Ladies and gentlemen, thank you for being here, and welcome to the TransMedics Q1 2020 Earnings Conference Call. At this point, all participants are in a listen-only mode. After the presentation, there will be a question-and-answer session. I would now like to turn the call over to your speaker today, Mr. Brian Johnston at Gilmartin Group. Thank you. Please proceed.

Thank you, operator. Earlier today, TransMedics released financial results for the quarter ended March 31, 2020. 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 that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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 includes expectations for growth in our organization, regulatory approvals and reimbursement and guidance and/or expectations for revenue, gross margins and operating expenses in 2020 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. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our annual report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2020. 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, May 6, 2020. And with that, I'll now turn the call over to Waleed Hassanein, President and Chief Executive Officer.

Thank you so much, Brian. Good afternoon, everyone, and welcome to TransMedics' 1Q 2020 earnings call. Joining me today is Stephen Gordon, our Chief Financial Officer. Given these unprecedented and challenging times and circumstances, I want to start our call by extending my well wishes and gratitude to all the health care and transplant professionals as well as the TransMedics clinical support team, who are on the front lines, ensuring that organ transplant procedures are continuing during this devastating COVID pandemic. In response to the COVID pandemic, we have taken extensive actions to minimize its negative impact on our team and our business. We focused our actions on three main areas: one, protecting our employees and their families; two, continuing to support our customers and transplant users globally; and three, maintaining the financial health of our business to enable us to weather this pandemic and emerge out of this crisis stronger. Let me share the details. To protect the health and safety of TransMedics employees and their families, TransMedics has enacted policies in line with federal and local government and health care agencies to transition employees to a remote work environment, with the exception of those who are deemed essential to key business operations for TransMedics. Given that organ transplant procedures are essential and nonelective procedures, during this crisis, TransMedics has made a clear and strong commitment to support our global customers with product and clinical support throughout this pandemic. TransMedics' clinical field support team remained available throughout the COVID crisis to support our customers, either in person or virtually. The last point is expense management. TransMedics has taken actions to maintain financial flexibility as the trajectory of the pandemic evolves. The company has taken preemptive measures to reduce near-term expenses, including reduction of nonessential research and development and selling, general and administrative expenses. In addition, we've enacted a small reduction in headcount as well as a across-the-board percentage deferment of salaries to maintain a healthy balance sheet. We feel strongly that these actions have been effective, and we're continuing to closely monitor the evolution of the dynamic and its potential impact on our business. Now let me shift to review the Q1 results. We started 2020 in a position of strength and made meaningful progress across all Organ Care System products in the U.S. and internationally. Our first quarter net revenue was $7.5 million, representing 61% overall growth from the same period in 2019 in the U.S. Net revenue was $5.2 million, representing 76% U.S. growth for first quarter 2019. Importantly, in the first quarter, we recognized revenue across all three of the OCS products in the U.S. with the OCS Liver and OCS Heart programs both contributing alongside our commercial OCS Lung program. Specifically, the OCS Heart Donation after Circulatory Death program continued to accelerate rapidly and we ended the quarter with 25 DCD Heart transplants in the U.S. Relative to our liver program, we have completed the statistical analysis of the OCS Liver PROTECT Trial, and we are very excited by the final results. We plan to submit the Premarket Approval application to the FDA within the coming weeks. In Europe, we gained momentum in our heart business in the first quarter. In Q1, we also expanded our national service collaboration initiative with several major organ procurement organizations or OPOs. In fact, we had a few OPO orders that were deferred from Q1 due to the COVID pandemic. We fully expect, however, to announce a number of new collaboration initiatives with leading OPOs once the COVID crisis stabilizes in the U.S. Now let me describe – discuss with you the near-term COVID impact and recovery expectations throughout 2020 on TransMedics. Overall, prior to March, we were on a trajectory towards significant growth in 2020. However, the COVID-19 pandemic crisis has caused disruption and delays in our progress. In March, we saw a sharp decline in transplant procedures as many health care facilities in the U.S. began shifting resources and personnel to respond to the surge. While in Europe, specifically in Italy, the UK, France and Germany, they shut down their clinical transplant program in its entirety to deal with the COVID pandemic. Because of this significant disruption and uncertainty, we withdrew guidance for 2020. It is impossible to predict where the trough of transplant activity is or will be given many states are still grappling with the surge of COVID patients or are just reaching the early phase of stabilization. We believe it's realistic to assume that this disruption will continue through Q2 in both the U.S. and Europe. The disruption to our business is unique relative to other medical procedures given that transplant procedures are not elective procedures. While we are not concerned with the demand for OCS and the need for transplantation, our ability to drive procedural growth will depend, to some extent, on the ability of hospitals to redirect resources such as ICU beds and clinical personnel away from the COVID response and back to emergent procedures such as transplantation. That said, we are uniquely advantaged in terms of the durability of our business by the nature of transplantation. Let me highlight a few examples. As I mentioned, organ transplants are life-saving and essential surgical procedures; they are not elective. There is a well-established pent-up demand for organ transplant procedures represented by the transplant waiting list, which has continued to grow even throughout this pandemic. This means that we are not relying on patients' willingness or ability to visit their doctors or primary care physicians to get referrals for elective procedures. Even in the COVID testing situation, COVID testing was prioritized to screen potential donors for transplantation and is now part of the standard battery of tests to screen every donor in the United States. We believe that organ transplantation will be amongst the first procedures to resume as hospitals begin to shift their available resources from the COVID-19 crisis back to emergent procedures. Finally, we believe that major health care facilities may look to the high-margin organ transplant procedures to meet the clinical demand for patients, while also countering the negative financial impact related to the deferment of elective procedures on the institution's overall financing. With these points in mind, and assuming stability in the infection rates, hospitalizations and expanded testing capacity, we expect to see incremental improvement on a quarterly basis beginning in the third quarter, with the potential for near normalcy towards the end of 2020 or the very beginning of 2021. Furthermore, we believe that we may benefit from potential significant pent-up demand for transplant procedure in the second half of 2020 given this disruption. We're actively preparing for this potential surge by building inventory and by expanding our clinical support team to support transplant activities. Let me end my section by discussing TransMedics' long-term fundamentals for 2021 and beyond. Despite the near-term negative impact of the COVID crisis, we remain bullish on the outlook for 2021 and beyond for TransMedics. Our position is based on the following four fundamentals: one, the life-saving nature of organ transplant procedures and the significant demand for OCS remain unchanged; two, the strength of the OCS FDA pipeline with our imminent OCS Heart panel meeting and FDA decision and our OCS Liver trial results and associated PMA submission that is targeted for Q2 of 2020. Relating to the FDA heart panel meeting, based on our latest dialogue with the FDA, we expect this decision will occur in the second half of 2020; three, during this crisis, our strategy is to lean forward during this crisis to establish and broaden our technological and clinical service offerings to facilitate organ procurement and transplantation using the OCS technology during and post the COVID era. We believe that this crisis further underscores the need for a new model and technology to streamline organ retrieval and transplantation processes. TransMedics is best positioned to provide this solution based on our broad technological platform, our clinical expertise and our existing deep relationships with leading transplant institutions and OPOs in the U.S. Finally, our strong balance sheet and our expense reduction actions further buffer our balance sheet to withstand this crisis and not to lose the momentum we've built over the past 12 to 18 months. With that, I will turn the call over to Stephen Gordon, our CFO, to review the financial results for the quarter.

