Good afternoon and welcome to TransMedics' First Quarter 2021 Earnings Conference Call. I would now like to turn the call over to Lynn Lewis from the Gilmartin Group for a few introductory comments.

Thank you. Earlier today TransMedics released financial results for the quarter ended March 31, 2021. 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 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 include expectations for growth in our organization, regulatory approvals and reimbursement, and guidance and/or expectations for revenue, gross margins and operating expenses in 2021 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 11, 2021. 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 4, 2021. And with that, I'll now turn the call over to Waleed Hassanein, President and Chief Executive Officer.

Thank you very much, Lynn, and sorry everyone for the technical difficulties earlier. Good afternoon everyone and welcome to the TransMedics 2021 first quarter earnings call. Joining me today is Stephen Gordon, our Chief Financial Officer. As we stated in our last call, we are expecting several catalysts in 2021, which we believe will set a strong foundation for long-term growth for TransMedics. The positive FDA panel vote to approve our Heart DBD PMA indication was the first catalyst to be achieved this year and we're looking forward to many more throughout this important year. Today I will be covering the following five major topics on our call. First, a summary of our financial results for the quarter. Second, the progress achieved across our key strategic initiatives. Third, commentary on our OCS Heart panel meeting results. Fourth, a status update on the upcoming catalysts in 2021 and their potential impact on our business. And then finally, I will discuss expectations for the remainder of 2021. Starting with the first topic. Net revenue for the first quarter was $7.1 million. While our overall revenue declined roughly 6% year-over-year, it is important to recognize that our U.S. business grew 11% despite minimal contribution from OCS Liver due to the completion of the CAP enrollment. We are encouraged by the growth in our U.S. business and the continued recovery in the U.S. transplant activities. Our U.S. revenues continued to struggle due to the COVID impact on transplant numbers and the overall disruptions throughout the European hospitals. We are laser-focused on our key strategic initiatives we outlined for 2021 to help drive growth for our business, which leads me to the second major topic to discuss. In the first quarter, we made meaningful progress across all strategic and operational initiatives for TransMedics. Let me start by describing the status of the National OCS Program. We are continuing to build and leverage this program as we expand our reach throughout the United States while increasing awareness about its clinical and financial benefits among key national transplant stakeholders. In Q1, we expanded and initiated clinical activities in two new regions in North Carolina and Arizona, bringing the total to six initiated regions in the U.S. We are actively engaged with several new OPOs to meet our stated goal of being active in 10 regions by year-end. We also held three webinars targeting lung transplant programs across the U.S., to market this National OCS Program. We will continue to hold these webinars throughout the year to maximize awareness and address any potential hurdles for broader adoption of this approach. Meanwhile, we're continuing to build the necessary infrastructure and resources to ensure the long-term success of this important program. We expect this to continue throughout 2021 and into early 2022, as we add additional organs and new service capabilities and new clinical indications. As we stated previously, we strongly believe that the National OCS program will be an important mid- and long-term driver for OCS utilization and revenue growth in the United States. Moving now to our second initiative, the OCS Liver PMA. We've been actively engaged with the FDA on this important PMA and we look forward to holding our OCS Liver advisory panel in mid-July. Given the proximity of the panel date, the FDA is now questioning the timing of approving the second tranche of the OCS Liver CAP. We are actively discussing this issue with the FDA and hope to reach a resolution in Q2. This is really a bittersweet situation, where on one hand we are thrilled to have the panel date set soon. However, it seems to be negatively impacting the CAP approval and its associated revenue in Q2. That said, our focus has always been and remains on long-term success, which will benefit from current panel timing that increases the confidence in the potential approval before year-end. Our third strategic initiative was advancing the OCS Heart DCD indication. As you know, we've completed our 180-patient randomized OCS DCD heart trial in 2020, with 90 of those 180 patients being transplanted using the DCD heart on OCS. We remain on track for the top-line readout of this important program in Q3 2021. At the end of Q1, specifically on April 1, we have enrolled 46 new additional DCD heart transplant cases using the OCS system in the DCD Heart continued access protocol. Finally, our fourth strategic initiative was the OCS Heart DBD PMA. We finally completed this important milestone with a strong favorable panel vote for approval of the OCS Heart DBD indication. Now we are focused on turning this success into an approval decision in 2021. Please allow me this opportunity to cover the third major topic and clarify and discuss a few observations from the panel meeting. First, a key theme of the panel discussions was fully expected and were not a surprise for TransMedics. Importantly, we were prepared to address every major topic raised by the FDA. Second, many