STIFEL 2026 HEALTHCARE CONFERENCE - TRANSMEDICS GROUP INC

Okay. Morning everyone. Tom Steffen with Stiefel Research. Really excited to have transmedics at the conference this year for the first time. Waleed, Fernando, thanks so much for joining. Thank you. I'm going to jump right into Q&A and I'll start things off on the, away from liver and I'll star on heart and lung and sort of big picture question to kick things off, Waleid, maybe for you. OCS's presence in liver, it's grown quickly. Heart and lung, relatively speaking, have lagged. So maybe to start, Waleed, can you talk about the challenges of the heart and the lung markets more broadly? And I guess more specifically, how should OCS 2.0 address those challenges and help you compete more effectively? Sure. First, Tom, thank you for the invite to be here. We're excited to be at your conference this year. I wouldn't call it challenges of the heart and lung as much as it's just that there's a different market dynamic in cardiothoracic versus liver. Liver have the dedicated teams that do nothing but liver transplant. They don't do any other type of surgery. Heart and lung, they're busy doing regular open heart surgery valve surgery you know cancer surgery in the case of the lung so that's an inherent dynamic of the of the market also the machine perfusion started in heart and lung first before it came to liver so it's a busier market crowded market so for us we needed to we always knew that we need to go back and and tackle heart and lung in a systematic way but we were we were rapidly deploying OCS across the liver market and the impact of OCS and liver is just it's a game changer and that's why we wanted to capitalize in that opportunity but we now with the OCS 2.0 we are able to systematically address some key areas that we know historically have caused a little bit of consternation in the heart and lung users the area of does the organ become edematous because of perfusion which may compromise the post-transplant outcomes could we really keep the organs overnight and on OCS like the liver guys are doing morning our transplant could we enhance the organ function over time versus just suspending suspended animation or preserving the organ at its current state so we we came up with a comprehensive set of enhancers and and technology innovation in 2.0 and we're very very excited about where we are and what we've seen in enhanced part a is a very rapid adoption in the trial we close the trial 175 patients effectively in seven or eight months which is you know one of the rap most fastest enrolling trial we've ever conducted so that's usually at least our internal metric it's usually a good sign to tell us that the technology is delivering on the promise and we hope to replicate that and in Part B and de novo so we we couldn't be more excited about what these two clinical programs are gonna could potentially do at a very high level if if they succeed that would give us access to approximately 5,000 to 5,500 new cases every year in the United States that's between 3,500 lungs and 2,200 hearts that today we we don't access okay great super helpful and you know I think your point about you know cardiothoracic surgeons you know different priorities. I think that's an interesting one where, you know, as we think about daytime transplantation and 2.0, you knows, in heart potentially opening that up, you know, does the different priorities, the variety of priorities of these surgeons as well as probably OR constraints since they're doing a lot of different procedures, does that possibly lessen the importance of 2.O opening up daytime transplantations in heart or no? Yeah, the opening up of a daytime transplantation in heart is the least of our concern. It's a nice to have. The number one priority for us for enhanced Part B and de novo is to deliver a better organ transplant in heart and lungs to increase utilization of donor hearts and donor lungs into transplant. These are the fundamental game-changing impact of 2.0. So whether or not it results in a daytime transplant, it's really up to the market to adopt that at their own pace. But for us, we're focusing primarily on the outcomes and the ability to access this very, very important market segment that we just historically didn't access. Got it. Got it, and maybe digging into enhanced Part B a little bit. So for DVD hearts with sub-4-hour preservation, that incremental market you're targeting, arguably it's a, I have in quotes, easier heart on a relative basis. So what is the bar for 2.0 to show clinical superiority to static cold storage? Maybe as we think about survival rates, severe PGD rates, I could probably look up the literature, But what is the bar where it feels like it could be high? You know, talk about, you know, what 2.0 will have to show to exhibit superiority in that subgroup of parts. Yeah, we're tackling that very important questions from two angles. The first angle is we designed the trial to have a primary effectiveness endpoint that combines severe PGD and survival. These are the two gold standard metrics by which an organ transplant is measured by, so that's number one. Number two, we're comparing ourselves to another product that has clear, better capabilities than just a styrofoam box with a phase-changing material, which is chops. So for us, achieving superiority is what we hope to achieve because we believe that OCS warm, OCS oxygenated perfusion with the enhancers should deliver superior outcomes. But even if that doesn't happen or if it happens, but the transplant surgeon or team would like to use cold storage, CHOPS comes into play. So for us, we really, as I said, we couldn't be more excited about where we are. We have two tigers by the tail. We have technology that we believe should deliver superior outcomes for transplantation, increased utilization for transplantration. But if the transplant surgeon or teams would like to use cold storage, we're giving them a better cold storage technique than just a styrofoam box with face-changing material. So in both cases, I believe transmedics is in a good place to capitalize on this opportunity. Okay, fantastic. And then maybe last one here on kind of heart and lungs. So for the OCS volumes in de novo and enhanced B, de novo we can sort of think about all OCS within that as incremental since you're relatively small there. But on Enhance B, how much of the 400 OCS will be truly incremental volume? Is it all? 100%. 