Good morning and welcome to the 2025 Goldman Sachs Global Healthcare Conference. My name is Phil Coover. I'm part of David Roman's U.S. MedTech and Healthcare IT team. We're pleased to be joined by TransMedics this morning. We have the Founder, President, and CEO Waleed Hassanein and CFO Gerardo Hernandez. Before we begin, I have some disclosures that I'm going to try and read really quickly. We are required to make certain disclosures in public appearances about Goldman Sachs' relationships with companies that we discuss. The disclosures relate to investment banking relationships, compensation received, or 1% or more ownership. We are prepared to read aloud disclosures for any issue or upon request. However, these disclosures are available in our most recent reports available to you as clients on our firm portals. I should also note that we do not cover TransMedics. All right, with that, I'm going to start with an opening question for those less familiar with the story. Waleed, can you start by sort of framing the problem that TransMedics attempts to address, what you're doing for patients, and maybe touch on legacy cold storage and how you're trying to differentiate? Great. Thank you for the invite to be here. You know, to remind everyone, TransMedics operates in this very unique field of organ transplantation. It is a very unique therapy in medicine that is the gold standard for treating very complex end-of-life chronic disease state called end-stage organ failure. It is the gold standard because it affords patients the best quality of life, the longest life expectancy, and it is the gold standard because it is the most cost-effective or cost-efficient therapy of treating these very, very complex, very expensive disease conditions. If it is the gold standard, why have many of you never heard anything about organ transplant until TransMedics became a real company? It's because this area of medicine has been plagued for four and a half decades of limitations of the historical way of the way we used to store organs from donors to recipients, which was limited at the time to cold storage. Literally, we used to take donated organs, which are a very precious thing, and put it in a Ziploc bag filled with preservative solution and put on an igloo cooler filled with ice to move it from donor to recipient. That subjects the organs to three major limitations. One, once you take the organ out of the healthy oxygenated environment of being in the donor body, you subject these organs to a decay curve, the slope of which is unknown. So it's time-dependent. The longer you spend the time on ice, the higher the probability that these organs will never function. Two, because the organs are not metabolically active and they're not functioning, you cannot resuscitate or optimize or assess the organ viability for transplant. These three limitations of cold storage resulted in severe underutilization of the available donor pool. We're literally wasting on an annualized basis 70%-80% of heart and lung donated, 45%-50% of liver donated, and about 40% of the kidney donated for organ transplant. Number two, it results in significant severe complications after the organ is transplanted that could increase significantly the morbidity to the patient, but also the cost of delivering the therapy up to doubling the cost of organ transplant. These are the historical limitations that TransMedics was created to overcome. TransMedics developed three things that got us to where we are today. First, we developed the first and best in its class technology called the Organ Care System to overcome the three limitations of cold storage comprehensively. In our Organ Care System or OCS technology, the organ is never ischemic. The organ is never starved of oxygen because we perfuse it with warm, oxygenated, nutrient-rich blood. Number two, the organ is metabolically active and functionally active. The heart is beating, the lung is breathing, the liver is producing bile, the kidney is making urine. We can optimize the organ condition and assess its viability for transplant up to the minute it is ready to be transplanted. These two benefits, or these three benefits, result in significantly improved utilization of donated organs. We single-handedly, over the last two years, delivered double-digit growth in the national transplant volume in the U.S. for heart and liver. It hasn't happened in the history of organ transplant for the last three decades. The second thing we did, we didn't stop at the technology. Three years ago, we said for this technology to really make a big impact nationally, we need to integrate a service component we call the National OCS Program, or NOP, where we are responsible. It's an end-to-end service. We're responsible for delivering the organs from donors to recipient, including managing these organs on our technology. For the last 18 months, we added the third element, which is we vertically integrated logistics into our network to create a comprehensive solution that has air and ground transportation that's fully dedicated to organ transplantation. That three areas, the three components that call the network effect of the NOP, is really what's driving the success of TransMedics today. Today, 98%-99% of our business is through the NOP model. That's a fantastic overview. Touched on a lot of the things I was hoping to hit on. Maybe we can go to how your differentiation expresses itself in the clinical literature and maybe touch on competitors, which I know is something of a