TransMedics Group, Inc.

Good afternoon, and welcome to Transmedic's first quarter 2022 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 Brian Johnson from the Gilmartin Group for a few introductory comments.

Thanks, Operator. Earlier today, Transmedics released financial results for the quarter ended March 31, 2022. 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 that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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 our future financial expectations, which include expectations for growth in our organization, regulatory approvals, and reimbursement, and guidance and or expectations for revenue growth margins and operating expenses in 2022, are based upon 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. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the risk factors section of our annual report on Form 10-K, filed with the Securities and Exchange Commission on March 1, 2022. Transmedics disclaims 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, May 3rd, 2022. With that, I'll now turn the call over to Waleed Hassanin, President and Chief Executive Officer.

Thank you so much, Brian. Good afternoon, everyone, and welcome to Transmedic's first quarter 2022 earnings call. Joining me today is Stephen Gordon, our Chief Financial Officer. As we discussed on our previous call, we believe that 2022 will be a transformative year for transmedics commercial adoption. Our Q1 results further validate our conviction in our strong growth potential, leveraging our three transplant technology platforms, i.e. OCS Lung, Heart, and Liver, as well as leveraging our unique National OCS Program, or NOP, to meaningfully expand our commercial footprint throughout the year. We started the year with strong momentum, and the results speak for themselves. We achieved net revenue of $15.9 million, representing 125% growth year over year, and 64% growth over Q4 2021. U.S. revenue for Q1 was $13.6 million, representing 136% growth year over year, and approximately 85% of total Q1 revenue. International sales were 2.3 million, representing 79% growth over the same period, 2021. Importantly, we are very encouraged by few positive commercial trends that expand our confidence in our commercial trajectory. Let me share these trends with you. First, while our revenue growth was very strong, the bulk of Q1 revenue was driven predominantly by approximately five to seven centers in each organ market. This is important for two reasons. First, it demonstrates the potential of rapid and deep penetration of key high volume transplant programs with the OCS technology. This has always been our focus, to go deep first, then grow wider. Two, it shows that we are only scratching the surface of the commercial opportunity across our three Oregon markets, leaving significant opportunity to drive future growth by potential new transplant programs getting added to the OCS technology. The second trend was, as we expected, given the relative volumes of liver transplantation procedures in the U.S., U.S. liver revenue represented the largest share of our sales in Q1. As a reminder, the total U.S. liver transplant volume is nearly double the heart and lung volumes combined. The third trend was that the fact that the vast majority of Q1 revenue truly represented real-time case utilization and not stocking order. Let me explain why. This trend is due to the high contribution of the NLP to the overall revenue mix in the United States. We're excited by this trend and we are monitoring it closely due to its impact on making our business more linear and predictable. With the NLP, now revenue growth represents growth in case volume and deeper penetration into existing and new transplant programs. The last trend and perhaps the most important is our national OCS program or NLP has already played a critical role in our commercial efforts. driving a significant portion of our U.S. revenue during this quarter. In Q1, approximately 70%, 7-0 of the overall U.S. revenue came from NOP cases rather than direct acquisition. On the per organ basis, liver was 98% NOP, lung was 78% NOP, and heart was 30% NOP. As we move forward, we expect to see the percentage of revenue from NOP to continue to grow across all three Oregon platforms. Importantly, this early momentum with NOP enabled us to repeatedly demonstrate our ability to facilitate more transplant volume at the center level with reduced operational friction of resources and logistics, while significantly shortening the typical sales cycle for OCS technology. Let me explain. Historically, via the direct acquisition model, it used to take us 90 to 120 days to go from initial clinical buy-in to the issuance of the first purchase order of any transplant center wanting to adopt the OCS. From there, it would take somewhere between 30 and 60 additional days waiting for installation and scheduling of training of their first team to be trained on how to operate the OCS. And then once they're back, it used to take somewhere between 15 and 30 days until we see the first true revenue generating case of this TransLamb program. With the NOP, it's the complete opposite. We saw many centers in Q1 going live within few days, literally few days from initial buy-in by the clinical and administrative leadership until they did the first case. In fact, the quickest was literally six hours. From there, once the center experienced the simplicity of the NOP model, they kept coming back for more cases. Based on the above, we