100%. Actually, I would argue all 600 cases, the 400 OCSE and the 200 on CHOPS, these are all incremental because that is an indication that we currently don't have in the U.S. Got it. And so that's very helpful. So in total, between DeNovo and the incremental volumes in Enhanced B, I think DeNoVO is 300 OCS and 150 chops. So between those two studies, what is the range investors should be modeling from a revenue standpoint when thinking about cumulative incremental OCS, OCS-specific REVs for transmedics? Or alternatively, what's a reasonable average revenue per case for these OCS cases? Given how early we are in the clinical programs, we need to focus on the outcomes. We need to focused on the success of the clinical program. We will talk about guidance for 2027 in our first earnings call next year. And we are not going to split it between trial and non-trial cases because, again, we're doing this because we believe this is going to have a significant impact on positive impact on patients' lives and utilization of organs for transplant. That is the number one priority of this business. We make money when we transplant more organs. We make Money when we have better outcomes for patients. And the last thing I want is anybody use my public statements against the great work that the transmedics team is doing to increase organ transplantation in this country by 25% over the last three years and bring it into a commercial front. It's not a secret. There's a lot of, you know, broad policy changes in organ transplant, and we have to be very careful that at the end of the day, this is about patients and about delivering better outcomes and more organs for patients in the United States. Got it. Fantastic. Maybe to shift gears, I want to talk about Europe. Preparing to launch OCS-NOP in a few European countries in the first half of next year, To start off, what are the next steps there before NOP cases and revenue generation can commence? And kind of what's the timing? Is there reimbursement you need to secure? Just kind of talk about next steps for OCS NOP in Europe. Sure. That's a very important question, Tom. I want to clarify one thing. The OCS has been in Europe for a few years. So this is not a launch. But what we're launching is two things. We're launching NOP Europe to replicate what we did in the U.S., and we're launching Transplant Logistics Europe. These are the two new launches, but the OCS has been in Europe for several years. We always tackle new geographies in Europe or outside of Europe, starting with reimbursement for the device and the services. Now we're also looking at logistics as a potential first step that could open the door for transplant-related service revenue generation in Europe while we're building our footprint in the device section or case volume in Europe. So very exciting times. Tamar and the team in Europe is doing a great job. We should expect to see Europe beginning to contribute meaningfully in the second half of 27 and definitely into 28. But, you know, again, we couldn't be more excited about where we are in Europe. And we really believe that transplant logistics is going to play sort of the leading role to open the door to get new geographies, new centers comfortable with NOP. You could witness the value, and then we can expand from there. Got it. Really helpful. So staying in Europe, I mean, and maybe taking a step back, Waleed, can you talk a bit about the potential challenges of replicating NOP in Europe? such as with factors like, I think, shorter procurement distances relative to the U.S., centralized transplant programs, cost sensitivity, reimbursement, et cetera? Maybe if you can compare and contrast U. S. and Europe, and perhaps there's easier elements relative to The U. S., but it'd be helpful just taking a step back and giving some more context on the market. Sure. First, let's start with the most important reason why we are in Europe and why we have to be in Europe, and why have to have a good beachhead in Europe. Europe is a mirror image of the United States from a transplant volume standpoint. So we cannot ignore the European market. If we do that, we'll find ourselves two or three years from now, the market is seeded by much more inferior technology, fragmented, and it will be very difficult for us to displace. So we have to be in Europe, it's not a question. So that's number one. The challenges in Europe is well known. You're not dealing with a unified system. You need to face the reimbursement challenge country by country, and in some regions like Italy, region by region, but that's fine. We've been operating in Europe for several years. We have been dancing with the reimbursements challenge challenge for several years. What's unique about Europe is transplant logistics is something that's already established at a fairly high budgets that's ready secured in place. So for us that gives us as I said the first entryway into Europe to begin allowing the European community to feel the benefit of NOP so again it's not a question of should we be in Europe yes it's different yes it could be more challenging in some areas yes it could present new opportunities in other areas but for us Europe is a must Europe is 50% of the global transplant volume transmedics as a global company you know in organ transplantation we have to deliver our life-saving technology and services to patients in Europe as we're doing in the U.S. Got it. That's great. And maybe last one on Europe and OUS. 3Q26 international revs, I think we're nearly $7 million. So a nice quarter there. You have the Italy logistics contract, NOP launching in a few countries next year. So there's tailwinds in the near to intermediate term. Can we start