Thank you, Waleed. I will provide some additional detail on the Q1 results and our actions to preserve cash during this somewhat uncertain time. For the first quarter of 2020, our gross revenue was $8.2 million, and our net revenue was $7.5 million. Net revenue grew 61% from the first quarter of 2019. And in the U.S., our gross revenue was $5.9 million and net revenue was $5.2 million, reflecting U.S. net revenue growth of 76% from the first quarter of 2019. The organ breakdown on the U.S. net revenue was $1.9 million in OCS Lung, $1.9 million also in OCS Heart and $1.4 million in OCS Liver. And outside of the U.S., our revenue was $2.3 million, with $2.2 million of that from OCS Heart. This should provide a good breakdown of the product-level detail. The key drivers of our revenue growth in Q1 were continued OCS adoption across all organs. U.S. lung revenue was up 42% from the first quarter of 2019, and our U.S. clinical trial revenue from both OCS Heart and OCS Liver contributed significantly. Our ex-U.S. revenue grew by 35% from the first quarter of 2019. Our gross margin for the first quarter of 2020 was 65%, continuing to progress in the right direction. That's up from 55% for the first quarter of 2019 and is an improvement from 62% last quarter in Q4 2019. Our total operating expense was $12.9 million in the first quarter of 2020, reflecting 51% growth from the first quarter of 2019. Our operating loss was $8 million in the first quarter of 2020 compared to $6 million in the first quarter of 2019. And our net loss for the first quarter of 2020 was $8.9 million compared to $6.9 million in the first quarter of 2019. Finally, cash and cash equivalents and marketable securities were $72.6 million as of March 31, 2020, and the weighted average common shares outstanding for the quarter was 21.2 million. As Waleed mentioned, we have taken very swift and strategic actions to preserve capital during this period of uncertainty. These actions included a percentage of salary deferment across the company, a small reduction of our workforce and a reduction or delay in all nonessential discretionary operating and capital expenses. While taking these steps to preserve capital, we continue to hire in certain critical areas, like our commercial team, to avoid losing the momentum we had gained in the first quarter. We believe these actions will provide a reasonable level of mitigation to the revenue impact that we expect to see in 2020. Therefore, the $72.6 million in cash we currently have should continue to give us the runway we need to weather the storm in front of us. You may have also seen that we did apply for and receive a Paycheck Protection loan as part of the CARES Act, but ultimately decided to return that loan after the guidance changed around public companies at the end of April. With that, I'll turn the call back over to Waleed.

