Conference Transcript - TMDX 2026-08-11

Bill Plavonic, Analyst — Canaccord Genuity

Good afternoon. My name is Bill Plavonic. I'm a senior analyst here on the MedTech team with Canaccord Genuity. Welcome to our 46th annual Global Growth Conference. With us up next, we have Transmedics. And the format that we're going to have is a brief overview, a couple of slides to level set the audience. And then we will move into a fireside chat. And with us today, we have Waleed Hassanin, President, CEO, and Founder, and Gerardo Hernandez, CFO. With that, I'll hand it over to Waleed. Thank you, Bill.

Waleed Hassanein, CEO

Good afternoon, everyone. Thank you for joining us. These are going to be a little bit more than a couple of slides because I felt it's important to kind of cover a few important topics. This is our forward-looking statement. So Transmedix is in the business of organ transplantation. Organ transplant is a very, very important therapy that happens to be the gold standard for treating a very, very expensive disease condition and very chronic and very expensive disease condition. It's the gold standard for treating end-stage organ failure because it's the most cost-effective treatment. It's better than life on dialysis. It's better than LVADs. and overall, or even medical therapy. The problem with organ transplant, it's a supply-constrained market. There aren't enough organs to go to meet the huge demand for organ transplant on an annualized basis. Transmedics changed all that. Transmedics transformed the industry a few years back. We opened up the bottleneck for supply of organs by delivering on our technology or using our technology to deliver the highest rate of organ utilization in the history of organ transplant. Not only that, but we delivered the best clinical outcomes after organ transplantation. And then for the last four years, we've been building an entire network, vertically integrated network, to make more organ transplants and better organ transplants available across the United States. So let me walk you through how we did it. We did it through a significant moat that is five layers deep. It starts with the first and best thing in its class technology called the organ care system, the only technology that replicated human physiology to keep organs alive and functioning outside of the human body. We did it with a portable technology. Without it, we could not build the rest of the moat. Then we moved from there, And when we recognized the huge impact of the organ care system on increasing the supply of organs, we built a network called the National OCS Program, or NOP, which is the only national organ procurement service door-to-door, from donor to recipient, to maximize organ utilization and provide the highest level of clinical standards for organ transplant. We didn't stop here. We build the first vertically integrated logistics, air and ground logistics that covers the entire United States. And then to bring that to a bigger scale, we created a purpose-built digital ecosystem called NOP Connect that gives full visibility and transparency of all stakeholders in the field for what's happening with the organ, and where is it located, secure communication. And as of July 1st, we added the last piece to the mode, which is donor and recipient screening. So every major transplant institution in this country cannot perform their daily transplant without communicating with transmedics. Basically, transmedics coordinating the donor and the recipient management within any major transplant institution. This is a very, very large and deep moat that is very difficult to replicate and cost a lot of money and a lot of time. Our financial performance is self-explanatory. We've been growing on an average 86% CAGR over the last three years. We're profitable. We're generating free cash flow. We ended last quarter with more than $472 million in our balance sheet, and our revenue guidance for the year is between $737 and $757, which represent 22% to 25% growth. So let me show you the evidence, some of the evidence. Oh, this is our technology. This is the OCS platform, three FDA-approved technology, and the fourth organ kidney is under development, and we're bringing that to the clinic, hopefully second half of 2027. This is what the National OCS Program, or NOP, looks like. Today, we are operating out of 20 different hubs across the United States. We own and operate 100% dedicated 22 aircraft for organ transplant missions. We have approximately 50 procurement surgeons and staff between heart, lung, and liver and kidney, and more than 250 clinical coordinators and specialists running an entire digital national command center out of our headquarters in Andover, Massachusetts. This is our digital platform, NOP Connect. You can see it is highly optimized to give full visibility