TransMedics Group, Inc.

Good afternoon and welcome to the Transmedics Third 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 Lane Morgan from the Gilmartin Group for a few introductory comments.

Thanks, operator. Earlier today, Transmatic released financial results for the quarter ended September 30th, 2024. 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 four of the key statements, including without limitation, our examination of operating trends, the potential commercial opportunity for our current and next generation products, services, and technologies, the potential impact of investments in infrastructure, the potential timing, impact, and outcomes of new clinical programs, as well as 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 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 10Q followed with the Securities and Exchange Commission on August 1, 2024. Our subsequent Form 10Q filings and the forward-looking statements included in today's earnings press release, which are available at www.scc.com and on our website at www.transmedics.com. Transmedics declaims 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, October 28th, 2024. And with that, I will now turn the call over to Waleed Hassanine, President and Chief Executive Officer.

Thank you so much, Lane. Good afternoon, everyone, and welcome to Transmedic's third quarter 2024 earnings call. As always, joining me today is Stephen Gordon, our Chief Financial Officer. As we discussed, 2024 represents an important foundational year for transmedics as we shift into the next year of growth. As the market leader in organ transplantation, we have continued to scale operationally while also laying the groundwork from a business and product perspective to support our next phase of growth. Specifically, we have been and remain focused on three things. First, completing the first phase of building our transplant logistics network and aviation infrastructure to better position us to capitalize on the growth anticipated next year and going forward. Two, continuing to invest in our NOP clinical and technology infrastructures. And finally, completing the first phase of next-gen OCS heart and lung technologies development to enable the launch of new clinical programs in 2025. These programs are aimed at unlocking the growth potential for OCS lung market, expanding OCS heart adoption and our approved indications in the U.S., and finally catalyzing overall U.S. heart and lung transplant volume and market growth annually. We continue to make meaningful progress across each of these key initiatives through the third quarter and maintain our conviction in our future growth runway in 2025 and beyond. From a revenue perspective, we continue to deliver significant year-over-year growth, particularly in the U.S., offset by an overall U.S. transplant volume headwinds, as well as routine scheduled aircraft maintenance, which we discussed on our last call. Meanwhile, OUS revenue, which represents a modest part of our business, was impacted by variability that we have come to expect. Here are the key operational highlights from the quarter. Total revenue for 3Q was $108.8 million, representing 64% growth from 3Q 2023, driven by 76% year-over-year sales growth in the U.S., but offset by a 40% year-over-year decline OUS. From a sequential perspective, we saw a 5% decline in total revenue from Q2 2024. US sales declined 3% sequentially and OUS sales declined 45% sequentially. Transmedics transplant logistics service revenue for Q3 was $20.1 million, up from $2.1 million in Q3 2023 and up from 19.1 million in Q2 of 2024, an approximate 5% increase sequentially from Q2. Our overall gross margins for 3Q was 56%, down from 61% in 2Q 2024. The extent of sequential decline was somewhat expected given continued investment in our logistics network, clinical resources, and next-gen OCS technology. Finally, we delivered a GAAP operating profit of 3.9 million in Q3, representing 4% of total revenue. Now let me provide updates on our aviation and logistics infrastructure results in the quarter. Through Q3, we continue to expand our fleet of owned aircraft, reaching 18 by end of Q3. We also continue to invest in hiring and training pilots. Importantly, We also made a strategic investment in our internal aircraft maintenance infrastructure by building and staffing at Transmedics Aviation Maintenance Hub in Dallas, Texas in Q3. These investments were made to maximize the operational efficiency of our current and growing fleet and to prepare for the expected growth and demand for OCS NOP missions in 2025 and beyond. As we stated in our Q2 earnings call, We also completed routine maintenance on several of our owned aircraft scheduled in Q3. This resulted in lower average daily planes available for missions compared to 2Q 2024. Still, our owned aircraft covered 61% of our NOP flight missions in Q3, up from 59% in 2Q of 24. We used third-party logistics partners to meet NOP missions while our planes were in maintenance. Now, with this background, I'll provide more context on these results. First, let me discuss the revenue and case volumes. In Q3, overall U.S. national liver and heart transplant volumes declined sequentially approximately 5%, while total lung volumes declined by approximately 3% in the U.S. There is no clear reason for these declines other than normal variability of donor availability and potential summer seasonality. So the sequential decline in the U.S. case volume was directly in line with the decline in national transplant volumes. Importantly, we did not see any degradation of our market share or center penetration on all three organs. I want to make it crystal clear. we have not seen any fundamental or competitive dynamics playing any role in the slight sequential decline in case volume for OCS in Q3. Let me repeat it again. There has not been or we have not seen any fundamental or competitive dynamics playing any role in the slight sequential decline in case volume for OCS in Q3. On the OUS revenue decline, As we've discussed previously, OUS revenues and and will remain a very small part or portion of our business in the near term. OUS volumes are quite lumpy, given a heavy focus on heart and lack of broad national reimbursement. We are working on several initiatives to launch liver and lung technologies OUS. and to secure broader national reimbursements in Europe or European countries to catalyze growth of OUS over the mid and longer terms. Second, let me discuss the transient impact on our margins. As we discussed earlier, we are continuing to invest in our logistics network, clinical resources, and next-gen OCS technologies to capitalize on the significant growth opportunity ahead of us. In Q3, the primary driver of transient decline in gross margin was related to the impact of investments in our infrastructure and a higher utilization of third-party logistics partners to cover NOP mission, as our planes received scheduled maintenance, impacting our service margins. To be clear, the near-term variability in quarterly margin is a direct result of our growth profile and our ongoing investments to catalyze future growth. As we start gaining efficiencies of scale and further case growth, we are confident that service margins will grow to healthier levels. In summary, we believe margins will remain variable over the next several quarters, as we've said before, given the ongoing investments in our business. However, we have a very high degree of conviction that these investments will position us optimally for future growth and profitability. Moving now to our OCS heart and lung clinical programs, which we plan to launch next year in 2025. As I mentioned earlier, these programs are anchored by our next-gen OCS technology developments and designed specifically to drive significant momentum in our lung market and broadening our clinical indications and adoption for OCS heart technology. We are increasingly confident in the potential clinical impact of these new clinical programs as preclinical testing has consistently demonstrated superior outcomes for OCS heart and OCS lung up to 24 hours of OCS perfusion. These advancements stand to enable morning hours heart and lung transplants for the first time in history. which would represent a huge milestone that the cardiothoracic transplant field has long been aspiring to achieve. Detailed preclinical results will be formally and publicly presented at the upcoming heart and lung transplant scientific conferences in 2025. Again, we are excited about our product pipeline and the potential transformative nature of these programs to catalyze the near, mid, and long-term growth of our OCS platform. and to drive more lung and heart transplant volumes nationally. In conclusion, we are encouraged by our 2024 results as we have effectively doubled year-to-date revenue compared to 2023 while continuing to invest in our future growth. We are now focused on ending 24 on a strong note and preparing for several growth catalysts throughout 25 and beyond. To that end, we are maintaining our annual full-year revenue guidance range of $425 to $445 million, which represents 76 to 84% growth over full-year 2023 revenue. With that, let me turn the call to Stephen to cover the detailed financial results for the quarter.