see NOP as the most significant growth catalyst for not only our commercial growth as it drives efficiency in case volume and center penetration, but also the overall US transplant volumes starting in 2022. In addition to NRP, we also expect to benefit from two additional catalysts this year. First is the recent FDA approval of our DCD heart indication that came in ahead of schedule. This approval will allow us to expand into new centers that were not a part of the original DCD trial. This will ultimately grow our OCS heart centers in the U.S. and drive case and revenue growth for the OCS platform. Second, the expansion of the number of active OCS centers for each organ market. Our goal is to end 2022 with 10 to 12 centers per organ, lung, heart, and liver, that are routinely using the OCS for their transplants as we've seen in the NLP centers in Q1. Now, let's shift to provide you an update on our progress against our operational goals for 2022. goals related to the actual operation. First, our goal was to buttress the NOP surgical and clinical staff while expanding the NOP launching points or regions. In Q1, we added two new surgeons, bringing our total headcount to 10 full-time surgeons supported by 12 contract surgeons in the NOP program. We expect to add additional surgeons throughout 2022. We also increased our clinical support staff from 36 in the beginning of the year to 50 at the end of Q1 across the U.S., all of whom are being cross-trained for all three OCS platforms. Finally, we expanded our NLP launch points or regions from 11 at the end of 21 to 12 by the end of Q1. And as of today, we're at 14 active launch points in the United States, giving us broad geographical coverage of the U.S. territory. Second, operational goal was to expand our manufacturing infrastructure and capacity. We are on track to expand our production capacity to accommodate anticipated mid and long-term demand volume by year end of 2022. This will further de-risk our supply chain process. The last operational goal was to invest in raw material inventory to meet the growing clinical demand. We've invested in bolstering our raw material inventory to help us meet the clinical demand in Q1. We plan to continue to make targeted strategic investments in raw material to minimize any negative impact of supply chain challenges on our business and our commercial execution throughout the year. We're very proud of our commercial performance in Q1 22. and we are focused on maintaining this level of execution throughout the year. Despite the potential impacts from macro headwinds, let's discuss these potential headwinds. First, the lung transplant volume remains somewhat vulnerable to further COVID waves as they were in early Q1, although we've seen minimal or no impact from Omicron on heart and liver transplant volumes. The second potential headwind is we remain exposed to ongoing global supply chain challenges. While we have largely mitigated the impact to our revenue to date, our early rapid clinical adoption has meaningfully increased the rate of inventory usage. Despite our investments, this is an area that we cannot always control and may negatively impact us in 2022. Nonetheless, given the growing demand for the OCS technology, our strong Q1 results, and the other key catalysts that I've just reviewed, we are increasingly confident in our near, mid, and long-term outlook. However, we need to remain prudent in our expectations given the global potential headwinds mentioned above. As such, we are raising our annual revenue guidance for the full year 22 to a range between $59 and $65 million, This represents a solid 95% to 115% growth over 21. This compares to our previous guidance of a range between 49 and 55 million. Before turning the call over to Stephen, I would like to provide summary highlights from last week's annual meeting of the International Society of Heart and Lung Transplantation, or ISHLT, that took place here in Boston. where long-term results of OCS heart and lung trials were presented. Specifically, the results of the U.S. randomized OCS DCD heart trial was presented by our lead investigator. The data showed that the use of OCS heart technology resulted in high rate of 89% successful utilization of DCD donor hearts for transplantation, and importantly, with excellent post-transplant clinical results. The trial reported one- and two-year survival results of 93% in the DCD-OCS arm, both at one year and two years, compared to 86% and 83%, respectively, in the DDD control arm of standard criteria heart transplanted using cold storage. These seminal results are going to be instrumental in significantly expanding the utilization of BCD donor hearts for transplantation in the U.S., thus providing access to more patients with heart failure to receive the life-saving heart transplant procedure. On the lung front, the five-year OCS lung expand trial results were also presented by the lead investigator. The results showed that the use of OCS lung In extended criteria, DBD and BCD donor lungs resulted in a five-year survival of 68% compared to the US national average or the US five-year lung transplant outcome of 59% from routine lung transplantation based on the UNOS OPTN national data. This is clinically powerful to show that we can expand the lung transplant volume in the US from extended criteria lungs and have good post-transplant clinical outcomes that compares favorably to routine lung transplant outcomes in the US. With that, I will now turn the call over to Stephen.