TransMedics Group, Inc.

Good afternoon and welcome to the TransMedics fourth quarter and full year 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. To ask a question at that time, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. 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 Gilmorton Group for a few introductory comments. You may begin.

Thanks, operator. Earlier today, Transmedics released financial results for the quarter and full year ended December 31st, 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 meanings 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, services, and timing of new clinical programs, 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 2025 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 October 29th, 2024. Our subsequent SEC 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 it's a live broadcast today, February 27th, 2025. And with that, I will now turn the call over to Waleed Hassanein, President and Chief Executive Officer.

Thank you, Lane. Good afternoon, everyone, and welcome to Transmedic's fourth quarter and full year 2024 earnings call. Joining me today is Gerardo Hernandez, our Chief Financial Officer. Before reviewing our financial and operational results, I would first like to make a few remarks about our mission and our unique market position. Our mission at Transmedics has always been and remains to expand the utilization of available donor organs for transplantation, while delivering the best possible clinical outcomes for our transplant patients. It is indisputable that Transmedics has been successful in meeting these goals. Today, Transmedics is radically transforming the field of organ transplantation globally and has already played an integral part in saving thousands of lives. Enabled by our disruptive OCS technology, comprehensive NOP clinical services, and our rapidly growing transplant logistics infrastructure, we are doing things today that few thought possible in organ transplant field. We hold ourselves to the highest professional ethical and moral standards in everything we do. We are extremely proud of our highly diverse and dedicated team of professionals, all of whom are committed to saving the lives of patients in need of an organ transplant in the US and around the world. Despite our efforts, Transmedics was targeted in a recent short report that raised serious allegations about the company and leadership. We took this matter very seriously and retained outside counsel at Kirkland Ellis LLP to conduct a thorough investigation of the allegations in the short report. In addition, Kirkland engaged an experienced outside forensic accounting firm to support their work, which has been reported to the audit committee of the board of directors. This investigation did not find any evidence of fraud or other misconduct. Allow me to repeat this again. This investigation did not find any evidence of fraud or other misconduct. In addition, we engaged our senior FDA regulatory counsel from Covington and Burling LLP to respond to the citizen petition, which was previously submitted by the short seller to FDA. Both our response and Covington's legal response to the citizen's petition were published in the FDA website last week. To summarize, We strongly believe that this short report is nothing more than a collection of baseless and racist allegations and a smear campaign made for purely financial gains. Unfortunately, this was at the expense of transmedics, the clinical transplant community, and most importantly, the lives of the patients whom we serve. We stand firmly by our business. and our dedicated world-class NOP surgical and clinical leadership and team. They are the unsung warriors who are out there in the middle of the night ensuring that every suitable donor organ is evaluated and potentially preserved on OCS for possible transplantation to save a patient's life. Importantly, They are working tirelessly to manage these organs on OCS in a manner that enables the highest quality clinical care and outcomes for our patients. We are extremely humbled. We're extremely humbled by and proud of the significant life-saving impact of our OCS technology and NOP teams. We remain committed to our mission of expanding access and improving clinical outcomes to patients in need for organ transplants. Now let me proceed with discussing our business performance. On our last call, we discussed several headwinds that impacted 3Q results and why we viewed these generally as transients. Today, we're thrilled to report 4Q results that validate our views. 4Q24 was a banner quarter for our business and allowed us to conclude 24 on a very high note. Here are the key operational highlights for Q4. Total revenue for 4Q24 was $121.6 million, representing approximately 50% growth year over year and 12% sequential growth from 3Q24. U.S. revenue grew 11% sequentially to $117 million, while OUS revenue grew approximately 51% sequentially to $4 million. Transmedics Tristite Logistics service revenue for 4Q was $21.7 million, up from $9.2 million in 4Q23 and up from $20.1 million in 3Q, representing approximately 8% sequential growth. Our overall gross margin for 4Q improved to 59%, up from 56% in 3Q24. Finally, we delivered an operating profit of 8.6 million in 4Q, representing approximately 7.1% of total revenue and up from 3.9 million or 4% of total revenue in 3Q24. Now let me provide the financial metrics for the full year 2024. Total revenue for full year 2024 was 441.5 million. representing approximately 83% growth over full year 2023 revenue. Our U.S. revenue grew to $422 million, representing approximately 91% growth over the full year 2023. Our OUS revenue was $15 million, relatively flat year over year. Our overall gross margin for the full year 24 was 59.4%, down from 63.8% in 23. This is due to the higher contribution of service revenue and in line with our stated expectations. Importantly, we delivered an operating profit of 37.5 million, representing approximately 8.5% of total revenue for the full year 2024. We're very pleased by our strong performance in 4Q and full year 24, which was fueled by our ability to grow our case volume and drive further market penetration. Importantly, our performance enabled growth in overall US liver and heart transplant volumes for the