Q1 2024 Transmedics Group Inc Earnings Call

Participants

Waleed Hassanein; President and CEO; Transmedics Group, Inc.

Stephen Gordon; CFO; Transmedics Group, Inc.

Laine Morgan; Moderator; Gilmartin Group LLC

Allen Gong; Analyst; JPMorgan Chase & Co.

Josh Jennings; Analyst; TD Cowen

William Plovanic; Analyst; Canaccord Genuity

Suraj Kalia; Analyst; Oppenheimer & Co, Inc.

Presentation

Good afternoon and welcome to Transmedics' first-quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Lynn Morgen from the Gilmartin Group for a few introductory comments.

Laine Morgan

Thank you, operator. Earlier today, TransMedics released financial results for the quarter ended March 31st, 2020. For 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 contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements all forward-looking statements, including, without limitation, our examination of operating trends, the potential commercial opportunity for our products and timing of new clinical programs and our future financial expectations, which include expectations for growth in our organization and guidance and our expectations for revenue.
Gross margins and operating expenses in 2024 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 or Accordingly, you should not place undue reliance on these statements and additional information regarding these risks and uncertainties appear appears under the heading Risk Factors of our Form our 10 K filed with the Securities and Exchange Commission on February 27th, 2020 for our subsequent Form and our subsequent Form 10 Q filings and the forward-looking statements included in today's earnings press release, which are available at www.SEC.gov and on our website at www.TransMedics.com candidate to claim any intention or obligation, except as required by law to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, April 30th, 2024. And with that, I will now turn the call over to Waleed Hassanein, President and Chief Executive Officer.