across stakeholders. But we're not stopping here. We are investing in four distinct growth initiatives to expand the growth even further and extend or expand our total addressable market. There are four growth initiatives, starting with increasing heart and lung adoption. The OCS kidney program, which is going to be the biggest program ever developed by Transmedics, expanding internationally into Europe, bringing the NOP and NOP success into Europe, and we're investing into scaling into the next-gen OCS 3.0. Let me quickly touch on each one of these initiatives and why are they important for us to invest in today. First, U.S. heart and lung transplant, driving heart and lung transplant adoption, expanding our annual TAM in this critical segment of the market. What are we talking about? We're talking about having two shots a go to access close, more than 5,200, 5,400 annual cases in the United States. 5,400 hearts and lungs that today we don't have access to. And we're doing this using two shots of gold, OCS technology and CHOPs, which is a lower price point called technology. Second is the kidney program. The kidney program is one of the most, if not the most, development program that I have ever been involved with, and I have been involved with all the programs involved with transmedics. Why? Because it unlocks the largest transplant segment that has significant cost burden on CMS. Let's give you some numbers. Last year, there were approximately 21,000 deceased kidney transplant procedures in the U.S., But it doesn't stop here. We throw away nearly 10,000 kidneys because of extended preservation time. The OCS can change all that. So literally overnight with the kidney program, we can access close to 30,000 annual procedures that we don't access today. But a lot of people in this room say, well, Eid, why are you investing in kidneys? The kidney is robust and it's easy to put patient in dialysis. Well, it may be easy for you, but it's extremely difficult on the patient, and it's costing the system tens of billions of dollars. The cost of maintaining 100,000 patients in the national waiting list in the U.S. amounts to about $10.5 billion annually to CMS. After we transplant patients, 35 to 50 percent of those patients required to go back on dialysis because of a complication of preservation called delayed graft function or DGF. That costs CMS an additional $150 to $250 million annually. So net-net, this is a huge opportunity in front of us to access 30,000 patients annually and with a technology that is designed to significantly improve the utilization of donor kidneys, to salvage more organs, save CMS billions of dollars of maintaining those patients on the waiting list and significantly reducing the incidence of DGF, saving the CMS hundreds of millions of dollars annually. Next is the expansion into Europe. Why Europe? Why now? Why Europe? Because Europe is a mirror image of the United States from a market opportunity standpoint. The data is clear. Why now? because we do not want to forget about Europe, the second largest global transplant market, and two years from now it's populated with much more inferior technology and everyone asked, Waleed, why didn't you go to Europe? Most importantly, it's because of the patients, the value that the OCS will bring to European patients, more organs and better outcomes. So Europe is a very important initiative. Finally, to scale all this, to be able to run tens of thousands of transplants on an annual basis across the globe. We need to invest in our technology platform. We're investing in our next-gen technology platform called OCS Gen 3.0, which is designed to be highly scalable, cloud-based control and monitoring, significant operating leverage, driving significant operating leverage. How? By completely redesigning the platform, lower part count, automated assembly to drive into lower cost of goods, and de-risking the supply chain by being supply chain, completely supply chain independent from critical suppliers. I'll leave you with this slide. Transmedix is uniquely positioned to capitalize on all these growth opportunities. We are confident based on our track record. We have the best clinical device in the industry generating the highest utilization rate and the best clinical outcome in the history of organ transplant, which is the OCS. We created a large mold of five layers deep that will take at least a decade and hundreds of millions of dollars to recreate. The growth runway is real. We have four shots a goal with one. The heart and lung has two shots each a goal with OCS and CHOPs. And finally, our track record speaks for itself. We are mission-driven, and we generated significant shareholder value based on investments we've made in the past. Thank you so much for your attention. And, Bill, I'm looking forward to your questions.