of the comments that seemed controversial came from panelists with limited or no heart transplant experience, so the ultimate impact may not be as relevant as one would think. Third, related to the label, we believe that the data, the clinical evidence from expand and CAP support an appropriate label for the OCS Heart DBD indication, if approved by the FDA. Importantly, we must remember that the OCS label language in our PMAs is never static and it typically evolves given the fluid nature of our multiple concurrent indications in the same organ transplant market. For example, the label language will have to be updated with the DCD Heart indication approval in 2022 and with the results of our post-approval study for the DBD Heart indication. Fourth, a post-approval study, which we proposed in order to continue to build evidence in the real-world setting and enable the potential expansion of our indications, is to support our leading market position. We are supported by leading U.S. academic heart failure cardiologists and surgeons to design a robust post-approval study that is practical and easy to implement. Finally, I'd like to clarify and reiterate that TransMedics conducted an extensive pre-clinical testing program with tens of animal studies supporting the safety of the OCS Heart System. Importantly, we need to remember that we have transplanted more than 1,100 human hearts across the globe, both from DBD and DCD human donors with excellent clinical results. Now let me move to the fourth major topic that I would like to cover and provide a status update on our five major catalysts for 2021. Importantly, I want to highlight the potential impact of these catalysts on our overall growth trajectory for the foreseeable future. The first catalyst we expect is FDA approval of the OCS Heart DBD indication. We are actively engaged with the FDA to hopefully drive to a regulatory decision over the next few months. In parallel, we are continuing the preparation for the commercial launch of the OCS Heart, pending the FDA approval, of course. Specifically, we are engaged with the 25 heart transplant centers that are currently active in our DCD CAP program, given their clinical experience with the OCS Heart in the DCD program. We are planning and preparing to leverage our infrastructure to add the OCS Heart to our national OCS program in the regions we are active in once the FDA approval is enhanced. And finally, we're working with our KOLs to design a robust post-approval registry that is practical to implement and to scale. The second potential catalyst is the OCS Liver panel meeting and subsequent FDA approval. We are looking forward to conducting our OCS Liver panel meeting in mid-July, which would position us well for potential approval and launch in Q4 2021. Similar to the OCS Heart, we're actively engaged with our Liver centers in the U.S. to prepare for this potential approval later in 2021. We're also planning to add the OCS Liver to our national OCS program regions once FDA approval is enhanced. On another note, a full OCS PROTECT Trial results with one-year follow-up will be presented as a plenary session presentation at the upcoming American Transplant Congress in early June. We will announce the exact date and time once the program is finalized. The third potential catalyst is the read-out of the top-line data from OCS Heart DCD and the filing of the PMA supplement. This has been targeted for Q3 2021 and we believe that we are on track to achieve this milestone. This clinical indication will be filed under breakthrough designation and we are optimistic that it will support FDA approval in 2022. The fourth potential catalyst is the expansion of the OCS National Program to cover at least 10 major regions in the U.S. and expanding its coverage for heart and liver. We are on track to meet this milestone by year-end. The fifth and final potential catalyst is the publication of the OCS Liver and OCS DBD and DCD trial data in high-impact medical journals. Again, we are on track to achieve this milestone. These publications will be a critical driver for broader clinical adoption of the OCS technology and the transformation of the clinical standard of care globally. Now let me finish with a summary of our expectations and thoughts for the remainder of 2021. COVID and its new variants remain a threat to transplant activities normalization in the near term. Today, we see this impact more pronounced internationally and specifically in Europe in terms of transplant volumes. So far, U.S. transplant activities continue to recover with lung being the final organ to recover from a volume perspective. We are still, at least in Q1, anywhere between 2% to 3% below last year's volumes. We expect and hope that this recovery will continue barring any new peak emerging in the United States. We view the timelines for major FDA regulatory decisions on OCS Heart and OCS Liver as potentially limiting our ability to leverage CAP programs to grow our revenue in the near term from these programs. However, we expect approvals to be a major catalyst to drive revenue growth in the U.S. in late 2021 and beyond. Specifically, the FDA's hesitation on Liver CAP second tranche approval due to the imminent panel date may negatively impact our ability to generate revenue from the Liver CAP in Q2. We remain laser-focused, however, on our fundamental goal of ending 2021 with all three major transplant indications approved by the FDA, which will be a huge driver for revenue growth and streamline our revenue trajectory for the future. Given the current uncertainties and imminent FDA key timelines, we will not issue financial guidance for 2021. With that, I will turn the call to Stephen Gordon, our Chief Financial Officer, to review our detailed financial results for the quarter and the full year.