Waleed Hassanein

Thank you, Lane. Good afternoon, everyone. And welcome to TransMedics First Quarter 2024 earnings call. As always, joining me today is Stephen Gordon, our Chief Financial Officer. For the past two years, TransMedics has delivered exceptional revenue growth while making transformational investments in our business. 2024 represents another crucial year, not only for exceptional growth, but also for broadening our infrastructure and product pipeline to drive further growth profitability and importantly, increased transplant volumes. Specifically, we are focused on three verticals. First, completing the initial build-out phase of our TransMedics aviation fleet and transplant logistics infrastructure. Second, preparing for the launch of three major new clinical programs to accelerate OCS Lung and OCS Heart adoption and expand our clinical indications for OCS Heart in the US.
And finally, growing the overall national transplant volumes even further through our one-of-a-kind NOP. program. On every front, we have started the year with very strong momentum towards achieving these goals with 1Q results representing a new high watermark for our business. Let me review the key highlights for first quarter performance. Total revenue for Q1 grew to $96.9 million, representing 133% growth over Q1 2023 and a 19% sequential growth from Q4 2023. This growth was achieved through increased utilization of both Four-Cs product across lung, heart and liver as well as TransMedics transplant logistics service. I want to highlight that the diversified nature of our growth to dispel any potential miss perception that our growth is only driven overwhelmingly by transplant logistics revenue growth.
Said differently, we fully expect I repeat, we fully expect our future growth to be driven by both increased product and transplant logistics adapt TransMedics transplant logistics service revenue for Q1 was $14.5 million, up from $9.2 million in Q4 of last year, representing approximately 58% growth quarter over quarter. We are continuing to demonstrate that our integrated and cost effective efficient, TransMedics MOP and logistics service infrastructures. It's delivering real value to transplant programs across the US. We remain focused on expanding our operational capabilities for TransMedics logistics throughout 2024, which will which I will detail further on later in the presentation today.
Our overall gross margins for Q1 was 62%, up from 59% last quarter. And in line with our expectations, we are extremely confident that we will be able to further improve the gross gross margin over the next 12 to 18 months as we achieve more leverage of scale in both products and service operations. Strong growth in revenue and gross margins enabled us to deliver GAAP operating profit of $12.4 million, which represents 13% of total revenue. Net income was $12.2 million. We are very proud to have achieved these profitability metrics while still investing heavily in future growth. We remain laser focused, however, on delivering sustainable positive operating cash flow over the next several quarters.
Before moving on to our momentum beyond our financial performance. I'd like to take a moment to recognize the entire TransMedics team, which had which has worked tirelessly to achieve these results. We are full. We are focused on execution to build upon Q1 results. Now with that background, let me provide more detail across key operating metrics. As I stated above, we set a new high watermark for case volume across all three, Oregon markets in Q1. Overall, NOP contribution remains at 98 plus percent of our case volume, a trend which we expect will continue throughout the foreseeable future.
Turning now to the key TransMedics transplant logistics metrics. Through Q1, we continued to expand our fleet of owned aircraft, reaching 14 owned aircraft by end of the quarter. Meanwhile, the daily average number of active mix. Aviation planes were nine planes in Q1 compared to seven in Q4 of 2023. We expect this number will continue to increase throughout the year as we strive to reach 15 to 20 operational aircraft. By year end, our owned aircraft covered approximately 49% of our NOP. flight missions in Q1 compared to 35% in Q4 of 23. This further underscores the potential long runway to drive additional growth and maximizing efficiency across our transplant logistics operations. As we stated before, at scale, we fully expect to cover 80 plus percent of debt total NOP emissions using our TransMedics logistics services for both air and ground transport. We will continue to use carefully selected highly reliable and safe operators for supplemental lifts to support our additional missions.
From a customer footprint perspective, we have also continued to grow the number of programs that are using our transplant logistics services in Q1, approximately 105 U.S. transplant programs use TransMedics logistics compared to approximately 97 in Q4 of 2023, as we have rapidly achieved this critical mass of users. We are now focusing on going deeper within these programs and meeting more of their transplant logistics needs going forward.
Overall, we're very pleased with the early success of our transplant logistics services and are confident that transplant programs are seeing the significant cost efficiency and reliability of TransMedics logistics compared to historical model. We look forward to expanding further throughout the year and into 2025 as we scale our air fleet and ground operations. We are also encouraged by our growing base of clinical evidence from real-world outcomes and the growing excitement around our offering across clinical transplant users. We saw this excitement firsthand in April of this year as we attended the International Society of Heart Lung Transplant conference in Prague at the meeting. Several scientific presentations by transplant academic experts demonstrating the value of OCS Heart and OCS Lung were presented.
Here are the key highlights. Dr. Jacobs charter from Duke presented the OCS Heart perfusion or OHP. registry experience with DCD heart transplants in the U.S., the data demonstrated that OCS Heart was used in approximately three quarters of all DCD Heart transplanted at OHP. registry centers. The data also demonstrated that OCS DCD heart transplants had superior patient survival outcomes compared to NRPDCD. transplants in high-risk recipients. This provides evidence this provided evidence that OCS Heart affords better protection of the DCD donor hearts as compared to NRP during his presentation, Dr. Schroeder commented that the overall OCSNOP. cost is more favorable to NRP costs when factoring in the cost of dry runs that clinical support, overhead, Anda and hardware costs.
Importantly, Dr. Shore, I highlighted that the OCSNOP. enhances the ability of for any heart transplant program in the U.S. to offer the clinical service of DCD heart transplantation to their patients without the burden of overhead costs and clinical learning curves, giving the standard or unified procurement and management of donor hearts by that TransMedics NOP staff.
Next, Dr. Danny diminishment from money diminishment from Emory University Medical Center presented the outcomes of OCSDCD. compared to standard of care DBD hearts in the US. The data showed that OCSDCD. hearts were transported nearly doubled the distance from donor to recipients and had doubled across prime time. This signifies the broader access to DCD donors afforded by OCSNOP. The data also showed that despite higher risk donor factors, OCS clinical outcomes were similar to standard criteria, DBD outcomes in the US. This further validates the safety profile of the OCS Heart. Simply stated, the OCS enabled a DCD heart transplant to have similar survival outcomes to the U.S. national DBD heart transplant outcomes, which are the best in the world.