Bill Plavonic, Analyst — Canaccord Genuity

Great. Thank you. All right. We've packed audience here, as always. I'm going to, you know, the background, I think most of the people here are pretty familiar with the story. It's remarkable what you've done in only a few years of expanding organ transplant market, the number of transplants being done a year because of what you're able to do with increasing the number available for transplant, especially the liver and the heart market. You change the workflow for these physicians. I mean, it is truly amazing what you've accomplished. And now you're looking at going after a whole new market with kidney. you know before we get into this as a finance guy I got asked some guidance and operating questions it kind of pains me we don't have a lot of time so I'm going to hit a couple high level but the questions I get is hey you said you're going to hit 10,000 transplants by 2028 but you didn't recommit to your 30% adjusted operating margin guidance you know longer term is 30% still the right number that you're eventually going to get there? It's just we decided to lean into some investments near term. How should we think about this? Getting to the 10,000 and getting to the 30%. Unfortunately, you put a financial number out there for us. We have to ask.

Waleed Hassanein, CEO

Let me address it from my perspective. We are going to hit the 10,000 transplants and we did not shy away. We always said, Gerardo always was very clear that we said we will be at or near 30% operating margin by 2028, or by 10,000 transplants. So from my perspective, nothing has changed.

Gerardo Hernandez, CFO

That's exactly right. It's an at or approaching 30% corresponds to what we are seeing today. The 30% is indeed the operating margin that I believe the company has delivered. Actually, we have some upside potentially there. But we need to wait and see how some of these projects evolve before we can commit to anything else.

Bill Plavonic, Analyst — Canaccord Genuity

And as we think of this year on the operating margin guidance, we've been walking these numbers back for the past couple of months, quarters. Now we're at 12.5% to 14%. Have you totally embedded all the potential spending into that? And how do we think about that cadence through this year and next year?

Gerardo Hernandez, CFO

Yes, we have embedded everything we need to embed in 2026. Whatever is there is in our guidance. The difference at the midpoint of that operating margin guidance relative to what I have said in Q4, Q2 actually, was more about incremental investment in OCS kidney. That's basically the driver. The way we should see or expect for the future years is we should not see an increase in operating expenses similar to the one that we had in 2026. This year was really the step up. In 2027, we will see some increase, probably more around the low teens, which certainly will help us to continue to expand our operating margin.

Bill Plavonic, Analyst — Canaccord Genuity

So, nominally, the spend will go up low teens, which would imply that operating margins will be flat, if not a slight improvement in 2027.

Gerardo Hernandez, CFO

There will be an improvement. For next year, there should be an acceleration in growth, and there will be an improvement in operating margin. Okay.

Bill Plavonic, Analyst — Canaccord Genuity

Now I'm going to flip out of the financial questions, and there will be a couple embedded in here. One of the hot topics we get is dry runs, trends, impacts. Can we clear the air on this?

Waleed Hassanein, CEO

Sure. Dry runs is a technical term for cases that don't materialize to become a donor. This happens before OCS. This happens before Transmedix. It happens today. There is no increase in dry run rate in Q2. We haven't seen any. It has zero impact. It had zero impact on our performance in Q2. We don't expect it to have any impact on our performance going forward. This is a tempest in the teacup, a clear misunderstanding by somebody. But, you know, we don't understand why is this an issue at all. It had zero impact on our Q2 revenue or Q2 performance in general.

Bill Plavonic, Analyst — Canaccord Genuity

The next key topic is international and the pad aviation acquisition. And, you know, is it bigger than a bread box? Is it the size of a refrigerator? We're trying to get a handle, I think. You've given us an idea of what the business is without it next year. help us understand at least, I mean, are you, is this bleeding money? Is it break even? I mean, any, anything would be helpful, I think.

Waleed Hassanein, CEO

Let me, let me jump in on that one. Yeah. Let me be very clear, guys. We don't, we didn't, we didn't invest in Pat Aviation to run it as a charter operator. Pat Aviation is a license that we had to acquire so we can bid on tens of millions of euros of annual tenders for transplant logistics. That is why we got PAD. I don't care what their performance is as a charter operator last year. It means nothing to me. If we cannot turn PAD like we turn Summit into a Transmedics Aviation, but it will be Transmedics Aviation Europe doing 100% transplants within the next several quarters, we'll get rid of that asset. It's simple as that. PAD is only acquiring a license so we can bid on tens of millions of euros tenders that are out there that we have to have a license to fly in Europe to be able to submit. Their financial performance is going to be dramatically different once we shift them into transplantation. We will talk about their financial performance on the Q3 call, but ultimately, it means nothing to me. It has to be turned into a transplant logistics company, part of the Transplantics Aviation Group.