hot-button issue. Sure. Because of all these benefits that we just described, our data, we have built a significant body of clinical evidence throughout the pre-FDA approval pathway. We are a PMA device, so we had to build significant clinical evidence in randomized controlled trials that are hundreds of patients strong. We demonstrated two simple things. They were simple when we had the results. They were extremely difficult in the path to get these results. We delivered evidence pre-approval that the OCS is the only technology that can improve utilization of organs that historically have been turned down for transplantation due to limitations of cold storage by demonstrating 85% utilization of heart and lung from organs that are currently not accepted for transplant due to limitations of cold storage. Number two, we delivered these results with the best clinical outcomes in the history of organ transplant from measuring patient graft survival as well as post-transplant complications. We delivered, in simple terms, the highest rate of utilization of solid organs ever recorded in the history of organ transplant and the best clinical outcomes post-transplant from these organs. The third thing we delivered, which was very, very unique to TransMedics, is we developed a whole new transplant category from donors called DCD donors or donors after circulatory death. Seven years ago, there was no such thing as a heart that stopped beating in the body of the donor used for an organ transplant. It never existed in the United States. Today, it is the fastest-growing segment of heart transplant globally because of the OCS. This is how we are highly differentiated from a clinical perspective. Now, let's talk about this facade called competitors. None of the companies or technologies or groups that are out there claiming to be competitors to TransMedics has anything resembling the data set that I just described to you. In fact, the most active one does not even have clinical data. That is why we shrug our shoulders when we hear about competitors, because we do not see them as competitors because they have delivered nothing. They have delivered no value. They have demonstrated no value to improving outcomes or increasing the supply of organs. Hence, they are not delivering the same value that the OCS is delivering. By definition, they need to be priced differently than the OCS. That is our view on competitors. Yeah, a couple of, I think, follow-ups to that. First, do you have real-world evidence that also supports and validates what you did preclinically? Absolutely. Pre-FDA approval, our data was measured in a few hundreds of transplants based on the clinical trials. Today, we have a repository of more than 10,000 transplants, 7,000 of which are liver transplants. There are 2,000 hearts and 1,000 lungs. The outcomes that I just shared with you, the utilization rate pre-approval was in the mid-80s. Today is in the high 90s. It's 97.5%. We are demonstrating improved outcomes in the real-world setting. The post-transplant complications have even dropped from 10% or 15% down to single-digit numbers today. We attribute that to two things. One, to the NOP, because now all the use of OCS is done by expert users that are trained and are following the use model to the T. That adds significant improvement in management of the organ and OCS. That's why we're experiencing improved outcome even in the real-world setting. Okay, wonderful. You touched on the DCD category that you're essentially originating. Can you give a bit of framing on the size of what that represents in relation to the historic DBD population? Sure. I was actually reviewing this data last night when I saw Phil's question. On the day of our IPO in May of 2019, we had a slide showing that DCD could potentially be bigger than DBD donors. At that time, we had about 8,000 DBD donors and 4,000 DCD donors. Today, we have about 11,000 DBD donors and 7,000 DCD donors. It is becoming nearly 50% of our U.S. transplant donor population. It's approaching 50%, and we might actually hit that percentage mix by the end of this year. There's only one reason for that. It's TransMedics got approved, and the NOP is really succeeding in demonstrating that those DCD donors could be utilized for organ transplant. This is something that we're extremely proud of because that really is something that no other competitor in the field could even aspire to do. It's related to the uniqueness of our technology. The growth in that population, it has to be attributable to awareness, right, and TransMedics educating the population? Yes. Exactly. Yes. Exactly. Theoretically, that DCD population could be even larger than what we're seeing today? We believe the DCD population is much larger than what we're seeing today. We still believe, as I've said numerous times, we're in the early innings. With more awareness, with more publication of the data coming out of the DCD, we actually think there might be a day where the DCD population will overshadow the DBD population because there's many more DCD that happen every year than the DBD donor. We're still early in the journey. Wonderful. I think that's a good segue. You had an analyst day last year to lay out some longer-term goals. The 10,000 was a pretty amazing and interesting number. Maybe just frame up what's sort of embedded in that expectation. What does the market look like for you to be able to get to 10,000 in terms of share, in terms of maybe DBD versus DCD at that point in time? How did you