second consecutive year, driven primarily by OCS NOP cases. Our performance has also demonstrated our ability to return to our normal cadence of growing market share despite the ebbs and flows of monthly and quarterly variability in transplant market dynamics. Here are the key highlights of our annual case volume and market share per organ. For the third consecutive year, we grew OCS transplant case volume. There were 3,715 U.S. OCS cases for the full year 24, up from 2347 U.S. cases in 2023. Our overall OCS U.S. market share across all three organs was 20.9% for the full year 24, up from 13.8% in 2023. For the second year in a row, we saw growth in overall U.S. adult liver, heart, and lung transplant volume, For the full year of 24, there were 17,792 liver, heart, and lung transplants, up from 16,580 in 2023. We strongly believe that the OCS NOP once again played a key role in driving liver and heart overall market growth due to the increased use of DCD and DBD donors in the U.S. On an organ by organ basis, overall US liver transplant volume grew 9% over 23 to 10,393. US heart transplant volume grew by 1% over 23 to reach 4,085 transplants. Since 2022, the US adult liver transplant market grew at 11% CAGR, while adult heart transplant market grew at approximately 6% CAGR. Again, we believe the OCS NLP played a key role in driving this growth by utilizing more DCD and DBD donors in the U.S. Now, let me discuss our annual market share per organ. For liver, we grew our overall U.S. market share to 27% of liver transplants, This is up meaningfully from 17% in 2023. We saw growth in market share of both DBD and DCD segments. For DBD, we grew 17% up from nine in 2023. And for DCD, we grew to 53% up from 50% in 2023. For heart, we grew our overall market share to 19% of all heart transplants in the US, up from 16% in 2023. We maintained our dominant position with DCD hearts, enabling 66% of all DCD heart transplants, while 8% of DBD hearts in 2024 were done using OCS. For lung, we maintained a modest 4% market share of all U.S. adult lung transplants. These adoption metrics underscore the significant remaining greenfield growth opportunity for OCS NOP. In particular, we see an opportunity to drive deeper adoption across both DPD and DCD segments for liver. The next-gen heart clinical program will focus primarily on driving deeper adoption for DPD and continuing to grow share in DCD. Finally, our next-gen lung clinical program will focus on reinvigorating the OCS lung market in the U.S. As we've discussed, both programs are targeted to launch in H2 2025. Now let me shift gears and provide an update on our transmedics, transplant logistics infrastructure and 4Q performance. Through 4Q, we continue to expand our fleet of owned aircraft, reaching 19 by end of 4Q. As of today, we own 21 aircrafts. We are planning to add one more aircraft in 25 Our goal is to average these 22 aircrafts for the remainder of the year to optimize utilization and maximize the efficiency of our operating model with existing assets. We will continue to hire pilots, however, so we can double shift a portion of our fleet to assess the impact on the efficiency of the operation. Our daily average aircraft availability in 4Q was 14, up from 10.7 aircraft on average in 3Q. This enabled us to service the majority of our NOP missions using Transmedics-owned aircraft. Overall, our owned aircraft covered 75% of our NOP flight missions in 4Q compared to 61% in 3Q24. Moving now to provide a quick status update on our next-gen OCS heart and lung clinical programs. Last week, we filed our OCS lung IDE for our new clinical program, and we expected to file our OCS heart IDE for our new clinical program within the next few weeks. Detailed preclinical results, as well as the proposed clinical program design and endpoints, will be formally and publicly presented at the upcoming ISHLT Scientific Conference in April here in Boston. We are bullish about our clinical and product pipeline and the potentially transformative nature of these new clinical programs to catalyze the near, mid, and long-term growth of our OCS platform. These programs will also be critical in further expanding overall lung and heart transplant volumes nationally while enabling deeper adoption into DBD and DCD market segments. Now let me discuss our 2025 expectations and guidance. As we stated at our Investor and Analyst Day in December 24, we believe that 2025 will represent another transformative year for transmedics, particularly as we launch the next-gen heart and lung programs to catalyze growth in these important market segments. In addition, we will also continue to build on our strong liver foundation, expanding our DBD and DCD liver adoption based on our excellent clinical outcomes in both of these segments. We are also investing heavily in our next-gen OCS technology platform that will help us in future years go beyond our stated goal of 10,000 US NOP transplants in 2028. Finally, we are planning to continue to strategically invest in our business infrastructure to ensure scalability while maintaining quality and reducing supply chain risks. We're looking forward to discussing progress on these initiatives throughout the year. As we plan for the year ahead, we're also cognizant of a few operational challenges that we would like to share and highlight. First, As stated, we are still building out our logistics infrastructure to optimize efficiency of operation. As such, unexpected aircraft maintenance may impact availability and create variability in our service margins. Second, we should expect that as we continue to gain market share throughout the year, we may be impacted by the normal ebbs and flows of organ transplantation volume in the US, as we saw in 3Q 2024. Finally, the precise timing of launching the NextGen lung and heart clinical programs will depend on several variables, especially FDA ID approval timeline, center IRB approval, and center initiation process, et cetera. We will continue to report on these important milestones as they materialize. Based on the above, We are setting revenue guidance for the full year 2025 to be between 530 and 552 million, representing a 20 to 25% growth over full year 2024. With that, let me turn the call to Gerardo to cover the detailed financial results of the quarter.