TransMedics Group, Inc.

Good afternoon, and welcome to the TransMedx Second 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 toward 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 Lane Morgan from the Gilmartin Group for a few introductory comments.

Thank you, Operator. Earlier today, Transmedics released financial results for the quarter ended June 30th, 2024. 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 the 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, services, and timing of new clinical programs, and our future financial expectations, which include expectations for growth and organization and guidance, and or expectations for revenue. Growth 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. Accordingly, you should not place undue reliance on these statements. Additional information regarding these risks and uncertainties appears under the heading Risk Factors of our Form 10-Q, followed with the Securities and Exchange Commission on May 2, 2024, our subsequent Form 10-Q filings, and the forward-looking statements including today's earnings press release, which are available at www.sec.gov, and 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, July 31, 2024. And with that, I will now turn the call over to Waleed Hassani, President and Chief Executive Officer.

Thank you so much, Lane. Good afternoon, everyone, and welcome to Transmedics' second quarter 2024 earnings call. As always, joining me today is Stephen Gordon, our Chief Financial Officer. As we've stated previously, 2024 represents a critical year for Transmedics. We have been and remain laser-focused on scaling our business, both in terms of revenue and operations, while also investing in our future product pipeline and infrastructure. To be specific, we are focused on three initiatives. One, completing the build-out of our transmedics aviation fleet and transplant logistics network to meet the growing demand for OCS NOP transplant missions. Two, continuing to drive both overall national transplant volume growth and market share expansion in the existing transplants using the OCS NOP technology and services. And three, preparing to launch three new cardiothoracic clinical programs designed to reinvigorate the OCS lung clinical adoption and expand our OCS heart franchise. Through Q2, we delivered another quarter of significant revenue and case growth. maintain profitability, and achieve positive free cash flow, which is a milestone for our business. In addition, we built strong momentum across the above three key initiatives. Let me review key operational highlights. Total revenue for 2Q was $114.3 million. representing 118% growth from Q2 2023 and 18% sequential growth from Q1 2024. Our results were driven by continued growth in both OCS product as well as transmedics transplant logistics services revenue. We experienced significant growth in case volume across lung, heart, and liver OCS NOP cases compared to the same period last year, as well as sequentially in both heart and liver cases compared to Q1. We experienced substantial growth in both U.S. and OUS commercial revenues compared to the same period last year and sequentially over Q1 2024. Transmedics transplant logistics service revenue for 2Q was $19.1 million, up from $14.5 million in Q1. You're presenting approximately 32% growth quarter over quarter. Overall gross margins for 2Q was 61%, slightly down from 62% in Q1, 24. As we've discussed previously, we believe we are still building the foundation of our business and therefore expect gross margins to fluctuate modestly over the next several quarters. For context, gross margins were 59% in 4Q 2023. Importantly, we remain extremely confident. I repeat, we remain extremely confident that we will be able to improve gross margins over the next 12 to 18 months as we benefit from further scale in both product and service operations over time. And finally, we were pleased to deliver a gap operating profit of $12.5 million in Q2, representing 11% of total revenue. Net income was $12.2 million. As mentioned earlier, we are very proud to have achieved our first positive free cash flow quarter with approximately $2 million of free cash generated despite purchasing a new aircraft during the quarter. Again, While we are expecting to remain profitable on operating basis, we fully expect some fluctuation in free cash flow over the next 12 to 18 months, as we are continuing to invest heavily in our business and product pipelines. Now with that background, let me provide more detail across key operational metrics relating to building out our transplant logistics network. Through Q2, we continue to expand our fleet of owned aircraft, reaching 15 aircraft by end of Q2. We also added two new aircraft in July, bringing our total owned Transmedics aircraft to 17 as of today. We also made significant investment in Transmedics aviation pilot headcount in Q2, nearly doubling our pilot crew size over Q1. These investments were made to maximize the operational efficiency of our current and growing fleet, Importantly, these investments are being made to prepare for the expected growth in demand for OCS NOP missions in 2025 and beyond. To that end, the daily average number of active transmedics aviation planes grew to approximately 11 aircrafts