think about and sort of build to that 10,000 number? Very simply, we're a very conservative team. We looked at our volume in the first year of NOP launch in the U.S. and we said in five years, we want to be at least at 50%-55% of the current heart, lung, and liver markets. That's where the 10,000 came from. We rounded it up to make sure it's a round number, so easy to use. We believe that if the market dynamic continues as it is today, no change or no uplift or anything, and that's a conservative assumption because we're seeing the market conditions or market dynamic change dramatically as we continue to grow our NOP platform, we wanted to be conservative. If we keep the same market dynamic as is, i.e., the donor population, etc., we will be approximately between 50% and 55% of heart, lung, and liver in 2028 to achieve the 10,000 transplant. Today, and we talked about this last week in Chicago at the William Blair Conference, we're not stopping here. Our goal is to go from 10,000 transplants to somewhere between 20,000 and 30,000 transplants in the following three to five years by introducing our Kidney Platform. Kidney adds 30,000 deceased donor procedures a year in the U.S. alone and another 40,000 deceased procedures OUS. Kidney could be a huge, not could be, will be a huge catalyst to the growth of OCS beyond 10,000. We still have another 50% of heart, lung, and liver market that we fully plan to capitalize on after 2028. Okay. What's the status of kidney, if you could remind us? Kidney will be introduced to the market in the first half of 2027 in the form of a large clinical trial. Okay. Wonderful. You also talked about a next-gen platform for, I believe, heart and lung. Could you touch on that and what it? Yes. We have two next-gen programs ongoing. One that is being introduced this year, which is Gen 2 of heart and lung platforms. The concept there is to accelerate the adoption of heart and lung to match the liver adoption that we currently have. The idea is to, we've revamped everything. We've revamped the perfusion solution. We've made some modifications to our technology to ensure that heart and lung will be transplanted routinely and safely and reproducibly in the morning hours with better clinical outcomes than the ones we're experiencing today. We believe this is going to hopefully take the market by storm once the community sees this value of this new technology. The second next gen, or Gen 3, which is a complete redesign of our platform to make it highly NOP-capable, highly portable, highly communicable to the cloud, smaller, lighter weight, so we can fit more than two devices in our logistics network and provide even more cost efficiency in the system. That is going to be introduced to take us from 10,000 to 20 or 30 or more transplants. That Gen 3 is designed for that next scale beyond 10,000. Did you provide timelines on Gen 3? We said probably end of 2028, beginning of 2029 is where Gen 3 will be introduced. Okay. So Gen 2, kidney, Gen 3.. Multiple catalysts for growth in front of us. Okay. Great. We haven't touched on international yet. It's a relatively small component of the business still today, but it seems like a meaningful opportunity, kind of intermediate to longer term. Can you frame it for us? Yeah, that's true, Phil. Today, it's a nominal amount, but OUS is, relatively speaking, double the amount of organ transplants in the United States. The reason why it's a little bit behind is we're behind in the reimbursement process OUS. That will come over the next three years. We're already investing heavily in Europe, in the Middle East, in Australia. We think over the next two to three years, that will start bearing fruit of securing reimbursement and launching all three programs OUS. Today, it's a very small amount, and it's coming primarily from our heart franchise. Okay. And lung, even in the U.S., is still a relatively small proportion of your business. What's sort of the catalyst pathway or what needs to be worked on to be able to unlock that opportunity? We think the best way to unlock the lung is to reintroduce the market to the value of OCS and NOP with Gen 2 product, which is what we're doing. We think if the market doesn't react to that, I think the lung machine perfusion will not be relevant to the lung. We think that's not the case at all. We think once the market gets reintroduced from the ground up to the value, not just of OCS, but NOP, and they see the value of the new solutions to enable lungs to safely be preserved overnight, and they can do morning-hour transplant with great outcomes, this is going to be a huge catalyst for the lung market, and the lung will contribute to our growth similar to the liver and heart. Okay. Great. That's, I think, a fantastic overview. Maybe we can bring Gerardo in. I wanted to start with, you've been in the role for about half a year now. Maybe what attracted you to the opportunity and then some of your major prerogatives since you've been in there, things you're focused on and potentially able to help improve? Sure. Thank you. I mean, it's been an amazing first six months. My focus has been mostly on learning about the business, getting familiar with the different finance processes and processes in general. I'm really, really amazed by the strong execution and level of commitment from the team, right? One of the things that really stands out, and since I was evaluating the option of joining, really attracted me is the impressive opportunity to expand, to grow, not only top line, but