Thank you, Stephen. As seen in our Q1 results, we began 2020 with strong momentum, and we are on track to achieve significant growth this year, then the COVID pandemic happened. While we expect that our business will be negatively impacted in the near term, we're extremely confident in TransMedics' long-term prospects and our robust pipeline of new clinical indications and data supporting the value of the OCS technology. In the meantime, we've taken extensive measures to mitigate both health and business risks, while preserving cash to best position TransMedics as we emerge from this crisis stronger to continue our mission to transform organ transplantation. Finally, I want to take a moment again to thank the transplant health care workers and TransMedics team on the front lines during this pandemic, ensuring that organ transplantations are continuing to help patients in need. Thank you so much for joining us on this call. And now we will open up the line for questions.

And your first question comes from the line of David Lewis with Morgan Stanley.

Hi, good afternoon. This is Kelvin on for David. A couple of quick questions for me. Could you please provide some more color just on early phases? You commented on early phases of stabilization. Just wondering if you could provide some quantitative guidance on what trends you're seeing in April? Are you seeing any sort of recovery by the end of April? And if you could comment on just the recovery in 3Q and 4Q and how closely you can now approach your pre-COVID budget by 4Q. And then I had a quick follow-up.

We really started seeing some early signs of recovery towards the second half of April. We are encouraged by it. But as everybody on this call is aware that there are a lot of uncertainties remaining in the system with the social distancing easing in some states that could result in another rebound of COVID. I think the transplant community is going to be more prepared this time. But it's way too early to really change our opinion that this is going to continue. This disruption will continue through Q2. However, as I stated, Kelvin, we see the peak stabilizing, and the number of hospitalizations kind of stabilizing, we are expecting to see improvement in activities in Q3 and hopefully reaching near normalization in Q4. That's our expectation at least. But again, there's a lot of uncertainty and unknowns surrounding if we're going to be hit with another peak. Where is it going to be? How much is that going to impact the transplant procedures, etc.? But we are beginning to see some early signs of recovery in the second half of April.

Understood. And could you – sorry, could you quickly comment on just how important New York and Boston are to your business?

I think they're big cities. From our business standpoint, I think Boston is important. New York is not as important as Boston. But it's not necessarily about the local geography. The surge in New York paralyzed the entire East Coast, and we were shipping patients from New York City down to other states to get transplanted. So I think I addressed your question. It’s not just – even though we’re not dependent in New York, the surge affected the entire region.

Got it. Understood. That's very helpful. Just a very quick follow-up on just upcoming catalysts. You commented on the heart panel. Just curious if there is any progress on confirming a virtual panel with the FDA on the heart and then on liver. Any updates on readout or publication strategy, just given the conference going virtual or cancellation dynamic?