Dr. management also highlighted that the increase of the increased use of OCSNOP. has led to significant reduction in moderate and severe primary graft dysfunction or PGD. after OCS DCD heart transplant. Severe PGD. is the most severe early post heart transplant clinical complication and historically has been associated with worse short and long-term patient survival.
Next, Dr. Maurer HU. village sends you from Mayo Clinic presented the OCS Heart DBD experience from the OHB. registry data showed that OCSNOP. resulted in excellent post-transplant clinical outcomes from DBD donors compared to standard criteria. Donors preserved with static cold storage despite having three times longer distance travel and doubled across time time in the OCS. and OPR. Again, this data validates the broader access to distant donors and potential for improved workflow afforded by the OCSNOP. Dr. de Boer from Baylor St. Luke's presented the OCS Lung EXPAND trial five year clinical results. The data showed that the OCS Lung expand once from extended criteria. DBD. and DCD. donors had similar survival and freedom from chronic rejection at five years post transplant compared to routine standard criteria. Ebitda long transplanted at the same program over the same time period. These results support the huge clinical potential of increasing donor lung utilization for transplants using extended criteria, DBD. and DCD. donors in the US.
Finally, Dr. Steve Hudson from University of Minnesota shared the latest data from the thoracic OCS perfusion registry or the top registry. The data showed that the OCS Lung enabled the use of extended criteria, donor lungs from DVD and DCD donors and resulted in post-transplant survival outcomes that are similar to standard criteria lung transplant, despite nearly having double the cross clamp time, again, further validating the huge clinical impact on expanding the donor pool and the potential growth of lung transplant volumes in the US. Collectively, these presentations, once again, highlighted our ever growing body of positive clinical evidence as well as the exceptional clinical outcomes enabled by OCS and NOP.
Now let me shift gears and talk about our plans to further grow OCS adoption and the overall national U.S. transplant volumes even further. Specifically, I want to I want to discuss three new major clinical programs designed to grow adoption of our OCS, lung and OCS Heart, as well as expand our OCS part of the clinical indications in the U.S. pending FDA approval, we expect that all three programs will initiate enrollment within the next year.
Let me start with detailing the OCS lung program. As we stated many times, we believe that the clinical stakeholders across the United States lung transplant market need to be reintroduced to the potential positive clinical value of the OCS lung perfusion and assessment. More specifically, we believe the ability of the OCS, lung and NOP to increase their transplant volumes improve their post-transplant clinical outcomes and enhance workflow remain under appreciated. Our goal is to replicate the successful outcomes achieved with OCS. Liver were 62% of transplant volumes at OCS. and OP. programs are now done in the morning working hours compared to middle of the night and replicating that with OCS Lung or said differently, we want to have lung transplant programs and clinical and surgeons' experience firsthand the value of OCSNOP. to enable morning transplants while growing their overall transplant volumes and improving their post-transplant clinical outcomes.
To do this, we're planning to launch a new clinical program to achieve the following. First, we will target a minimum of 12 to 24 hour plus of OCS lung perfusion using the NOP. model to increase access to a transplantable donor lungs and Optimiz work hours for transplant program staff. Importantly, we aim to prospectively randomized between OCSNOP. versus controlled cold static storage to assess the clinical value. We also plan to use newly-developed near physiologic OCS perfusion solution combined with blood to minimize the impact of longer perfusion on lung edema and potentially eliminate any clinical concerns of long perfusion times on lung function.
We will also use next gen perfusion circuitry and ventilation modalities to maximize that protection for the donor lungs during prolonged OCS perfusion and ex vivo installation, we expect the entire clinical program to be managed via NOP to increase the rate of enrollment and adoption during the trial phase. From a timing perspective, we are targeting initiation of this program sometime around the end of 2024.
Now let me move on to our planned OCS heart programs. We are also actively working on two distinct large OCS heart programs in the U.S. that will be also managed exclusively via the OCSNOP. model. The first is OCS Heart therapeutic warm perfusion for DBD heart. This program is aimed at increasing utilization of DBD heart from both standard and extended criteria donors to increase the overall heart transplant volumes in the US, we intend to target 12 hours plus of OCS Heart perfusion using the NOP model to increase access to donor hearts and optimize the work working hours for our transplant program staff. We will also aim to prospectively randomized or OCSNOP. versus controlled cold static storage to assess the clinical value.
We're planning not only to use our newly developed near physiologic OCS perfusion solution combined with blood. But in this particular program, we're adding a new proprietary metabolic enhancing therapeutic agents to maximize protection of the donor heart and improve its post-transplant clinical performance. From a timing perspective, we are targeting initiation some of this program sometimes around the end of 2024.
And finally, our second heart program is a new program that will require a new technology from the ground up. It's aiming at OCS Heart called oxygenated perfusion for DBD hearts that are preserved for less than six hours. This program is designed to support a new FDA clinical indication for OCS Heart in the U.S. that will allow us to profuse and preserve standard criteria DBD heart for less than six hours, which is not our current clinical indications in the US. To do this, we are planning to offer a new lower-cost product that utilizes called oxygenated blood based perfusion technology. More specifically, we're developing our new pulsatile, fully portable cold perfusion technology and cold profusion circuitry to achieve easy to use system for use within our existing NOP. model.
Again, we'll aim to prospectively randomized to hold controlled a controlled cold static storage to assess the clinical value, and we are targeting early 2025 to initiate this important clinical program. As you can see, we are advancing a very strong pipeline of clinical programs designed to drive significant growth in OCS case volume and the overall national cardiothoracic transplant volume in the US, however, we are not stopping here. We are also continuing to invest heavily in our next-gen OCS technology platform for all four for all three organs that will be highly automated optimized for NLP. workflow and designed to streamline the clinical support workload to allow us to continue to deliver the highest clinical quality of care and achieve better product leverage.
We plan to share more details and details on this initiative later this year. To summarize, we are highly encouraged by our Q1 performance and our focus on several initiatives designed to further propel growth for TransMedics products and services. Given our strong performance in Q1, we are increasing our annual revenue guidance to 390 to $400 million, which represents 61% to 66% growth over full year 2023 revenue. With that, let me turn the call to Stephen to cover the detailed financial results for the quarter.