also operating margin. I just confirmed that once I'm here. I'm really, really excited, really energized with the opportunity that we have in front of us. Fantastic. You walked into an analyst day at LRP. Maybe starting with the top line and connecting this aspiration for 10,000 to the financial. On the sales side, you also put out a financial objective behind that 10,000. Can you sort of walk us through what that looks like to bridge to the sales number that you provided? Yeah. We're expecting that when we reach the 10,000 transplant goal, we'll be around $1 billion-$1.2 billion in the top line. And probably most important, at operating margin level, we should be getting to 30% operating margin by 2028. Okay. That's fantastic. The business with the NOP has become more capital intensive with the fleet that you put together. Can you sort of walk us on the gross margin line? What does that depreciation flowing through look like over time or the additional investments being made internationally? What's sort of the gross margin walk that bridges us to that 30%? Right. We know that the service business operates with a lower margin, but at the same time, it brings incremental gross profit, right? We are happy with that trade-off. We are happy with that trade-off because, as Waleed mentioned before, between logistics, the NOP, and OCS are the three key pillars that make TransMedics what it is today and will enable us to get to the 10,000 transplants and beyond. The margin in the long term, I am expecting to be around the 60%. We will have slight improvements within the product side, within the margin, the service side. The increase in service will temper down the overall growth. Long story short, I believe that our margin will stay around the 60%, and the big leverage will kind of come in operating expenses to get to the 30% operating margin and beyond. Okay. The right formula to think about is you have a relative mix head when the service becomes a bigger part of the business. Whatever gross margin level kind of modulates, you still think you have enough leverage through the rest of the operating model to kind of get to that aspiration on the operating line. Absolutely. Okay. All right. That's fantastic. I think maybe better understand the leverage element in there. Can you talk more about R&D and these significant investments you're making in growth? What's the outlook for R&D on the forward, maybe as a percentage of sales or in gross dollar standpoint? Yes. Directionally speaking, we absolutely are committed to continue to drive our long-term growth. That means basically continue to invest in R&D. We're going to be investing in our next-generation OCS that we just talked about. We're going to continue to invest in advancing our kidney program. We're going to continue to invest in strengthening our product development capabilities that we are developing in Mirandola, Italy. Those are the big side of investment. R&D will grow faster than sales. SG&A will be lower than sales. The combination of that will allow us to continue to improve consistently operating margin year over year. Okay. And so that's, I think, the framework for your capital allocation philosophy. The other elements beyond organic growth, how do you think about that and how have you framed it for investors? Yeah. Capital allocation is really a simple approach, right? We invest where we see that we're going to get the strongest returns. In the case of TransMedics, that's basically investing in driving growth and driving efficiency. Whether it's on our fleet, whether it's in our NOP logistic network, we will continue to invest in that to drive long-term value and growth. Okay. Wonderful. We still have a good amount of time, so maybe we can circle back to the business with Waleed again then. I'm a bit less familiar with the business, so maybe you touched on economics and reimbursement a couple of times. Can you give kind of a framework for what the economics are for you, maybe in comparison to peers, and then also talk about the reimbursement landscape? Are there any catalysts beyond the international side of reimbursement that could be meaningful in the future? Sure. As I stated in the beginning of the presentation, the transplant field is a very, very unique field where, as I said, it's the most cost-effective treatment for a very, very important and very expensive disease condition called end-stage organ failure. Payers, to promote organ transplant, they want to do more organ transplant. They design the reimbursement mechanisms for organ transplantation in the U.S. and for the most part around the world to be very similar, where organ utilization is reimbursed from a separate budget than the standard surgical procedure. This was designed back in 1984 by CMS, and all commercial payers that cover organ transplant in the U.S. follow suit. Basically, to promote more organs to be utilized, the organ acquisition cost center is a dedicated budget that's a fee-for-service that sits beside the regular DRG for the surgical procedure. That's where the organ acquisition cost center is, where the OCS costs are, including logistics, because they serve the costs that meet the statutory definition of organ acquisition costs in the U.S. That's why we've been extremely privileged of being operating in that system. Even though other international systems are very close to this by dedicating a separate budget for the organ acquisition or organ utilization, you need to go and increase that bucket. It's not a pass-through