to think about OUS, maybe when including the PAD non-charter revenue, as at least a $10 million per quarter business next year? Maybe I'll start there and one quick follow-up. Again, we're not giving guidance for 2027 in this meeting, but I think you're very close to it, Tom. I think exiting 27, yes, we need to see europe contributing meaningfully beginning to contribute meaningfully to our revenue um is it going to be 10 million a quarter is it gonna be a little bit less a little bit high we will map this out um fernando and i in uh when we give guidance for 2027 but definitely we should see the ramp starting in the second half of 27 into 28 that's why we're making the investments we're making that's Why we're establishing um the nop infrastructure the the logistics infrastructure, the winning of that tender in Emilia-Romagna is an important first step. We are engaged in several other tenders in Italy and outside of Italy. So, you know, it's exciting times. I really mean this, guys. This is not a marketing statement. It's truly an exciting time in Transmedics. Absolutely. And then sort of a modeling-ish question, just to wrap up here. uh pad charter revenue guiding to i think it's 14 million in 2026 like what should that look like in 27 is that business gonna wind down quickly is it gonna any like even directional uh commentary on pad charter and and what that should look like next year yeah i think that can you hear me okay yeah um you know next year to what it's point we're not guiding just yet but you know the way to think is we will see a you know this business translating into an organ transplant business just like we have here in the US and hopefully we're gonna see a slowdown of the charter business in the first half and then gradually getting more and more into the organ what's going to be the size of the business we are working for this right now the way we thought about like the fourth quarter specifically we were very conservative we don't have a lot of data in terms of like how to compare you know the seasonality but we're seeing things moving in line with the expectation quarter to date so we're pretty happy with the way it's performing but once again we've got to wait and see how we do this as we get into 2027 but especially second half of next year is when we expect to see more of what we want to be going forward got it okay very helpful Fernando and then I'll go to another growth initiative kidney Um, big opportunity in the U.S. Um, and Waleed, I'll start kind of big picture again. You know, talk about some of the differences of this market, um, versus liver, heart, lung, you know, as we think about maybe kidney economics, the more prominent role of the OPO, uh, commercial transportation versus, versus private charter, et cetera. Um. Maybe if you can compare and contrast kind of kidney with your existing markets absolutely kidney is is the largest transplant market segment across the globe US and Europe what's unique about kidney it's a single-payer market CMS is responsible for all kidney trend all renal failure costs in the United States as we all saw there in late October HHS released the National Kidney Initiative where they estimated if if we could increase the annual transplant volume in kidney by 2,000 kidney that would have 250 billion dollar impact on CMS budget in 2040 I've I've got news for CMS. Last year in the United States, we lost 9,000 kidneys for one reason and one reason only, prolonged ischemic time. The OCS could transform that overnight. We could at least grow kidney transplant by five, six, seven, 8,000, kidneys a year. That will have a humongous cost implication, cost reduction implication on CMS. This is what is very exciting for us in the kidney. OPO play a key role, but we are working very collaboratively with OPOs. And the bottom line is NOP infrastructure is going to be the infrastructure we're gonna launch the kidney with. So we will work collaboratively OPOs, again, OPOs today are being judged and weighted by how many more organs they can deliver for patients. We could help OPOs deliver more organs. We have proven that, heart, lung, and liver, and we cannot wait to prove that unequivocally in kidney. So again, if you wanna continue to be in the organ transplant business in the United States as an OPO, you have to think about what type of technology you're gonna partner with to increase your yield rate. And we can think of only one that has proven over and over again our ability to grow the transplant market, which is the OCS. So this is what's given us the confidence, and this is What's really exciting us about when the kidney program hits, the impact on patients' lives, impact on CMS costs, and impact broadly on organ transplantation. Got it. And so that was super helpful. So, you know, maybe digging a layer deeper, Waleed, you know, talk about with OCS Kidney, the device, and transmedics with NOP, working collaboratively with OPOs, like maybe if we can dig a little deeper into, you know, your level of confidence in your ability to succeed and notably address maybe some of the potential challenges with the kidney market like costs like program economics etc again Tom I'm not sure if I can I'm not sure how to answer that question other than again we point to our track record we do not tackle a problem and to fail in and we're not gonna tackle the kidney to fail we're gonna tackle they could need to succeed we're going to tackle the kidney with the best technology that is designed for the high volume, high scale of kidney transplantation that will add tremendous value, and the value will be witnessed by all stakeholders involved, recipients, transplant programs, OPOs, and CMS. So again, you characterize it as challenges. We see these as huge opportunities, and we have high degree of confidence based on our track record of execution that this is going to be another feather in transmedics cap and OCS cap and the team that will deliver the kidney to the marketplace. So again, we couldn't be more excited about what the kidney program could mean for patients, for the