Sure, sure. So related to the heart panel, we are actively discussing this with the FDA, and it appears that the FDA is aiming to reschedule this panel meeting sometime in the second half of this year. We think it's going to be in the late Q3 time frame. But until we have a definitive date, we are unsure about that. The goal is to try to set a date that hopefully would enable us to have the meeting live with the fallback position to have it as a virtual meeting through WebEx or the like. That's the strategy that the office of cardiovascular devices wanted to pursue, and we're very supportive of it. Related to the liver PMA, the trial results are known to us and they are extremely exciting to us, and we cannot wait to publicly announce the results. As a testament to the results, the PMA timeline is not going to be delayed, and we are submitting that PMA in Q2 2020. We hope that, given the strength of the results, that we will be going directly towards a major submission of manuscript to a major publication. We hope that, that will happen over the next several weeks. The results are very strong. They're the first of their kind. We’re very excited to work with our lead investigators to support them in any way we can to get these trials published as soon as possible.

And your next question comes from the line of Robbie Marcus from JPMorgan.

Great. Thanks for taking the question. I wanted to talk about, as we move through the recovery, how are you thinking about hospitals' willingness to adopt the technology here. I don't think there is much of a capital component involved, but I imagine it's also going to not be top of mind to bring new products into a hospital system during the recovery. So help us understand how you're thinking about the ramp-up in bringing new centers online and what you could do now to help accelerate that process over the rest of the year?

Sure. Thank you, Robbie. As you remember in my last call, I stressed the fact that our strategy has never been about ramping up new centers. We have critical massive centers already that already have the technology that's already been trained on. So for us, it's driving the volume through these institutions. So that's one part of the answer. The second part is as we broaden our service model, our revenue growth is not going to rely on the institutional ability to bring capital equipment, but it's really the organ will be delivered to any institution across the U.S. for the transplant procedures with us retaining ownership of the hardware. So these are the two approaches that I referred to that broadening our service initiative is going to enable us to do with very little, if any, impact at all about capital equipment or opening up new centers. We expect to open up new centers. We have a robust pipeline and potential new centers that we expect to open in 2020. But we have a critical mass already in hand with hardware already available that we expect to drive our growth near term from these institutions supported by the service market.

Great. And maybe just one follow-up. How should we be thinking about the liver trial here? I imagine with things on hold, there's going to be some delay. But what's your thought on timing for that now?

We are not pulling back on the liver trial. Again, the results, when they become public, will speak for themselves. We have already initiated the continued access protocol for it. We expect that the review process within the FDA will occur within the targets we've set. Our PMA filing will be according to our original plan in Q2, which is six months ahead of our original plan. So we're not expecting any reduction or pullback on the liver, the opposite is true. Once these results become public, we expect that the cap will be rapidly enrolling, and we're probably going to expand the cap. We will leverage the results to encourage the FDA to hopefully accelerate the review process.

And your next question comes from the line of Josh Jennings with Cowen.

Hi. This is Bryan here for Josh. Thank you for taking my questions. To start, can you share details on the volumes you experienced in March as compared to February and January? Are volumes down as much as 50%? And I guess as part of that, how would you characterize April volumes? And maybe are you seeing improvements regionally or stabilization, particularly in centers outside the U.S.?

We never commented on volumes per se, but I'll give you just a metric. We've seen in – starting the second week in March through the first week in April, transplant volume in the main regions went down to 0. It’s public knowledge that the donor activities in the New York area went down from 482 donors in February down to four through March and early April. There was a significant decline. In April, we are seeing – in the second half of April, we started seeing activities, as I stated earlier. It's nowhere close to the volumes in February, but it’s definitely starting and it's starting across a broad – regions in the U.S., not just in the Northeast, with experienced transplants in the Midwest, South and the West Coast, in addition to Northeast and Mid-Atlantic. So we feel that the recovery is starting. Again, we're keeping our fingers crossed that we don't get another peak somewhere that would have a negative impact on this recovery.

Understood. And maybe one for Stephen. You previously cited a monthly burn rate of around $2.5 million. Is that still where you're currently tracking with the expense controls you cited? And I guess, on the strategic areas for increased spending, will that pick up in the third quarter in anticipation of a more normal fourth quarter?

Yes. That's a good question. I don't expect us to be able to maintain the same burn rate. We do expect to have a revenue hit here. We're going to do everything we can to maintain it, but I do expect it to have a higher burn rate, at least for the next several months, maybe in the $3 million range rather than $2.5 million. However, we think we still have a pretty good runway. We're going to watch it closely. If we need to make some changes, we can do that. As far as the investment I talked about, some of that is already in, in Q1. I don't think it's going to be material to the overall spending. But it's already in Q1 and some of that, you'll see that in Q2.

