TransMedics Group, Inc.

Good afternoon and welcome to TransMedic's third 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 repay purposes. I will now like to turn the call over to Brian Jensen from Gilmartin Group for a few introductory comments.

Thank you, operator. Earlier today, Transmedics released financial results for the quarter ended September 30, 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, including during the question and answer section, 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, are 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 under expectations for revenue, gross 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. Additional information regarding these risks and uncertainties appears under the heading Risk Factors on our Form 10-Q, followed with the Securities and Exchange Commission on August 3, 2022, and our subsequent filings with the Securities and Exchange Commission, which are available at www.sec.gov and on our website at www.transmedics.com. 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, November 3rd, 2022. And with that, I'll now turn the call over to Waleed Hassaneen, President and Chief Executive Officer.

Thank you, Brian. Good afternoon, everyone, and welcome to Transmedics' third quarter 2022 earnings call. As always, joining me today is Stephen Gordon, our Chief Financial Officer. Throughout 3Q, our commercial momentum continued to accelerate as NOP clinical transplant activity grew across liver and heart procedures in the U.S. The continued strength and demand for OCS further validates our growth trajectory and enabled us to deliver strong results once again as we posted the fourth sequential period of record year-over-year growth. Total net revenue in 3Q was $25.7 million. This includes new product revenue of $24.3 million and a $1.4 million favorable adjustment in the estimate of accrued clinical trial control revenue, which Steven will detail later on this call. New product revenue alone represents 349% growth year-over-year and 18% sequentially. Year-to-date 2022, we have achieved $62.1 million in revenue or $60.7 million excluding contra-revenue adjustment. This represents more than 100% year-over-year growth over the full year of 2021, and we still have Q4 remaining in 2022. Notably, NOP revenue accounted for approximately 90% of the total U.S. revenue in the third quarter, and we expect this to continue to grow. Stephen will cover the detail and organ split in his section of this call. Now let me provide some more granular highlights. For the third sequential quarter, liver and heart NLP clinical activities accelerated quarter over quarter. Lung activities were relatively muted in 3Q. However, as we've indicated before, we're working on a long-term initiative to revive the lung market throughout 2023. Approximately 88% of our total U.S. case volume came from NOP. On a per organ basis, approximately 95% of liver, approximately 81% of heart, and approximately 67% of lung cases came from NOP. As we move forward, we expect to see NOP contribution to remain high and growing to the mid-90s. as a percent of total U.S. organ cases and revenue. We are also very encouraged by the growing number of transplant centers that utilize our Transmedics NLP in 3Q. For heart, there were 26 centers that utilized NLP for heart transplants, of which 11 are frequent users, and the remainder were new users. For liver, 12 centers used NLP and all 12 were frequent users throughout the quarter. For lung, there were nine centers that used NLP, of which four were repeat users throughout the quarter. This progress, in terms of new center openings, as well as early center activity, validates a critical area of our growth strategy, as it proves that NLP is becoming more widely accepted within the U.S. transplant community. These centers are relying on transmedics to operate their transplant programs. This is huge from a competitive positioning standpoint. Again, NOP is becoming an integral part of many U.S. transplant programs' workflow, and we plan to leverage this for our future growth. It is notable that we have achieved these strong results despite being in a back-order situation for a few weeks during 3Q. as the growth and demands of the OCS accelerated beyond our immediate capacity. Our team did a phenomenal job to minimize the impact of the supply constraint by mobilizing inventory from NOP launch points to meet the clinical demands across the US. Overall, we're very encouraged by our performance, the acceleration in demand for OCS and our achievements of 100% year over year revenue growth in 22 compared to the full year 2021. a full quarter ahead of schedule. Now let me discuss our strategies to build on this momentum for the remainder of 22 and into 23 and beyond. First, we are well underway to expand our manufacturing and production capacity. As of today, we're on track to add new clean room production space that is three times the size of our existing clean room by year end. We are now focusing on staffing, training, and securing FDA certification of the new clean room space. In the meantime, we have already instituted a second shift in the original clean room space to expand our production capacity to a level that will enable us to meet the current demands. We have expanded our sterilization capacity, and we are well underway to add more capacity in early 2023. In addition, we're continuing to expand our raw material inventory to meet the growing demand and mitigate against supply chain risks. Currently, we have adequate supply of raw material to meet the demand in the near term. Second, we're working to expand our NOP infrastructure. We're expanding our surgical capabilities and clinical support staff across the board and opening new launch points to expand our geographical reach and coverage in the U.S. Third, we are focused on reviving OCS lung transplant volumes post-COVID era. We have initiated a national program with a goal to doubling lung transplant volumes in the US over the next few years. To do this, we are collaborating with leading transplant programs and as well as partnered OPOs in the US. We hope to benefit from this initiative over the course of 2023. We plan to continue to gradually increase the number of transplant centers using NLP for each organ throughout 2023. Finally, we are partnering with transplant logistics experts to create a dedicated air and ground logistical network across the U.S. to support the growing NLP transplant activities. We're actively engaged with several potential partners to create this dedicated network and have it operational sometime in 2023. Today, we have unequivocally demonstrated the strength of our NOP program to accelerate commercial growth and OCS adoption. We're confident in our go-forward strategy and scalability initiatives we discussed above. We fully expect to leverage these initiatives to further capitalize on our unparalleled foothold in the market and drive the next level of growth in 2023 and beyond.