TransMedics Group, Inc. Q4 FY2025 Earnings Call

Good afternoon, and welcome to TransMedics Fourth Quarter 2025 Earnings Conference 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.

Thank you. Earlier today, TransMedics released financial results for the quarter and full year ended December 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 made during this call that relate to future events, results or performance, including expectations or predictions, are forward-looking statements. All forward-looking statements, including, without limitation, our examination of operating trends, the potential commercial opportunity of 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 10-K filed with the Securities and Exchange Commission on February 24, 2026, and 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, February 24, 2026. 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' Fourth Quarter and Full Year 2025 Earnings Call. Joining me today is Gerardo Hernandez, our Chief Financial Officer. I'm thrilled to be here tonight reporting our fourth quarter performance, capping off an outstanding year for TransMedics as we delivered our best operational performance to date. These results were achieved despite external challenges earlier in the year that were designed to distract and disrupt our sustained and transformational growth. I'm extremely proud of the resilience of our team and our business. In addition, I'm grateful to our global clinical users for their continued partnership with TransMedics and their trust in our OCS NOP program throughout the year. Based on our performance in 2025 and our continued investment in expanding the caliber and the breadth of our team, I am growing exceedingly confident in TransMedics' ability to overcome future challenges as we continue to innovate and disrupt antiquated and inefficient transplant processes in the U.S. and around the world. We are highly motivated and inspired by our mission to expand the utilization of available donor organs for transplantation while aiming to deliver the absolute best possible clinical outcomes for transplant patients worldwide. We strongly believe that TransMedics is just getting started, and we have our sights focused on new peaks, which we will share with you on today's call. Now let me proceed with discussing our business performance. On our last call, we stated our expectation that third-quarter seasonality in U.S. transplant activities would be transient and that we should recover in the fourth quarter. Today, we're excited to report that fourth-quarter results validate our views. Fourth quarter 2025 was a banner quarter for our business and allowed us to conclude 2025 on a very high note. Here are the key operational highlights for fourth quarter 2025. Total revenue for fourth quarter '25 was $160.8 million, representing approximately 32% growth year-over-year and approximately 12% sequential growth from third quarter 2025. U.S. transplant revenue grew approximately 11% sequentially to $155 million, while OUS transplant revenue grew approximately 33% sequentially to $5 million. Finally, we delivered an operating profit of approximately $21.3 million in fourth quarter, representing approximately 13.2% of total revenue for the fourth quarter while making substantial investments to fuel our growth. Now let me provide the financial results for the full year 2025. Total revenue for the full year 2025 was $605.5 million, representing approximately 37% growth year-over-year. We delivered an operating profit of approximately $108.6 million, representing approximately 18% of total revenue for the full year 2025. Importantly, we ended the year with approximately $488.4 million of cash and cash equivalents. Shifting now to TransMedics' transplant logistics infrastructure and performance. TransMedics' transplant logistics service revenue for fourth quarter was approximately $28.6 million, up from $21.7 million in fourth quarter 2024, representing approximately 32% year-over-year growth and up from $27.2 million in third quarter, representing approximately 5% sequential growth. Throughout fourth quarter, we owned and operated 22 aircraft. In fourth quarter, we maintained coverage of approximately 80% of our NOP missions requiring air transport, compared to 75% in the same period in 2024. We are very pleased with our strong performance in fourth quarter and full year 2025, which was fueled by growing OCS case volume and increased clinical adoption. Importantly, as we predicted, our performance enabled growth in overall U.S. liver and heart transplant volumes for the third consecutive year, driven primarily by OCS NOP cases. This is really unprecedented and frankly humbling. As we do every year, I would like to share full year OCS transplant volumes and overall U.S. transplants per order. Here are the key highlights. For the third consecutive year, we grew the total OCS transplant volume. As of February 2026, our internal company data and UNOS database records show that there were 5,139 total U.S. OCS transplants performed in the full year 2025. Let me repeat this. As of February 22, 2026, our internal company data and UNOS database records show that OCS was responsible for 5,139 transplants performed in the full year 2025, up from 3,735 U.S. OCS transplants in 2024. The overall transplants represented approximately 26% of the total 19,833 U.S. transplants for the year for heart, lung and liver in 2025 and up from 20% of the 2024 U.S. transplant volume for the same organs. Importantly, for the third consecutive year, we saw growth in overall U.S. liver, heart, and lung transplant volumes. For the full year 2025, there were 19,833 liver, heart, and lung transplants, up from 18,894 in 2024. We strongly believe that the OCS NOP once again played a key role in driving overall liver and heart market growth due to the increased use of DCD and DBD donors in the U.S. Since 2022, U.S. national transplant volumes for liver, heart, and lung grew at a rate of 25%, including OCS NOP transplant volume. Without OCS volume, national volumes for the same organs would have declined by approximately 1% over the same period. Please allow me to repeat this. U.S. transplant