compared to 9 in Q1 of 2024. We expect this number will continue to increase throughout the year as we remain on track to reaching approximately 20 operational aircrafts by year-end. Notably, our owned aircraft covered approximately 59% of our NOP flight missions in Q2, compared to 49% in Q1 of 2024. Let me take a moment to underscore the remaining long runway of additional growth ahead of us in this important area. First, at our current OCS NOP mission volume, we have room to grow our share of logistics. We expect the overall OCS NLP volume to grow significantly over the next several years as we move closer to achieving our stated target of 10,000 transplants per year in the U.S. by 2028. At that level, logistics would represent a significant revenue opportunity for transmedics. Said differently, as much as we are very proud of our execution and growth of our transmedics transplant logistics to date, We have a long green field of growth ahead of us, and we are committed to capitalizing on this opportunity to its fullest. From a customer footprint perspective, we have also continued to grow the number of programs that are using our transplant logistics services. In Q2, approximately 126 U.S. transplant programs used transmedics logistics compared to approximately 105 in Q1 of 24. Now that we have achieved a critical mass of user programs, we are increasingly focused on going deeper within these existing programs while growing our overall transplant volumes to better meet their transplant and logistics need. Based on the above performance, we have gained even greater conviction that our expanding transplant logistics services will continue to be a key catalyst for the near and long-term growth of Transmedic's business. We see a clear line of sight to continued success through the balance of 24 and into 25 as we scale our air fleet and ground operations to support our growth plans. Moving now to our clinical programs. We continue to advance our new OCS lung and heart programs designed to reinvigorate the OCS lung market and expand our clinical indications and product offering for OCS heart. Importantly, we remain on track for the initiation of all three clinical programs in 2025. We are increasingly confident and excited about the potential clinical impact of our new OCS lung and OCS heart programs based on the following updates. First, we've made significant progress in developing our new OCS perfusion solution and new circuit designs for our OCS lung and heart clinical programs, which we expect to initiate the first of which in early 2025. In the second quarter of 24, we concluded a significant number of preclinical testing to evaluate the impact of these new OCS lung and heart developments. The results demonstrated successful maintenance of donor lungs and heart on OCS perfusion for more than 24 hours, with significantly lower edema formation compared to controlled cold storage. This is a critical milestone towards enabling morning transplants for OCS lung and OCS heart, similar to what we have successfully achieved with OCS liver. We achieved this while demonstrating significant reduction of ischemia reperfusion injury histological markers for both OCS lung and heart compared to static cold storage and significant improvement of the overall operational performance of the OCS lung circuit throughout 24 hours of perfusion due to our new circuit designs. Second, development of our cold perfusion heart program is underway. Again, we are very encouraged by the early preclinical results of this new concept, and we expect this program to clinically kick off in the second half of 2025. I'm looking forward to sharing our preclinical experience with this new product on future calls. For reference, the detailed preclinical results will be formally and publicly presented at the upcoming heart and lung transplant scientific conferences in 2025. Again, We are very excited about our product pipeline and the potential transformative nature of these programs to catalyze mid- and long-term growth of our OCS platform to drive more lung and heart transplant volumes nationally. Let me shift gear. I would like to take a moment to mention that Transmedics has released its latest ESG data update, which was published this afternoon on our website. This data update supplements the information we provided in our inaugural report, providing key data points and metrics about our ESG performance last year. In conclusion, we are encouraged by our H1 performance. We are now focused on continuing our strong execution throughout second half of 24 and preparing for the growth initiatives for 25 and beyond. Given our strong performance in second quarter of 24, we are increasing our annual full-year revenue guidance to between $425 to $445 million, which represents 76% to 84% growth over full-year 2023 revenue. I'd like to note and underscore that this guidance contemplates the fact that few of our aircrafts will be down for routine scheduled maintenance the second half of 2024, which could temporarily limit our pace of growth of our logistics revenue in H2. Also, it factors in some potential OUS revenue variability throughout the second half of this year. With that, let me turn the call to Stephen to cover the detailed financial results and performance for the quarter.