Your next question comes from Suraj Kalia with Oppenheimer.

Good afternoon, Waleed. Good afternoon, Stephen. So Waleed, three questions from my side. I just heard some commentary from your side about 400-plus organs in the New York area, and then it suddenly dropped off to single digits. I guess more broadly, what is happening to these organs? And maybe I missed it, were those just 400 hearts or were those across the board? Specifically on hearts, where are these organs – donor organs going? Or are there just fewer accidents, and hence, fewer organs available? Just kind of walk us through the background. What are the dynamics that are happening, especially in time-sensitive organs such as the heart?

Thank you, Suraj. So I want to be specific. The webinar from the New York area was talking about donors in general. It was not about specific organs. To answer the question, where do these organs go? They were not donated. There were no donor retrieval processes in the New York area throughout the month of – the second half of March into the first half of April. So there was no transplant activities whatsoever. There was no retrieval process. The whole thing came to a screeching halt. This doesn’t mean these organs were transplanted somewhere else. There was no donation process at all. So where do these organs go? They stayed with the body of the deceased, and they were buried; they were not retrieved and not used for transplantation at all. What it creates, however, is a pent-up demand on the waiting list for the heart patients who are waiting in New York, the lung patients, the liver – everybody who's waiting for an organ transplant. So that's what it creates. That's what I referred to about the pent-up demand because the waiting list continued to grow throughout the COVID pandemic. It didn't stop. The need for organ transplantation continues to grow, and the waiting list continued to grow throughout this time.

Fair enough. Very clear. Waleed, obviously, the ultra-concentrated nature of these transplant centers, especially in the U.S., would you care to characterize the current state of capitalization of these centers? And the reason I ask is, it's no secret. It's all over the news how financially devastated hospitals are. It looks like they're going to be seeking another $100 billion, $200 billion, just in general. Transplant centers, obviously, are relatively much more profitable given lucrative reimbursement. But in this current environment, is that a dynamic that you all have to worry about where the centers – let's say it gets prolonged to end of Q3, God forbid. Just give us some color on your assessment of the current state of capitalization of these 50 or 70 key centers in the U.S.

Sure. Thank you, Suraj. Let me address that question in two different levels. Let's talk about the transplant centers that already have 18 lung centers, 17 heart centers and about 17 liver centers that are already equipped with OCS today. Within these institutions, they drive a significant portion of the volume. So these institutions are not going to be looking to make any more capital equipment budget for their programs, which is the risk that I think you're asking and Robbie mentioned in his question as well. But let's look at it from the other side, which you're hinting to, and I hinted to in my presentation. Everybody knows that centers and hospitals across the U.S. are losing significant amount of revenue and significant amount of – yes, significant amount of revenue. When you look at the transplant procedure, it's one of the high-margin procedure. It's a nonelective procedure. It's an emergent procedure. Definitely, we expect those procedures to be prioritized within these centers. Now the other layer of your question is, why would they use the OCS? Well, we are working on TransMedics to make that no longer a question. We are going to be leaning forward into the storm, into this crisis, with our technology, team, service model, and our relationship with OPOs to ensure that if there is an organ out there, we will retrieve it, assess it, optimize it, and work with the OPOs to allocate it and deliver it to the transplant center. That's what I was referring to. This area is our strategy to lean into this storm, not to lean back, lean forward and establish ourselves as the key partner to that transplant paradigm in the U.S. during and post the COVID era.

Got it. And Waleed, quickly, finally, and I'll hop back in the queue. The liver data to be released in a few months, will it allow us comparison to static cold storage? Specifically, we would get in graft survival and causes of failure, and so on and so forth, correct?

Absolutely, absolutely, absolutely. This is a randomized controlled study compared to cold storage, and it will show us results – significant results of differences, showing significant differences on the OCS arm compared to cold storage on many key clinically important end points, effectiveness end points, safety end points and a long-term signal that is critical for the long-term success of liver transplantation and Donation after Circulatory Death transplants.

And this concludes our Q&A session. I would like to turn the call back over to Waleed.

Great. Thank you so much. We appreciate you taking the time to be on the call, and we hope all of you are safe and healthy. Thank you so much. Have a great afternoon.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.