volumes for liver, heart, and lung grew 25% with OCS NOP and would have declined by approximately 1% without OCS NOP case volume. Based on these facts, we believe that we are delivering on our vision of growing the overall U.S. market. Said differently, we are expanding the overall market, not just taking share. Now let me discuss our clinical adoption per organ. For liver, in 2025, OCS Liver transplant represented 4,197 transplants or 36% of the overall liver transplant volume in the United States. That is up from 26% in the same period in 2024. For heart, OCS transplant represented 854 cases or approximately 18% of the overall heart transplant volume, modestly up from the 17% seen in 2024. For lung, the numbers are small. OCS Lung transplants represented only 88 cases or approximately 2%. These are very small numbers, and we will discuss below how we are planning to address this particular topic. These results underscore the significant remaining greenfield potential for OCS NOP cases across all three organs. Specifically, we are focused on the ENHANCE Heart program to drive increased use in heart transplantation across the donor types. Finally, our DENOVO Lung clinical program will focus on reinvigorating the OCS Lung market segment in the U.S. while driving much-needed expansion of the utilization rates for donor lungs. Both programs have been cleared by the FDA and are in various stages of trial activation and enrollment in the U.S. We're looking forward to reporting the progress of these two crucial programs at the upcoming ISHLT in late April. Now let me move on to discuss our 2026 plans and guidance. As we stated before, we're excited for 2026 as we believe it will represent another critical and transformative year for TransMedics' business given our focus on a few wide-ranging and far-reaching catalysts for near, mid- and long-term growth for our business. Let me share with you a summary overview of all the growth catalysts we are focused on in 2026. First, OCS ENHANCE Heart program. Simply stated, Part A of this program is designed to move cardiac transplantation beyond preservation and into functional enhancement of donor hearts. Importantly, it was designed to significantly expand the time and distance limitations currently imposed on the four-hour DBD heart transplants preserved using cold static storage. Initial feedback is promising, but we are still early in the process. Now let's talk about Part B. Part B of this program is designed to allow OCS to gain a potential new clinical indication in the DBD Heart Transplant segment that are sub-four hours preservation by demonstrating superiority of outcomes in a head-to-head comparison to current cold static storage modalities. Progress in Part B has been slightly impacted by our competitive dynamics as it relates to a cold storage arm of the trial. Specifically, there is a hesitation among the competition to have a head-to-head comparison between OCS and their static cold storage modality. We are confident in our ability to overcome this competitive dynamic that we somewhat expected. Importantly, we are committed to conducting this important part of our heart program with the highest level of clinical evidence and a robust protocol and randomization scheme. If successful, one or both parts combined could dramatically increase the use of OCS Heart in the U.S. and should have a huge impact on our transplant volume and top-line revenue growth. Next is OCS DENOVO Lung program. As I've stated before, in our humble view, this is the last real chance for the lung transplant community to experience the benefits of machine perfusion and integrated NOP services in lung transplantation in the U.S. If successful, this program would resurrect a sleeping giant of the lung transplant market and would add significant lung clinical adoption and top-line revenue growth for TransMedics. Next is bringing the NOP model to Europe and the rest of the world. This program is actively launching in Italy and a few other European countries have expressed strong interest in exploring the NOP model in their local geography. This program has the potential to significantly grow our OCS market adoption in Europe. Expanding our commercial activities in Europe has the potential to nearly double our transplant total addressable market for TransMedics. We are actively engaged in building our European NOP transplant air and ground logistics network while also expanding our European clinical support infrastructure. Next is the OCS Kidney program. This represents our next frontier and will be the first organ to launch on our OCS Gen 3.0 technology platform. OCS Gen 3.0 will have a completely redesigned technology and perfusion systems that is smaller, lighter, and with a much lower part count. Importantly, it's designed for automated assembly and was designed to operate with a high degree of reliability. There are currently more than 20,000 deceased kidney transplants in the U.S. annually and an additional 8,000 to 9,000 kidneys that are discarded annually in the U.S. for only prolonged ischemic times. To our knowledge, the OCS Kidney system will be the first and only warm perfusion oxygenated kidney platform for kidney transplantation, used from the donor to the recipient. Currently, the development program is running in full gear throughout 2026 to get the platform ready for FDA trial by early 2027. Next is OCS Gen 3.0 for liver, heart, and lung systems. This program is running in parallel to the kidney program to upgrade our current liver, heart, and lung system and help grow our clinical adoption rates and scale our operations. Finally, we are exploring the potential to capitalize on the U.S. transplant modernization initiatives, driven by HRSA, CMS, and U.S. Congress. Specifically, we are exploring if TransMedics can be a more integrated contributor to the national transplant ecosystem in the U.S. The goal is to maximize donor organ utilization for transplantation and continue to save more American lives while saving significant healthcare dollars. As you can see, these are significant potential short, mid- and long-term catalysts for our business, and we are laser-focused on ensuring successful