Stephen Gordon

Thank you, Waleed. I will now provide some additional detail on the Q1 results and other financial information for the quarter. Starting with revenue. For the first quarter of 2024, our total revenue was $96.9 million. This is an increase of 133% from the first quarter of 2023 and a 19% sequential increase from last quarter. The $96.9 million included $0.9 million related to our flight school. We have now exited all of the somewhat Legacy Charter business. So other than this 900 K from the flight school, all revenue is transplant related in the U.S. transplant revenue was $91.9 million. U.s. revenue increased 145% from the first quarter of 2023 and 22% sequentially from last quarter. And as Wally said, Q1 2024 revenue included $14.5 million of logistics revenue. The organ breakdown on U.S. revenue was $67 million of liver $1.2 million of heart and $4.7 million of loan. All organs growing substantially over Q1 2023 and sequentially from Q4 2023, ex U.S. revenue was $4.1 million, a 1% increase from Q1 of 2023 and a 16% sequential increase from last quarter. The ex U.S. breakdown was $3.1 million of heart and $1 million of luck.
Next on the product and service revenue. As a reminder, our service revenue includes the added amounts we charge for the NOP. clinical service of surgical procurement and organ management and also includes the logistics revenue. The flight school is also included in service revenue. In Q1, product revenue was $61.3 million and service revenue was $35.5 million for the service portion was 36.7% of the total gross margin for the first quarter of 2024 was 62%. This is down from 69% in the first quarter of 2023 and up from 59% last quarter. In comparison to Q1 last year. This reflects the higher service component of our business, which did not include logistics in the first quarter last year. Product margin was 77% in Q1 recovering as expected to more normalized product margins from the 73% we saw in Q4, which included a one-time unfavorable IT service margin was 36%, improved from 35% last quarter as we continue to gain efficiency in our service offering.
And as a reminder, all costs related to aviation, including fuel pilots, maintenance and depreciation are included on our service costs. Total operating expenses for the quarter were $47.5 million, 54% above Q1 2023 OpEx. This expense growth was driven by 94% growth in R&D related to investments in new product development and OP tools and products, quality and regulatory resources. Sg&a grew 45%, primarily related to higher personnel costs and overall corporate infrastructure. I want to point out that our operating expenses grew significantly throughout the year last year. So the year-on-year growth comparison next quarter, it should not be as pronounced as it was this quarter. Given the strong revenue and margin performance, we were able to deliver GAAP operating profit of $12.4 million or 13% of revenue net income was $12.2 million compared with an operating loss of $2.6 million and also a net loss of $2.6 million in Q1 of 2023 and basic earnings per share in the quarter was $0.37 and diluted earnings per share in the quarter was $0.35.
Total cash at the end of the quarter was $350.2 million as of March 31st, 2024. This is down $44.6 million from December 31st, 2023, $39 million of cash was used to purchase three additional jets in Q1, bringing our total number of owned jets to 14 basic weighted average common shares outstanding for the quarter were $32.8 million and diluted weighted average common shares outstanding for the quarter were $34.7 million. In summary, Q1 was a very successful quarter financially for TransMedics, we grew our revenue both annually and sequentially, improved our gross margin and showed good drop down to profitability. All of this continues to validate our strategy of leveraging our NOP clinical service and logistics service to increase utilization of the Organ Care System and to increase the number of transplants in the U.S.
Finally, just to repeat, while these earlier comment, we are updating our annual revenue guidance to be in the range of $390 million to $400 million, which represents 61% to 66% growth over the full year 2023. Now I will turn the call back to our lead for closing comments.

