programs that are highly utilizing OCS and have secured additional reimbursement from commercial payers to help other transplant programs in the US achieve the same results, completely unpaid and independent of TransMedics. So it's a great idea. We agree with that view for sure, and we have been implementing that. And again, our results and our growth could not be achieved without making headway on the proper billing, as you outlined. Next question, operator?

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

Great. Thanks for taking the questions and congrats on the really strong quarter here. Waleed, I wanted to follow up on some of your comments already on just the way you're thinking about the rest of the year in the guide. I know historically, you've called out just the unknowns around whether or not Q2 or Q3 sees more seasonality. I think if you look at the past two years, Q2 was a seasonally stronger quarter. Q3 was a seasonally weaker quarter. And so if we were to pretty much take that mid-single-digit market growth that's played out in liver and heart the past two years, it puts you around $150 million or so in Q2. So I guess my question is, at this point, is there anything in your mind that leads you to believe that what we've seen in the past two years, meaning stronger Q2, kind of weaker Q3 on a seasonality basis would not play out again this year?

At this moment, David, thank you for your question. You have accurately summarized the situation. It's likely to be either Q2 or Q3. Given the summer vacations, Q3 appears more probable. However, we are in unpredictable times, so caution is necessary. That said, based on the past two years, I agree that Q2 should see an increase compared to Q1, while Q3 may show a slight decline due to the impact of summer vacations on overall transplant volume. Nonetheless, we do not have any significant evidence that clearly indicates which direction we are headed at this time.

Okay. Great. Regarding the two clinical trials for lung and heart, I understand the benefit to hospitals and physicians participating in these trials. Considering the potential interest of accounts in performing heart transplants as part of this trial compared to those not involved, how do you view the potential revenue from heart patients? Do you see it as an additional source of revenue on top of existing growth, or could it risk reducing some of the heart transplants you would have captured in the future? Thank you.

Thank you for your question, David. I want to clarify that we have two segments in the heart trial: one focusing on our current indication and the other, which is much larger, targeting a new indication that we don't currently have. This new indication won't cannibalize our existing one since it's not available in the US yet. The 750-patient trial is dedicated to this new indication, while the current segment involves only 200 patients. Therefore, we don't view this as a case of cannibalization; we see it as a step forward. We oversee both trials. To put it simply, there's a 750-patient trial for an indication we lack in the US, and we anticipate starting these trials soon. We hope the results will confirm our belief that this won't result in cannibalization, but instead be additive, due to the significant advancements that users will experience with the next-generation technology and solutions we are implementing as part of these programs.

All right, perfect. Thanks and congrats again.

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

Yeah. Thanks. Just curious on the decision to open the facility in Mirandola, Italy. I mean, you don't have a lot of international business, at least right now. I mean, I understand you're growing so fast, you probably need to add capacity somewhere, but why there versus somewhere in the US or elsewhere?

Mike, Mirandola, Italy is a key hub for cardiopulmonary and perfusion technologies and innovations in plastics. Every prominent perfusion technology company has significant R&D and manufacturing operations in this area. Our primary revenue-generating product is a perfusion disposable unit made from polycarbonate and polyurethane, which requires advanced engineering and design that thrives in Mirandola. This is a major reason for our decision. Additionally, as we grow rapidly, business continuity becomes critical. Establishing an infrastructure in Mirandola for R&D naturally led us to incorporate manufacturing there as well, taking advantage of the local talent that specializes in essential technologies, which is not as readily available in the US.

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

That's fair.

Okay. And then just one question regarding the policy perspective. There are ongoing headlines out of D.C., and I know there are efforts to revamp the transplant policy at the federal level. I was wondering if there are any updates on that or any insights into how things might progress. Thank you.

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

The next question comes from Josh Jennings from TD Cowen. Please go ahead. I know there's some effort underway to revamp the transplant policy at the federal level. So I was just wondering if there were any updates there if you're hearing anything about the way things could potentially move? Thanks. We're not aware of anything imminent, but we're keeping our eyes and ears wide open and we are actively engaged with many of the policymakers and the decision-makers that are involved in that particular topic. So I'll leave it at that.

Hi, good afternoon. It was a strong quarter. I wanted to discuss the clinical trials you led at ISHLT. You shared some high-level details about the lung and heart trials at the symposium. First, regarding the lung trial, could you provide insight into the enthusiasm generated within the lung transplant surgeon community and their interest in participating in this clinical program?

Thanks, Josh. The excitement was quite significant, not only in the lung community but also in the heart community, possibly even more so. Unfortunately, we couldn't announce the approval of the two IDEs in time for ISHLT, but the enthusiasm was palpable. From our perspective, both in the U.S. and internationally, as noted during our symposium, there is a growing demand for these innovations in places like Europe and Australia. Our team has been actively working since ISHLT to capitalize on that momentum. Our immediate priority is to secure FDA approval and then proceed with our plans in the U.S., while also aiming to leverage the interest we've generated abroad.

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

Josh, we prefer not to comment from our perspective. That's why we designed the trial to generate the first Level 1 evidence, comparing it head-to-head with the standard of care. No other technology in the field, from cold storage to cold perfusion and cold controlled cold storage, has achieved this. We are the only technology that will test this question. The bar is set high for a Level 1 FDA pivotal PMA trial, and we will let the data speak for itself.

Appreciate that, and looking forward to tracking on that.

Thank you, Josh.

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

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

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