execution of these initiatives throughout 2026. That being said, we're also cognizant of a few operational challenges that could influence the pace and timing of these initiatives. First, as stated, we are still building out our logistics infrastructure in Europe, which could moderate the initial pace of our EU NOP launch as we ensure we have the right foundation in place. Second, the timing of the full DENOVO trial accrual will depend on how long and how the lung transplant market adopts machine perfusion and NOP, which remains to be proven. Third, the timing of ENHANCE Part B completion will be influenced by some of the inertia created by competitive dynamics for the cold storage arm in the marketplace. Fourth, the very common and now, I hope, well-understood annual phenomenon of potential third-quarter seasonality in the U.S. transplant market that temporarily slows down transplant activities. And finally, ramping our infrastructure and clinical staffing to meet the growing demand for OCS NOP will be critical to achieve our full growth potential in 2026. With all this in mind, we are setting our revenue guidance for full year 2026 between $727 million and $757 million, representing approximately 20% to 25% growth over full year 2025. 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 am pleased to share TransMedics' Fourth Quarter 2025 Results. Please note that a supplemental slide presentation with additional details is available on the Investors section of our website. As Waleed highlighted, we sustained strong momentum through the fourth quarter, closing the year with solid performance following an expected seasonally softer third quarter in U.S. transplant activities. As discussed in our third quarter call, our rapid growth in prior years often marked the natural seasonality in the U.S. transplant activity. At our current scale, those dynamics are more visible. However, as we have seen, these fluctuations tend to normalize over the full year. Total revenue for the quarter was approximately $161 million. U.S. transplant revenue was approximately $155 million, up 33% year-over-year and 11% sequentially. By organ, liver contributed with $127 million, heart $26 million, and lung $2 million. International revenue was $4.8 million, up 24% year-over-year and 33% sequentially. Revenue by organ was $3.9 million in heart, $0.2 million in lung, and $0.7 million in liver. Growth was primarily driven by liver and heart. While we continue to make progress in our international expansion plans, the business remains at an early stage and quarterly variability is expected due to reimbursement and market dynamics. Product revenue for the fourth quarter was $100 million, up 34% year-over-year and 15% sequentially, reflecting continued momentum across both liver and heart programs. Service revenue for the fourth quarter was $60 million, up 29% year-over-year and 8% sequentially. The primary driver of growth was logistics revenue, which increased 32% year-over-year and 5% sequentially, reflecting continued expansion and strong utilization of our aviation fleet compared to 2024. Together, these results reflect strong order utilization, continued OCS adoption, and increasing leverage of our integrated logistics platform. Total gross margin for the quarter was approximately 58%, down 110 basis points year-over-year and 70 basis points sequentially. The year-over-year decline primarily reflects higher clinical service costs associated with the expansion of our NOP program, increased logistic discounts, and higher freight expenses. The sequential decrease was mainly driven by inventory-related charges associated with our year-end inventory procedures and higher freight costs from expediting shipments to replenish our costs. Total operating expenses for the fourth quarter of 2025 were $72 million, up 14% year-over-year and 18% sequentially. The year-over-year growth was mainly driven by increased R&D investment to advance our innovation pipeline and expand product development capabilities, including targeted additions to our technical and development teams. SG&A growth reflected continued IT infrastructure expansion, strategic growth initiatives, and selected headcount investments to support scale. Sequentially, the increase was largely driven by higher R&D investments related to development and testing activities as well as incremental SG&A investments supporting growth and expansion initiatives. Operating income for the quarter was $21 million, 146% year-over-year and down 9% sequentially. The sequential decrease was primarily driven by higher operating expenses associated with increased investments during the quarter. Operating margin expanded to 13%, compared to 7% in the fourth quarter of 2024. Net income for the fourth quarter was $105 million, a significant increase both year-over-year and sequentially. Net profit included an income tax benefit of $83.8 million, compared to an income tax provision of $0.1 million in 2024, mainly related to the release of the valuation allowance. The release of the valuation allowance on our deferred tax assets is not merely an accounting adjustment but a strong indication of our confidence in the sustainability of our long-term profitability grounded in continued growth and scalability. This decision follows a thorough and rigorous evaluation under applicable accounting and tax standards. Earnings per share were $3.08 and diluted earnings per share were $2.62 for the fourth quarter of 2025. We ended the year with $488 million in cash, up $22 million from September 30, 2025, driven by strong operating cash generation and continued disciplined working capital management. Overall, our fourth quarter performance reflects another quarter of strong execution, operational efficiency, and continued advancement across our clinical programs. As we operate at a greater scale, the TransMedics team continues to demonstrate focus and discipline, investing in growth while maintaining strong financial and operational performance. Now let me summarize our full year 2025 results. Full year revenue reached approximately $605 million, reflecting 37% growth over 2024. Growth was led by liver, which grew almost 49% and