Waleed Hassanein

Thank you, Stephen. Overall, we are humbled and proud of our Q1 results as we simultaneously drove continued revenue growth, expanded our infrastructure and achieve profitability while advancing our clinical and R&D pipelines. We're looking forward to continuing to execute on all the major initiatives throughout 2024 to drive broader adoption of OCSNOP. and growth of the overall transplant volumes to help patients in need of an organ transplant. With that, I will now turn the call to the operator for Q&A. Operator?

Question and Answer Session

Operator

(Operator Instructions) Allen Gong, JPMorgan.

Allen Gong

Thanks for the question and congratulations on a really strong quarter out of the gate. You know, I understand that no aviation likely help support, you know the beat in the services, but I think it was the beat in disposables that might be a little bit more surprising, given the fact that that kind of thing on a dollar basis relative to my forecast drove more of the upside. So I guess other than pull through of some of the NOP. cases that you were maybe previously losing due to the limitations of outside logistics, what else kind of went right in the quarter for you to drive these additional volumes?

Waleed Hassanein

Thank you, Allen, for the question on a lot of things. When I went right in the first quarter and we hope to continue to execute in the same tone going forward, the most important thing is on the outcomes, the outcomes that are being achieved across the board. I'm now more transparent to the clinical users. Specifically, the liver continues to grow. They know but specifically for Heart and Lung, you know the the there was the Lund outcomes are getting better. Our team has been working very hard at them and educating the market demonstrating the better outcomes and achieved with our newer use model and it resonated in the quarter. Also, we're seeing the outcomes in heart is really helping growing the heart market and certainly the discouraging results. We heard at the ISHLT from the cold for Fusion. A study I may have may have fueled that, but it's really the outcomes that is driving our growth and we plan to continue to lean on outcomes.
And that's why we are investing in these three major cardiothoracic programs deliver delivers is already there and continues to grow, and we will continue to add centers and go deeper within existing centers. So everything went right. Also the growth in the IT and the logistics business was important to help us get access to the cases that we couldn't get access to. That's also helped. But the fundamental growth from product is based basically in clinic based on clinical outcomes.