Bill Plavonic, Analyst — Canaccord Genuity

And if I remember correctly, I think the Summit Aviation acquisition was like a $10 to $15 million deal, and I think this is below that.

Waleed Hassanein, CEO

Way below that.

Bill Plavonic, Analyst — Canaccord Genuity

So from a capital requirement, do they have any airplanes today? They don't own aircrafts.

Waleed Hassanein, CEO

They have six leased aircrafts. We're not investing in capital in new aircrafts yet until we see the volume and the demand to justify that because it's very important for us. Once we see that demand, once we win these tenders, we need to start shifting those leased aircraft into owned aircraft so the margin will be held by the company. But until we see the demand, we're going to be very, very careful not to overextend in the capital investment.

Bill Plavonic, Analyst — Canaccord Genuity

So small bet gives you the opportunity to bid, probably shouldn't impact the P&L, and as you're able to transition it to the wind.

Waleed Hassanein, CEO

It will have a small near-term impact in the P&L, but it's transient and it's going to be small, but we're going to talk about it in detail in the Q3 call. Okay.

Bill Plavonic, Analyst — Canaccord Genuity

The other big question we get, I had a dinner last night with some clients and they're asking about OPO. What happens if you win the OPO? What does this look like? How does this drive volume? How does it change the P&L? Like, what does it do for the company? What happens if you don't get an OPO license?

Waleed Hassanein, CEO

Let's address the second piece. Very simple. Nothing changes. We continue to do everything that we just talked about. That's what we're planning on, is we're not counting on becoming an OPO. The decision is not in our hand. The decision is in the hands and minds of CMS and HRSA. We hope that they would recognize the importance of what Transmedix has built here as a national provider for a fully integrated organ procurement and preservation services that have never been accomplished anywhere in the world. I hope that they could see the benefit of having a publicly traded company with a significant financial responsibilities and oversight, more than the entire OPO system today. But until they make that decision, it's not in my hand. It's in the hands of CMS and HRSA. The impact is huge. Most importantly, the impact on patients on the waiting list. Transmedics could run a more efficient operation, or at least as efficient as the best ones out there, if not more efficient, to make more organs available for patients in need. That's the most important thing. And leveraging technologies that are FDA approved, that has been thoroughly vetted, thoroughly validated with clinical results, that's OCS, so we can do all that. We hope they're listening, and we hope they would give us the opportunity to do that. But if they don't, we continue to operate business as usual.

Bill Plavonic, Analyst — Canaccord Genuity

And what about the risk of the other OPOs shifting to any other technology but yours if you become an OPO?

Waleed Hassanein, CEO

Again, I can't control what other OPOs would do. I think our statement to CMS is very clear. We stated clearly that our intention is to not just do it for ourselves, but to give the full breadth of Transmedic's network to support existing OPOs to maximize utilization. Again, they need to make that call for themselves.

Bill Plavonic, Analyst — Canaccord Genuity

All right. Kidney, why? What do you bring? It's a lower-priced market. You just saw. I know, but everybody's scared. Yeah, the fear. it's not going to be 65,000 it's not going to be plus a service it's not going to be how does it make sense?

Waleed Hassanein, CEO

It makes perfect sense you're focusing on the wrong line item on the budget you're focusing on the DRG OCS cost doesn't come from the DRG OCS cost for kidney will come directly from CMS through the standard acquisition cost which is $10.5 billion annually being wasted on keeping patients on the waiting list and $250 million invested in spend annually by CMS to support patients with DGF. We can reduce DGF rates significantly and we can maximize the utilization of kidneys. That's a huge cost efficiency for CMS. Yes, I may not be able to charge 65, but I could charge 40, 45 plus the cost of logistics. So we are always fairly pricing our technology based on the value that we deliver. That's the most important thing. Do we deliver value? Enormous value. Is it measured in millions? No, it measures in hundreds of millions or tens of billions. So I'm good. I'm good. Kidney will be faster growing than liver and higher peaks than liver. That's my bet.