continued strength in heart at almost 15%. Lung revenue was lower compared to 2024. U.S. transplant revenue reached approximately $585 million, reflecting a 38.6% growth year-over-year. Our international transplant revenue ended the year at $16.7 million, representing a 9.3% year-over-year growth, primarily driven by liver and heart. Breaking it down by categories, product revenue totaled $372 million, while service revenue contributes with $233 million. Breaking it down by organ, liver revenue reached $461 million, heart revenue reached $126 million, and lung reached approximately $15 million. Flight School revenue for the year was $4 million. Gross margin for the full year was 59.9%, up from 59.4% in 2024, reflecting logistics efficiencies and scale benefits. A portion of these gains was strategically shared with customers through logistic discounts enabled by our integrated network. Margins also reflect incremental costs related to our double-shifting programs and higher expedited hub replenishment expenses. Total operating expenses were $254 million, up 13% year-over-year. The increase was primarily driven by a 23% increase in R&D investments, reflecting continued investment in our innovation pipeline and product enhancements. SG&A grew almost 10% year-over-year, reflecting ongoing expansion of our IT infrastructure and investment in strategic growth initiatives. Operating margin expanded from 8.5% in 2024 to 18% in 2025. A significant achievement in a year where gross margin improved only modestly. This performance demonstrates that the primary driver of margin expansion in our model is operating leverage as revenue scales, supported by a strong discipline to cost management. Net profit for the year was $190 million, compared to approximately $36 million in 2024. Results benefit from strong operating performance as well as the previously mentioned one-time income tax benefits recognized during the fourth quarter related to the deferred tax assets. This performance positions us well as we enter 2026 with continued growth momentum and a strong financial foundation. Earnings per share was $5.60 and diluted earnings per share was $4.87. Now turning to our total revenue guidance for 2026. We anticipate revenue growth of 20% to 25% over the full year of 2025, which translates to a full year revenue range of approximately $727 million to $757 million. Growth is expected to be driven primarily by the increased order utilization, continued OCS adoption, and expansion of our service revenue. In 2026, we expect similar seasonal dynamics in the U.S. transplant activities consistent with prior years. In terms of gross margin, we expect overall margins to remain around 60% over the long-term. This outlook reflects factors influencing both product and service margins beyond mix alone. As we expand internationally and continue investing ahead of growth, we may experience some near-term pressure. However, we expect this impact to normalize as volumes scale across markets. In terms of capital allocation, our focus remains on driving long-term value. We are concentrating our investments in three key areas: first, fueling growth through continued R&D investments, strengthening our NOP network and targeting expansion into selected international markets. Second, building a stronger foundation by implementing systems to simplify and optimize processes across the business, improving efficiency as we grow. And third, enhancing our infrastructure and strategic optionality, including our planned move to a new global headquarters to accommodate growth, ongoing upgrades to expand our manufacturing and project development capabilities, and our continued evaluation of strategic opportunities that could further strengthen our platform for the future. Collectively, these initiatives are preparing TransMedics for its next stage of expansion as we move beyond the 10,000 transplant milestone. We continue to make progress on our double-shifting pilot program to improve fleet utilization and expect to see early results in the first half of 2026. These insights will help us determine the rightly sized and utilization model to maximize capital efficiency. We achieved our goal of owning 22 jets by the end of 2025. While there are no current plans to increase the fleet in 2026, we remain open to acquiring additional aircraft when the right conditions are in place, whether to enhance U.S. capacity or to support international expansion. In 2026, we plan to meaningfully increase investment and with particular focus on advancing our clinical programs, completing the final development phase of our OCS Kidney program, and continued development of our next-generation OCS platform. It is important to note that approximately half of the incremental investment is transitory in nature and as these initiatives are completed, expense levels should normalize, allowing us to capture additional operating levels over time. Based on the current revenue guidance for 2026, we expect operating margins to be up to approximately 250 basis points below 2025 full year levels, primarily reflecting the timing and scale of these investments. As investment levels normalize and the business continues to scale, we would expect operating margins to resume expansion. We continue to expect operating margins to approach 30% by 2028. As shared in previous quarters, we may see fluctuations as we expand internationally and invest ahead of growth. However, we remain confident in the long-term direction and scalability of our model. As we look ahead, we see meaningful growth opportunities from multiple sources beyond continued organ utilization and OCS adoption, including the expected impact of our clinical programs, advancement of the OCS kidney program, and ongoing international expansion efforts. Together, these initiatives expand our addressable markets and reinforce the long-term growth potential of our platform. With a proven track record of delivering on what we set out to do, we are well positioned to continue creating long-term value while expanding access to transplantation and giving more patients a second chance at life. And with that, I'll turn the call over to Waleed for closing remarks.