Allen Gong

Got it. And then a follow-up just kind of on seasonality and how we should think about that strength carrying forward? You know, if we kind of take the quarter, you just put up back it out of your updated guide really looks like you're setting your what should hopefully be a very achievable bar for the balance of the year, especially as you are now, you're adding more planes, you're going to be starting the quarter with more planes than used you had on average in first quarter. So why is this kind of a right target to go with and how should we think about the seasonal cadence implied by that guidance should be relatively flat? I guess why would that be the case? I should yield the growth sequentially.

Waleed Hassanein

Thank you. Thanks, Alan. And I think they know there's there's many layers to answering that question, Allan and Stephen, please comment as well from your perspective, I think we as we always are cognizant of what potential operational challenges in front of us. For example, we are very proud to have up operating 14 planes, hopefully in Q2, but we know that in the second half of the year. We have some of these planes are due for some annual service, so they're not going to be accessible to us. And so we factor that into the guidance. We also factor in some of the, you know, any potential seasonality from summer vacations coming up or the holidays. So we always are prudent when it comes to guidance we want we want to when we issue guidance, we we take it very seriously.

Stephen Gordon

So that's layered into our expectations here even for now, I would just say, look, we don't expect a down quarter sequentially. We expect modest growth quarter over quarter, and that's the way we've modeled it. And I would expect that's what will come. And also and finally, and to put a bracket around that. We're operating from a much bigger starting point now. So we have we have to be cognizant of that.

Allen Gong

Thank you.

Operator

Josh Jennings, TD Cowen.

Josh Jennings

Hi, good evening. It's great to see such an impressive start to the year. I was hoping that will lead to just circle back on the discussion we had earlier in the quarter, just about you have you have a lot of you have seen a lot of pipeline initiatives initiatives both on the technology front and on the clinical development front. But just how should we be thinking about the OCS system potentially reducing the percentage of DCO donors, DCD donors that do not progress in heart liver and lung, and is that something that could happen in the next 12 to 24 months?

Waleed Hassanein

And Josh, that's exactly our goal. As we discussed this is the only system that we're aware of that exist out there that could help that picture.

Josh Jennings

Are those?

Waleed Hassanein

Yes. So with that's something we're planning to leverage over the next 12 to 24 months for sure. And we're hoping that once we launch these clinical programs, that becomes an opening on to the next program being focused on specifically growing the DCD. utilization.

Josh Jennings

Excellent. And then another topic just in with ILTS. kicking off this week, wanted to just ask about just get a better understanding on the benefits and if there are advantages of using OCS. a warm for North America for Fusion and fatty livers and just the percentage of donors that have fatty livers and how dramatic a difference there is in preservation of OCS. versus cold storage or even cold paper oxygenated perfusion. Thanks for taking the questions.

Waleed Hassanein

Thank you. bThank you, Josh, and thank you for asking the question. It's a very important question. Without running the risk of burning some of the key planning session presentations at the upcoming Altius and the community should be expecting that we will reveal data that shows our clinical superiority of fatty livers using one profusion compared to any other modality. And I'll leave it at that. It doesn't make sense to put fatty livers on ice, whether through perfusion or controlled or non-controlled static cold storage, it just doesn't make any sense because fat cells with cold storage or any cold and a form of preservation can deals and then the liver becomes more of a foreign object and a physiologic body. So we're looking forward to the to our investigators and lead users to present presenting this data at the plenary session on Saturday.

Josh Jennings

And sorry to sneak a follow up. And but just any help just thinking about the percentage of donor livers that are fatty imagine it's a sizable chunk of the donor pool. Thanks a lot.

Waleed Hassanein

It's very it's very it's a very sizable chunk. And again, the definition of fatty, it's varied some people consider fatty liver, anything greater than 15% will be presenting data on fatty liver greater than 25% or 30% even. So we experienced the full gamut and again, there is a tremendous evidence supporting warm perfusion on OCS platform are having superior outcomes to any other modality for preservation of fatty livers. And I'll leave it at that, Josh, thanks much.

Operator

William Plovanic, Canaccord.

William Plovanic

John on for Will tonight. Thanks for taking our questions. I just wanted to first touch on the aviation know you said 80% with probably the term rate of direct cases that can be supported by you and what services and what level of jets are needed to reach the 80%? And when could we see that?

