TransMedics Group, Inc.

Good afternoon and welcome to the Transmedics Third Quarter 2023 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.

Thank you. Earlier today, Transmedics released financial results for the quarter ended September 30th, 2023. A copy of the press release is available on the company's website. Before we begin, I'd 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 our future financial expectations, which include expectations for growth in our organization and guidance and or expectations for revenue, gross margins, and operating expenses in 2023 and beyond, are based upon our current assumptions and estimates. 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-K, filed with the Securities and Exchange Commission on February 27, 2023. Our subsequent Form 10-Q filings and the forward-looking statements, including included in today's earnings press release, which is available on our website and at www.sec.gov. 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 6, 2023. And with that, I'll turn the call over to Waleed Hassaneen, President and Chief Executive Officer.

Thank you, Brian. Good afternoon, everyone, and welcome to Transmedic's third quarter 2023 earnings call. As always, joining me today is Stephen Gordon, our Chief Financial Officer. The third quarter was an important foundation-building quarter for Transmedics. We closed two strategic acquisitions, one to position us for near-term growth with the Summit Aviation, and one to position us for long-term growth with bridge-to-life technologies. Following the acquisition of Summit Aviation in August, our team worked diligently to meet our goal to try to initiate a limited launch of our transplant logistics service in late 3Q. We met this goal and we started seeing early positive impact of logistics on revenue, on catalyzing NOP case volume, and overall clinical adoption. This early momentum, combined with sustained growth demand for all three organ markets and solid OUS performance, enabled us to achieve significant growth in 3Q. This was achieved despite operational and resource challenges we outlined in our second quarter call. Here are the summary results for 3Q. Our total revenue was $66.4 million, representing 159% growth over the same period in 2022, and 27% sequential quarter-over-quarter growth from 2Q 2023. $64 million of the total $66.4 million was from transplant-related activities, including approximately $2.1 million in NOP aviation and logistics-related revenue. We are thrilled by the early performance of our transplant aviation and logistics service, as it raises our confidence in our long-term plans, which I will cover later in the presentation today. Approximately $2.4 million of the total revenue was attributable to legacy summit, charter, and flight school operations. As we've stated before, we intend to exit the legacy charter business with diminishing contribution in Q4 before a full exit in early 2024. Meanwhile, we will maintain our flight school revenue, which will continue to be a part of our P&L going forward. Stephen will detail associated P&L impacts in his section of today's call. Our team did a great job executing on all fronts. 3Q performance speaks volumes to their hard work, dedication, and creativity. I want to take a moment and acknowledge our entire team at Transmedics for their efforts to help us achieve these great results. Now let me cover the specifics of Q3. In line with our growth strategy, we grew revenue across all three organ markets in the U.S. compared to 2Q. but U.S. revenues also grew sequentially. Stephen will cover the detail in his section of today's call. Given the success of the NOP program and the flexibility it affords U.S. transplant programs to use it, going forward, we will primarily focus on the Oregon-specific revenue trends quarter over quarter instead of the number of centers. Let me repeat again, going forward, we will primarily focus on organ-specific revenue trends quarter over quarter instead of the number of centers. This is because we no longer believe or see center numbers as an accurate predictor of growth in the NOP era. Beyond strong revenue growth, we also demonstrated continued operational efficiencies in 3Q as we continue to benefit from increasing scale and making further progress towards positive cash flow and profitability. In terms of NOP, we met our stated goal of having NOP contribute the lion's share of our U.S. revenue in 3Q as we reached an all-time high of 97% NOP contribution of the total U.S. cases. On a per-organ basis, approximately 98% of liver, 93% of heart, and 97% of lung cases were from NOP in 3Q. Given this success, we fully expect that we will transition out of the shrinking direct acquisition model in 2024. To meet the growing demand for NOP and to overcome our clinical support staffing shortage we discussed in 2Q, we added 45 new clinical specialists and 10 surgeons in 3Q. We will continue to invest in this area