Thank you so much, Gerardo. Overall, we're very proud of our 2025 results as we delivered 37% year-over-year growth and achieved positive cash flow from operating activities. We did this while investing in our pipeline and continuing to build our infrastructure to capitalize on our highly differentiated OCS technology and service offering. We are now laser focused on executing our initiatives in the potentially transformative 2026 year and are excited about what's ahead. In conclusion, we are humbled and proud of the significant life-saving impact of our OCS technology, NOP service, and dedicated team, and remain committed to our mission of expanding access and improving clinical outcomes for patients in need of organ transplantation worldwide. With that, I will now turn the call to the operator for Q&A.

We will take our first question from Allen Gong from JPMorgan Chase & Company.

Thanks for the question. Congrats on the really good quarter to end the year. I guess my question is going to be on guidance. If I'm limiting it to one, you're guiding a step above even after factoring in being the quarter when we think about the midpoint of the range. You clearly have a lot of moving parts next year between underlying growth in liver and heart and the enrollment of the clinical trials, and you also have Italy in the back half. So when it comes to those three dynamics, can you talk broadly about your expectations for those and how that factors into your guidance philosophy?

Thanks, Allen. We take guidance very seriously at TransMedics and see significant opportunities ahead, as Gerardo and I have outlined. However, we also face some challenges and dynamics that are constantly changing. In our guidance, we have considered all these factors and provided what we believe to be a realistic forecast that allows us to execute and make adjustments based on our performance if needed. We are confident in the guidance we are presenting, as it encompasses all the uncertainties and opportunities before us. We will focus on execution, and the results will determine if we need to adjust our guidance as we progress through the year.

We will take our next question from the line of Josh Jennings from TD Cowen.

Great to see the strong start to the end of the year. I appreciate the breakout of the catalysts late in 2026. I was hoping to ask a question on OCS Liver. Waleed, you've talked publicly about a registry publication coming up in the near term that could be a huge catalyst for liver adoption. I know you can't front-run the results here, but I was wondering, could we see some cost-effectiveness data published in the near term and just thinking about that element of OCS Liver as new competition is coming into place? And just are you seeing any competitive headwinds out there that are new in 2026 for the OCS Liver franchise?