Waleed Hassanein

And thank you. Thank you, John. And we think that at the current estimates, we think somewhere between 25 and 30 planes will get us there, but we fully expect to increase those estimates beyond 10,000 on so far. That's that's our expectation.
And the key for us is to build enough in this Phase two to continue to demonstrate the growth. And as we need more, we will we will have more planes on. But right now we're hoping to end this year around 20 between 15 and 20 planes and hopefully by end of next year to be between 25 and 30. And then we'll we'll assess from there.

William Plovanic

Great. Thanks. Maybe more for Stephen, but any any operating profit cadence or guidance for the remainder of this year?

Stephen Gordon

So hey, John, this is Steven. On the hub I'm not prepared to give any guidance other than we're pleased with where we came out in Q1, and we hope we're on path to the hubbing sustainable profit going forward because we're a little bit of ahead of where we thought we'd be. So but that's about all I can say at this point.

William Plovanic

Great. Thanks, Neena. Going to squeeze one more in here. But while we might limit the cold chain for fusions and for hard for us to only six hours, especially with the competitor cases, there are notably going much longer than that thinking I'm taking your questions.

Waleed Hassanein

Thank you, John and John, you heard you heard the outcomes with me and they failed that trial in Europe. So why would I subject and us too to bad outcomes. And we are more sensible where we want to protect the outcome for the patient. So and we're providing this as a lower-cost solution for this small segment of the market that is below six hours and for longer hours, we hope to prove it based on the new heart program that warm perfusion is a better solution than core perfusion.
And that's the rationale for why we're limiting it, at least based on an indication standpoint. And remember, all of the data that we heard that ICOP is not an FDA level data for all fewer few centers, handful of cases up except for the European multicenter trial that failed the primary effectiveness endpoint.

William Plovanic

Got it. Thank you again.

Operator

Suraj Kalia, Oppenheimer.

Suraj Kalia

While these Can you hear me. All right. Yes, gentlemen, congrats again on a blockbuster quarter. So really just want to go back on one of the points that you made at our conference a month or so ago. And even on this call you you were talking about them generation trial So will you stratify for us the standard criteria, DBD heart that are technically off label for you all today? Just so that people can compare and contrast as to what the denominator should be in terms of market penetration also will the trial that you mentioned that would be beginning, I believe you said next year, early next year that is called profusion But would it also have is the logic behind?

Waleed Hassanein

And thank you, Suraj, for the questions. So let me address I'll address this in multiple multiple points. First, right now, our FDA approved indication does not cover standard criteria. Dbd hearts. Our plan is to have an new indication to cover that. And is it four hours is six hours. The market segment of between less than four hours is about 900. If you go down to up to six hours, about maybe 1,200 transplants plus or minus some at least that's based on last year's number. The reality is we want to access this segment of the market, no matter how big or how small it is. We want to be two years from now every heart transplanted in this country should be preserved on a TransMedics technology, whether cold perfusion for warm perfusion. It will be at TransMedics technology and we want to have the full gamut of FDA indications like we have it for lung and we have it for liver. So that's number one.
Number two, we have two heart programs, one one, focusing on therapeutic and optimization modalities for DBD donors and one called the warm we expect to start before year end this year, the coal because it requires a full-blown new system and full new circuitry will start in the first half or beginning of 2025. And that is the one that is focused in the new FDA clinical indication. I hope I addressed the question.

Suraj Kalia

Fair enough. And so and there is one segment I apologize, Suraj. Yes, it will be pulsatile and the cold perfusion will be positive, which is a distinguishing factor that we have that nobody else has FairPoint. Okay, Steve, and one question for you and I'll hop back in queue. One of the questions that frequently comes up in investor discussions is and maybe you can quantify this a little better for everyone's consumption. And the question that comes up is, hey, how does TransMedics depreciate its planes? What are it's all in as per our for aviation, how are the margins where they are would love for you to take all of these and wrap it up into some numerics and there are numbers that people can slice and dice because Gentlemen, congrats again. Thank you for taking my questions.