U.S. transplant ecosystem and for transmedics. Got it. That's great. And then pivoting a bit maybe to kind of the core business a little bit. So service revenue growth has outpaced product growth in recent quarters, sort of a two-parter. Can you elaborate a bit on the drivers of the higher total revenue per case? And then more importantly, how do you view the sustainability of this higher revenue per case figure that's that's now flowing through our models maybe if you can you can discuss those sure I'll start with the first first part and I'll give my two cents in the second part and Fernando can weigh in the driver of the increased service revenue really in in in 2026 was is driven from two major areas one we launched a brand new service which is donor and recipient coordination that is a pure clinical service to support transplant program to run their transplant service line using our coordination and our digital ecosystem so that that is we launched that on a pilot program with one major healthcare system in Boston we're managing their entire transplant program for them and we're very excited about where we are and we expect that to grow in 27. The second part is we secured a major service contract for a major transplant program that is a very highly adopted OCS already so this came in as this is a center that is using OCS at 95 97 percent of their transplant volume and we they were not using our logistics so we won the logistics for that program which added a bump in in the service revenue line in 2026 ultimately as I stated before the Transmedics is a transplant technology company and transplant enabling company we see as the new clinical programs ramping up the The volume is going to balance that across, so we expect to see the rate of growth to be equivalent between product and service going forward. Well, I think the only thing I would add to that is as we continue to ramp our capabilities in Europe and outside of the U.S. at large, you will see at times the service business growing slightly faster than the product in those specific locations but we're always going to catch up to the point that what he said it's the entry point to make sure that we have nop implemented in places like italy as an example now additional to that i think that we're very focused on the channel dynamics that we discussed into the earnings call and the making sure that that we have the services business becoming more and more efficient in the way we do things. And that's why we saw, you know, the improvement in the margin in third quarter vis-a-vis what we've done the year before. And we'll continue to have that same focus going forward. So then we bring, you now, the profitability of that service business to the same, the levels at least that we want to see this going forward, okay? All right, fantastic. Fantastic. And then I guess, sticking with trends, you know, Waleed, you mentioned on the call, I think it was to my question, actually, that the second half of the fourth quarter for transmedics is typically better than the first half. I guess, can you explain why that is? And I only ask that because it's a bit contrary to the overall U.S. transplant market declining in November and December on average versus October. So what is it specific to transmedics that you historically see the back half of 4Q stronger than the first half of the 4Q? Sure. I think you're right, Tom. That was a question you asked me in a call. And what I meant to address is the following for the last three or four years we always saw the second half of q4 to be stronger for transmedics regardless of what the national volumes do we attribute that to two things one transmedic happened to host the the annual transplant leadership forum Usually in November, early November, where we have two-day meetings with every user of OCS across the United States for heart and lung and liver and kidney. Those forums are happening in Boston this week. So usually we see a significant opportunity for the users to kind of cross-pollinate and share their experience with OCS. and that usually results in a strong ending of the year. Also, as we all know, transplants and transplant programs are judged by their annual volume. So usually there's an intense focus in the second half of Q4 to making sure that the internal metric and KPIs for the transplant programs aren't met from an annualized volume standpoint. These are the two things that drive it. There's no equivocality that yes, we saw softness in October and we said, you know, it's well Described based on the tail number But we're hoping that we we see the same trend that we've seen for the last three or four years Happened in the second half of the q4 but no matter what happened we stand by our guidance for the rest of the year Got it. That's that's really helpful And then maybe last question or two you know kind of put almost putting this all together and and i'm not going to ask for 27 revenue guidance but more sort of the framework or the structure um you know waleed you've talked about the company as a 20 to 25 percent revenue growth business since the incremental revenues associated with enhanced b and de novo are are trials and but but still somewhat new products per se. I mean, still, as we think about 2027 revenue, you know, should we look at this as base business growth, still 20 to 25 percent, and then enhance and de novo incremental revs layer on top of that? Yeah, I guess I'm just curious on kind of the company's guidance framework or structure, or is it no? You know, enhanced Part B and de nouveau incremental rev are a part of that 20 to 25 does that make sense yes we're again we're not issue we're issuing guidance in this meeting but our expectation is the 20 to 25 percent range that we talked about that's at least for the first guidance we will issue in 27 it's going to be inclusive of everything and then we let the pace of enhance and de novo guide us throughout the year and titrate up or down based on what we see so really helpful great note to end on waleed fernando thank you guys for coming appreciate it