I will address that question in three parts. First, there is existing health economic data on liver transplants that has been published over the last two years, primarily from single-center experiences. That information is already available. What is upcoming is significant statistical superiority in key outcomes after liver transplantation, which will support the evidence from over 14 or 15 publications already in print. These upcoming publications aggregate thousands of cases from our registry, many of which are currently under review. I cannot say when they will be released, as I cannot interfere with the review process for these high-impact journals. Regarding competition, we are very aware of developments in the organ transplant field. However, we do not see competitive dynamics affecting our execution capabilities in 2026 and beyond. I will leave it at that.

Our next question comes from the line of Bill Plovanic from Canaccord Genuity.

It's Zachary on for Bill. Just a quick one on can you provide more details on NOP Connect 2.0? I believe you talked about that in the last earnings call, saying it would provide you operational efficiencies. Can you talk about what you've seen early on so far?

Thank you, Zach. We have observed significant developments. Most of our cases are now being processed through NOP Connect 2.0, leading to improved efficiency in management and billing. However, it’s still early in the process. Looking ahead, we anticipate ongoing enhancements and growth of our digital ecosystem, which represents our second major legacy following the OCS. This digital ecosystem is fully integrated and supports a substantial part of the national transplant volume in the U.S. We are dedicated to further supporting and expanding it to offer the best service for our customers, along with greater transparency regarding the status and management of organs, as well as the financial aspects of TransMedics services. We are very encouraged by our progress and will continue to invest strategically in the digital platform to further enhance market adoption of OCS.

Our next question comes from the line of Suraj Kalia from Oppenheimer & Company.

Waleed, Gerardo, Tamer, Nick, excellent quarter. Can you hear me all right, Waleed?

We can hear you loud and clear, Suraj.

Perfect. So Waleed, forgive me, I'll just kind of quickly sneak in two. It seems like you guys gained about 400 basis points of liver share in Q4. Why was that? And Waleed, your comments about Part B of ENHANCE, look, the numbers are suggesting you guys are going to exit FY '26 with approximately 6,300 organs. But if I parlay your clinical trial commentary, it means like you're not expecting a lot of contribution. You all must have put in some safeguards in place if Paragonics or others threw a wrench in the control arm, could you share some additional color on how you keep the ball moving in Part B? Gentleman, congrats again.

Thank you, Suraj. Regarding the liver execution, this reflects the success of the OCS Liver and showcases our leadership in the liver program. This is a clear demonstration of TransMedics' execution excellence. To address the second part of your question, we have significant experience in this area. Our company has successfully supported and completed the largest number of both randomized and single-arm trials in organ transplant history. In contrast, none of the static storage technologies have conducted any FDA randomized or non-randomized trials. Therefore, we were prepared for this situation and anticipated it to some extent. We will proceed with Part B, and we hope it will yield significant success for TransMedics. It may take a few additional months to navigate through this change, but we are highly confident in our strategy, design, and technology. The fact that the control arm is concerned about being randomized against OCS speaks volumes. Again, we are honored by this recognition and remain focused on our objectives. As we have committed, we will complete the study with the best protocol, randomization, and with the control arm.

Our next question comes from the line of Ryan Daniels from William Blair.

This is Matthew Mardula on for Ryan. Congrats on the quarter. And I kind of want to piggyback on that question, but I want to focus on the feedback you have received regarding the heart clinical trial. Given that you have already mentioned doing a handful of heart transplants for the trial, and I know it is still early in the process and ongoing, but I'm curious to hear what transplant surgeons' feedback has been on the trial as they progress. I kind of believe you previously mentioned in meeting all expectations. So I'm curious how that has trended? And is there anything in particular transplant surgeons have called out regarding the device and maybe expressed more interest in using the device more in the future?

It's a great question, Matt, and I appreciate it. However, if I answer that, it would be like revealing the results. The trial is still in its early stages, and the feedback received is valuable. It reflects the significance of our efforts. I'll leave it at that, and I'm looking forward to seeing more meaningful presentations from technology users, rather than from TransMedics, at the ISHLT symposium.

Our next question comes from the line of David Rescott from Baird.

Great job on the results. I wanted to ask about the CMS proposal regarding some of the OPO changes. There seems to be a lot happening in the OPO area, so I'm curious if you could share your updated perspective on the overall OPO landscape and whether you foresee any benefits or implications for the OCS service in the long run.