Stephen Gordon

Thanks, Suraj. Was a question I can answer. It is how we depreciate. So we depreciate the planes over 10 years with a 50% of our residual value. So that has been we've been clear from day one that's in our Q's and K's. We haven't talked about the margin of the aviation versus the margin of the service. But all in, we're at that 36% and we expect some improvement. Certainly, I can say the the aviation is a bit on the lower side versus the service, which is a bit on the higher than that side. But we haven't talked about anything more detailed than that. So that's but So well, I can answer that question.

Operator

[Jackson], William Blair.

Yes, hey, guys. This is Jackson on for Ryan, Daniel, thanks for taking the question and congrats on the strong start to the year. Can you share any general feedback from customers that have used TransMedics aviation and maybe if or how that feedback has changed since you began integrating the aviation segment?

Waleed Hassanein

Thank you for the question on. I think the only thing that I can share publicly is just if I point out to the results, I point out to the their rapid pace by which we went from 0 to 105 customers are using our TransMedics logistical services and we expect to go deeper within these accounts. And I'll leave it at that. I think centers are beginning or are actually witnessing the at the better structure. The more efficient cost structure and availability that is afforded by TransMedics logistics. And again, I point to the results.

Understood, thank you. Can you just provide an update on what you're seeing in the international markets and kind of what the expectations are there? And just as a quick follow-up into, are there any like encouraging opportunities following the ISHLT. meetings that took place.

Waleed Hassanein

Thanks to excellent question and thank you for asking it. And there is a tremendous focus on the success of NOP in the United States that are many major European countries are coming to TransMedics and offering to collaborate on establishing and OPs across Europe. We're seeing similar behavior in the Middle East, specifically in Saudi Arabia, we had several discussions about essential piece. The way I want to characterize it is absolutely we're focusing on replicating the success of the NOP because we believe the problem that the NOP solves for in the US is exactly the same problem ex ex U.S. However, we want to prioritize securing reimbursement first to make sure that our services will get reimbursed. And one final qualifier when I talk about NOPXU. S, we're talking only on the clinical support service, not no logistics and no surgical procurement, just for clarification purposes. So yes, there's a huge, huge momentum around NOP replication for US., and we TransMedics fully expect to be ready to implement those once we are confident that our services will be reimbursed.

Perfect. Thanks guys, and congrats again, gentlemen.

Waleed Hassanein

Thank you.

Operator

(Operator Instructions) [Samantha], Piper Sandler.

Hi, this is Samantha on for Matt. Thank you so much for taking our question. I guess just to start off, if you could talk a little bit more about guidance. So guidance for the rest of the year and kind of what's baked into that low end and high end of that range as Samantha?

Stephen Gordon

This is Stephen. Yes, I mean we think there's opportunity to continue to kind of grow sequentially, as I mentioned in answer to the earlier call, and if we're able to, you know, add up or go deeper in a few of our centers, we should be able to get to that high end and some of these things that will come to fruition and until the low end is just being a little bit more conservative about the pace of how we do that. So it's a pretty narrow range, and we feel confident that we'll be able to meet it.

Okay, thank you. And then just one more from us on I know you've talked a little bit in the past about the expected product service mix and totally expect that to change throughout the year, particularly from Yes, but I can do more. Yes, aircraft throughout the year.

Stephen Gordon

Yes. So it's a good question. We've been kind of keeping an eye on the product and service mix. It ended up from 36.7% service. I think it's going to get a little bit more than that. It might be between, say between 37 to potentially 39%. I think that's probably the top end was a little higher than I had given some of you earlier in the year based on the outcomes we're seeing, but we still think we're going to see overall gross margin continued to improve.

Thank you.

Operator

Thank you. This concludes our question-and-answer session. I'd like to turn the conference back over to Waleed Hassanein for closing remarks.

Waleed Hassanein

Thank you so much, operator, thank you so much, everybody, for joining us in this call this evening, and we're looking forward to our next call. Have a wonderful evening, everyone.

Operator

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.