Bill Plavonic, Analyst — Canaccord Genuity

Do you think you need to have the clinical data to support it before you get the reimbursement? Will it be a pilot reimbursement program? Or help us, the mechanics of how this would play out, in your opinion.

Waleed Hassanein, CEO

It's exactly how it worked before. And please, guys, don't use these exotic terms. CMS is very clear. CMS has been extremely supportive of OCS through heart, lung, and liver, and anxiously waiting for the kidney to be introduced. This is all standard acquisition cost, all reimbursable. Let me reiterate, reimbursable based on the NOTA statute as an organ acquisition cost. And in the kidney, 100% of the cost comes from CMS. So it's a single payer who's spending 10 to 10.

Bill Plavonic, Analyst — Canaccord Genuity

Probably easier than all the other payers. You don't have commercial flowing in or, yeah.

Waleed Hassanein, CEO

I wouldn't say that, but it's pretty straightforward.

Bill Plavonic, Analyst — Canaccord Genuity

And then the last question I get is, you know, the enhanced Part B, the de novo lung, these have dragged and taken a little while, and now we're waiting for CHOPs, and it seems like CHOPs has maybe even taken a little longer. You know, how should we think about this? And, you know, it's taken a little longer.

Waleed Hassanein, CEO

It's taken a little bit longer because we got dealt a curveball by the competitor who were scared of comparing their technology to ours, the cold styrofoam box. So that's no problem. We're going to compare it to chops. So instead of doing a study where we are doing 400 cases on OCS and 200 cases on somebody else's styrofoam box, we're going to do a 600 patient study on our platform. 200 on CHOPs, 400 on OCS. So we have to be patient. The upside is huge. The upside is phenomenally huge. And I can't speak enough of how the FDA has been extremely supportive and collaborative in this because of what happened, and they want to support transmedics to do these very important studies. So I'm not worried about it.

Bill Plavonic, Analyst — Canaccord Genuity

We're out of time. One other question is, with the potential consolidation of the OPOs, One of the fears in the market is, you know, the OPOs played a little shenanigans, it seems like, in the beginning of the year with the supply of organs. You know, if we consolidate half of them together and get half as many, how is there not disruption of the marketer? How do you foresee that playing out? They won't last. They won't last.

Waleed Hassanein, CEO

If CMS truly decommissions a significant number of the OPOs, that for the first time puts a performance metrics and oversight, and they won't let them, this won't be enabled or allowed. And, you know, who knows, maybe maybe we're a part of that group and then we will drive the engine to to prevent that from happening.

Bill Plavonic, Analyst — Canaccord Genuity

Last question. Anything you have a lot more investor discussions than I ever will. But anything that, you know, is top of the list for just misunderstanding from investors or biggest question that we might not have hit?

Waleed Hassanein, CEO

Simply stated and Gerardo, please correct me if I'm wrong. Transmedics have become very profitable and demonstrated the leverage in the model last year. The fact that we elected to make strategic investment in these four growth initiatives should not scare investors. We've already proven how profitable this business is. We now have to reinvest in the business because what we see is a path to multi-billion dollar top line. To be specific, north of two billion dollars top line. And I don't know if Jonah Lupton is in the audience, but Jonah, more than $2 billion is somewhere between two and a half and three. So I haven't changed my word. It's more than $2 billion.

Bill Plavonic, Analyst — Canaccord Genuity

You say three.

Waleed Hassanein, CEO

So, you know, we have to make that investment. It's strategic investment. We have to make the growth opportunities are real. They're multiple. And we couldn't be more excited about where we are as a business.

Bill Plavonic, Analyst — Canaccord Genuity

Well, Ed Gerardo, thanks as always. Appreciate your time today.