Thank you, David. All I could say is the organ transplant system in the United States has gone through really significant transformation, hopefully for the positive. We are supportive of the CMS language, proposed language. We're supportive of Senator Wyden's proposed bill to open up the historical closed transplant system to more competition, more transparency, more efficiency, and more high standards of execution and performance metrics. We are going to try to play a bigger role to support the vision, the growth in overall transplant in the United States, saving more American lives, delivering cost-effective therapy to patients in need, that's costing CMS billions and billions of dollars, but also support existing OPOs in their missions. So we look at our role as it's a win-win opportunity for TransMedics to play a bigger role but also support existing OPOs. That's all I can comment on at the moment.

Our next question comes from the line of Daniel Markowitz from Evercore ISI.

Congrats on the quarter. I wanted to ask on the operating margin guide for 2026. It sounds like the gross margins may see some volatility as you expand internationally, and then OpEx as a percent of sales is expected to increase as well to get to that 250 bps of contraction year-on-year. I guess, can you give us the breakout of how much of the margin contraction is coming from some expansion dynamics that weren't really areas of investment yet in 2025, things like international expansion, the trial spend that are kind of, I guess, one-time in nature? And with so many exciting investment opportunities, what are you looking at that tells you that it will make sense to get the business back to significant margin expansion in 2027 and 2028 as opposed to continuing to bring money into investments?

The primary factors contributing to nearly 50% of our additional investment in 2026 revolve around three key areas. First, we are focusing on completing our clinical programs, OCS ENHANCE and DENOVO. Second, we are finalizing our OCS Kidney development. Finally, we are advancing our OCS Next Generation, or 3.0, as we have recently termed it. These three factors represent a significant portion of our incremental investment and are expected to be temporary. Once we accomplish these initiatives, I am confident that our expenditures will stabilize, allowing us to capture operating leverage as we continue to grow. I hope this provides clarity on the situation.

Our next question comes from the line of Mike Matson from Needham & Company.

I wanted to clarify your comments about Part B of the ENHANCE trial regarding the competitive issue you mentioned. Is the competitor you're referring to static cold storage? I assumed that meant just putting the organ on ice, but does it actually refer to one of those cooler technologies available? Also, is the competitor trying to prevent their product from being used or enrolled in this trial? I'm a bit unclear on the situation.

Yes. That's exactly what's happening. Not everybody is using ice. Static cold storage boxes using face-changing elements are being used. And the makers of that styrofoam box are refusing to randomize their technology to ours. Wait and see. Yes. I mean, we had hoped that this won't be the case, but we are kind of somewhat expecting it. So we have a plan to bypass that. And at the end of the day, it's the transplant programs that need to take control of the trial, and TransMedics will support them with the right control arm that would be acceptable to the FDA.

Yes, Mr. Hassanein, we have our next question coming from the line of Chris Pasquale from Nephron.

Waleed, you had a really nice quarter in liver, but heart and lung were both a little bit lower than we expected. Was there anything that you noticed in those segments of the business around the end of the year? In particular, I'm wondering if the trials, which got going a little bit slower than expected might have caused any disruption or if there are any other dynamics there that would sort of explain the deceleration we saw?

Thank you for the question, Chris. The lung segment has a minimal impact for us, so I wouldn’t read too much into its performance. Many lung centers were holding off on launching into DENOVO until they saw FDA approval. The heart segment has faced similar challenges, but there are also other trials expected to conclude in the second half of 2025 that could have influenced this. One of these is the cold perfusion trial, which has been completed. Additionally, some centers have chosen to make organic changes. We will discuss these factors at the ISHLT symposium. Currently, we don’t see these issues as long-term; we believe they are temporary. We anticipate that as ENHANCE starts up and DENOVO is initiated soon, these dynamics will improve. We’re eager to see the effects of ENHANCE Parts A and B and hope to see a reversal of these trends by 2026 and into 2027.

No, sir. We don't have any further questions. That concludes our question-and-answer session. I will now pass it back over to our CEO, Waleed Hassanein, for closing remarks.

Thank you all very much, and looking forward to speaking again to report on Q1 results. Have a wonderful evening, everyone. Thank you.

The meeting has now concluded. Thank you all for joining. You may now disconnect.