TransMedics' Q3: Revenue up 41%, but opex growth squeezes margins and EPS

The quarter in numbers

TransMedics reported third-quarter 2026 revenue of $203.0 million, up 41% from $143.8 million a year earlier. Organic revenue growth, a non-GAAP measure, was 35%. The gap of about six points reflects the contribution of PAD Aviation, in which the company made a strategic investment on July 1, 2026.

Product revenue was $113.4 million, up 29%. Service revenue was $89.6 million, up 60%, or 43% on an organic basis. The company called the quarter the strongest in its history, with record revenue and record case volume, and said it achieved this despite typical third-quarter seasonality.

Profitability moved the other way. Net income was $17.1 million, or $0.46 per diluted share, against $24.3 million, or $0.66, in the prior-year quarter. Adjusted net income was $18.9 million, or $0.51 per share, against $24.5 million, or $0.67. The release excerpt does not itemise the step from operating income to net income.

What drove growth

The company attributed the revenue increase primarily to rising Liver and Heart volume through the National OCS Program (NOP), additional revenue from its logistics services, and the PAD Aviation contribution. The release gives no volume or pricing split by organ and no regional breakdown for the quarter.

The faster growth in services than in products shows how the business model is shifting. NOP and logistics are growing faster than device sales, and the aviation investment adds to that service-heavy mix. The organic service growth rate of 43%, against 60% reported, indicates that PAD Aviation added substantially to service revenue.

Margins and costs: investment ahead of revenue

Gross margin was 58.5% against 58.8% a year earlier. The company said the decline mainly reflected a higher mix of service revenue. It said this was partly offset by reduced scrap, lower inventory adjustments and logistics efficiencies. It tied those efficiencies to pricing improvements across service and logistics operations, less use of supplemental lift, lower ground transportation cost per mission and better leverage of fixed operating costs.

Operating expenses were $90.5 million against $61.3 million, a rise of roughly 48% on our arithmetic, well ahead of revenue growth. The company cited planned investment in OCS Kidney, Next-Generation OCS and the ENHANCE clinical programs, more headcount, and infrastructure including the US Headquarters and PAD Aviation. Stock compensation within operating expenses was $12.1 million against $8.7 million.

Income from operations rose 21% to $28.1 million, but operating margin slipped to 13.9% from 16.2%, a decline of 230 basis points. Adjusted operating income was $28.9 million, a 14.2% margin against 16.4%. The nine-month figures show a larger gap: revenue up 27% to $566.9 million, while income from operations fell 25% to $65.2 million. Operating margin was 11.5% against 19.6%, and diluted EPS was $1.08 against $2.28. Cash stood at $493.0 million on September 30, 2026.

Guidance: raised, with a narrower range

TransMedics now guides to full-year 2026 revenue of $764-$774 million including about $14 million from PAD Aviation, implying 26% to 28% growth over fiscal 2025. Excluding PAD Aviation, the range is $750-$760 million, or 24% to 26% growth. The prior range was $737-$757 million. The low end rose by $13 million and the high end by $3 million, so the range narrowed from $20 million wide to $10 million.

Nine-month revenue of $566.9 million implies fourth-quarter revenue of roughly $197 million to $207 million at the guided range. That is our arithmetic, not a company statement. The bracket spans the Q3 level of $203.0 million, so the guidance does not assume a sharp step-up from it. The company said its guidance assumes continued growth in organ utilisation and OCS adoption, and the contribution of PAD Aviation.

Pipeline, regulatory and what to watch

The company reported several clinical and regulatory milestones. It completed enrollment in Part A of the Next-Generation OCS ENHANCE Heart trial in September. In October it received FDA approval of a continued access protocol allowing 90 additional patients. Also in October, the FDA granted IDE approvals for ENHANCE Heart Part B and the DENOVO Lung trial, both using the CHOPS preservation system as a control arm. Management described this as two shots on goal in each indication, through OCS and CHOPS, and said the quarter included no contribution from either trial.

In Europe, TransMedics won its first transplant logistics tender, in Italy, and said it plans to launch OCS NOP in Italy, the Netherlands and Belgium. It said OCS Kidney remains on track for first-in-human experience in the second half of 2027. It also appointed Fernando Araujo, formerly CFO of GE HealthCare's Advanced Imaging Solutions segment, as Chief Financial Officer in September.

Items to watch include whether opex growth moderates relative to revenue, how PAD Aviation and European logistics affect gross margin through service mix, and enrollment progress in ENHANCE Part B and DENOVO. The risk factors flag the CMS final rule on Organ Procurement Organization Conditions for Coverage (CMS-3409-F), released October 30, 2026. They also list a material weakness in internal control over financial reporting, the 1.50% convertible senior notes due 2028 and the securities class action. The company held its earnings call on November 5 at 4:30 p.m. ET.