like the U.S., which in the U.S., we titrate that budget annually by looking backwards on the spend of the previous year. In Europe, you have to define that, and you have to—it gets frozen, and then you have to negotiate a new budget if you have a new expense. That's what's taking the time. For us, reimbursement has never been an issue. It's always been an issue of the clinical acceptance and clinical adoption in the U.S. That's why we're leading with the U.S., and we're working on securing additional budget OUS to support our growth there. That's great. We've talked a ton about the infrastructure you put in place with the NOP, but maybe you could touch on the commercial organization a bit more and what the motivations are there. Sure. Again, this is another unique aspect of our story. Our commercial team is our NOP team. We do not exist without our NOP team. What I am saying is this is a clinical sale. This is not a standard commercial million-dollar salesperson per territory. That does not work that way in organ transplant. Our infrastructure and our clinical specialist group and our aviation, this is our calling card. This is our repeat business. How our repeat business comes from. However, we have commercial leaders under each region who just manage that growth and have an extension of our leadership at local institutions. It is fairly, fairly small. Literally, there are four commercial leaders across the geography, and we are adding maybe three or four more later this year. That is it. The rest of the commercial uptake is all happening through the NOP team, the clinical team. Okay. As we think about your customer, the hospital, what do the economics look like for them? Are there pressures? There is a broader mosaic of potential pressures from underutilization on hospitals and operating budgets. What do the economics look like to your end user and anything that you can do to help or improve? How does NOP fit into that? Yeah. Every major transplant program in the country, they're measured by two things: by the number of transplants they can do per year and their post-transplant clinical outcomes. If these two go in the opposite direction, they get decommissioned by CMS. It's very simple. It's a highly, highly transparent process. Organ transplantation happens to be one of the biggest revenue generators for transplant institutions and also a margin contributor at approximately 40%. Here comes the OCS and NOP. We can deliver two major values, economic values or financial values to the transplant program. We're the only technology and service that can ensure they can do more organ transplant year over year, and we can deliver that with the best clinical outcomes. We can deliver that now by vertically integrating our logistics using the most cost-efficient way possible because we do not sell any technology to the transplant program. In fact, we do not charge the transplant program a dime if the organ is not transplanted. No other technology can afford to give that value to the transplant center. The second piece that we do, because we're vertically integrating our logistics, in DCD donation, 50% of the time you go out and the donor does not—the heart does not stop, they come back empty-handed. Routinely, the transplant program will be liable for a round-trip ticket going to the donor and coming back. Because we are leveraging our NOP network across the country and we're leveraging our own logistics, we waive 50% of the charge of the transportation cost if the donor does not progress. This is how we deliver the most cost-efficient transplants to the transplant program. We improve their top line revenue generation. We improve their bottom line by reducing their post-transplant complication. We offer them two black-and-white cost efficiency and no cost for technology or service if the organ is not transplanted and waiving 50% of the DCD. Sharing in some of the risk that they're also taking. Exactly. Absolutely. Exactly. Absolutely. So a relatively good guy for the hospital in an environment that's increasingly focused on that. How about for the physician? For the physician, it's the same thing. Physicians or the leaders of the program, they want to do three things. They want to grow their transplant volume because their annual bonus depends on that. They want to have good quality outcomes because this is their scorecard amongst their peers that CMS publishes every year. The third thing, and this is new with NOP, they want to have a work-life balance. NOP has enabled that by shifting organ transplant and liver transplant from middle-of-the-night case to a morning-hour transplant, which is a very, very unique capability that the NOP enabled liver transplant to do, which resulted in significant adoption. This is what we're trying to move the heart and lungs to do the same. Again, we want to be a responsible citizen within the ecosystem of organ transplantation. I think we're delivering that both economically and also being partners to transplant surgeons to allow them to do more transplant, but also not burn out from working in the middle of the night. That's great. We're just about a minute left. Maybe leave it to you for closing remarks. Any comments you want to make in response? No, I think this has been very comprehensive. I'm very impressed with the thoroughness of the questions, given that you guys don't cover us. Again, thank you so much for the opportunity. Yeah. It was very nice to meet you. Thank you. Thanks, Gerardo. Thank you. Pleasure. Thanks.