throughout the remainder of 23 and in early 24 to prepare for the expected growth in 24 and beyond. From a volume perspective, we are well on our way to reaching our stated goal of completing more than 2,000 U.S. NOP transplants in 2023. This would represent more than doubling of our case volume from 2022. Let me now turn to a more detailed discussion on our new logistics business. As we described on our 2Q call, Transmedics set out to develop a more efficient national transplant logistics model in the U.S. Our goal is to control the entire end-to-end process of donor to recipient logistics for all NOP transplant volume in the U.S. by the second half of 2024. By way of background, and as a reminder, Approximately 75 to 80% of NOP heart, lung, and liver transplants require private charter air transportation to move transplant teams and organs from donor to recipients. The rapid expansion of NOP, the increase in distance afforded by the protective effect of the OCS technology, and our experience operating the NOP model in the U.S. over the past 18 months have clearly shown us that the current industry model is inefficient and unscalable in the era of NOP and the new national allocation laws. Our vision is that with a Transmedics developed and operated world-class efficient transplant dedicated logistics service, we can meaningfully drive additional growth of our NOP case volume and fueling overall revenue growth. Late in Q3, we initiated a limited launch of our new transplant logistics business with Aviation to solve these inefficiencies and support and expand our NOP case volume. We are extremely pleased with the early results. Despite expected early growing pains and inefficiencies as we integrate the summit operation, 3Q truly represents the first inning of this important new transmedics business offering. So far, we are thrilled by the early encouraging results. We are in the process of building out the fleet and adding additional staff to operate the fleet efficiently. As of today, we have acquired eight planes. We plan to expand our fleet to around 15 to 20 operational planes by the second half of 2024. Rest assured that we will continue to assess this need based on data-driven approach. We have also initiated the build-out of our Logistics Digital Command and Dispatch Center in Andover, Massachusetts, and we expect it to be fully operational by Q1 of 24. This is important as it will drive significant efficiency to the dispatch operation for NOP clinical and logistical resources. I want to affirm that based on everything we know today, we are extremely confident and bullish on the potential positive impact of transplant logistics service on the growth of our NOP case volume and more efficient utilization of our clinical resources. Before I move on from logistics and aviation, let me share our expectations on our gross margin progression going forward. In 3Q, the inefficiencies associated with integrating Summit and streamlining the entire operation to focus on transplant was a bit of a headwind on our service margin. We expect this to improve over the next few quarters. Let me be crystal clear. We fully expect both our product and service margins to improve over the next several quarters as we gain more operational leverage and efficiencies. Simply stated, 3Q margins do not, I repeat, do not represent our long-term margins at all. The expected inefficiencies of integration, simply stated, 3Q margins do not represent our long-term margins at all, given the expected inefficiencies of integration and transitioning of the summit operations. Now let me turn to our mid- and long-term plans As we stated in our last call, we have a multifaceted strategy to leverage some of the technologies we acquired from Bridge to Life to accelerate our OCS NextGen program and expand our product offering. Our goal is to leverage these technologies and new clinical programs to drive our mid- and long-term growth in NOP case volume to reach our stated goal of performing 10,000 NOP cases in the U.S. by 2028. We hope to have more to share about these new technologies and its associated clinical programs later in 2024. We are continuing to drive our business forward and for the seventh consecutive quarter, we have demonstrated that we can grow our revenue and adoption of our OCS NOP cases. We are on track to meet our stated goal of doubling our NOP transplants to more than 2,000 in 2023. We are not stopping here, however, as we are determined to reach our goal of 10,000 transplants over the next five years. Given our strong 3Q results, balanced with potential scalability challenges, we are increasing our annual revenue guidance for the full year 23 to be between $222 and $230 million, up from our previously communicated guidance of $180 to $190 million. and representing 138 to 146% growth over the full year 2022 total revenue. With that, let me turn the call to Stephen to cover the detailed financial results of the quarter. Stephen.