Thank you, Waleed. I would now provide some additional detail on the Q4 results and other financial information for the quarter. For the first quarter of 2021, gross revenue was $7.6 million and net revenue was $7.1 million. Net revenue decreased by 6% from the first quarter of 2020. However, in the U.S., gross revenue was $6.3 million and net revenue was $5.8 million, and U.S. net revenue increased 11% from the first quarter of 2020. The organ breakdown on U.S. net revenue was $2.3 million of OCS Lung, $3 million of OCS Heart, and $0.4 million of OCS Liver. Our ex-U.S. revenue was $1.3 million, up $7 million from Q1 of 2020 and included $0.1 million of OCS Lung and $1.2 million of OCS Heart. The key driver of Q1 revenue performance was strong OCS Lung and OCS Heart sales in the U.S., reflecting continued recovery in U.S. transplant activity, but the completion of the OCS Liver PROTECT CAP and lower transplant activity outside of the U.S. were headwinds for the quarter. Gross margin for the first quarter 2021 was 68% compared to 65% in Q1 last year and 63% last quarter, and in line with our stated expectation of the increasing gross margin. Total operating expenses for the quarter were $11.3 million, which was down 12% from Q1 of 2020 and up 6% from the fourth quarter of 2020. While limited travel and other spending due to COVID are still impacting our spending, we have continued to invest in growing our national OCS program. Our operating loss was $6.5 million in the first quarter of 2021 compared to $8 million in the first quarter of 2020 and our net loss for the first quarter of 2021 was $7.9 million compared to $8.9 million in the first quarter of 2020. Finally, cash, cash equivalents and marketable securities were $118.1 million as of March 31, 2021, which equates to a reduction of $7.5 million from the balance at the end of 2020. And weighted average common shares outstanding for the quarter were $27.4 million. And just confirming, while these comments are due to current uncertainty, we are not providing guidance for 2021 at this time. Now I would like to turn the call back to Waleed for closing comments.

Thank you, Stephen. While revenue is expected to continue to be impacted in the near term by the cadence of clinical trials and FDA review timelines, we are optimistic and confident in our long-term prospects, given our progress across all growth catalysts in 2021. We are advancing rapidly towards two major regulatory decisions on our OCS Heart and OCS Liver indications that will have significant commercial ramifications in our business and will fundamentally alter our growth trajectory long-term. The ultimate goal remains that we end 2021 with three approved transplant market indications in the U.S. and we remain confident that this goal is attainable. I'm excited about and confident in the future of our business as we continue to transform the field of organ transplantation globally using our OCS technology platform. With that, I'll now turn the call to the operator for Q&A.

Your first question comes from the line of Robbie Marcus from JPMorgan.

You've got Farhan on here for Robbie. So firstly, on the heart panel, I understood your commentary there, but help me understand a little better. What's your sense of when it happen about or what you expect the label to look like from the panel outcome and what you need in terms of the additional trial you mentioned to potentially get to the expanded criteria? Just help me kind of talk through some of the puts and takes here.

I believe the label resulting from this panel will enable us to meet all the expanded criteria we examined in the EXPAND Trial. We are very confident about this. At this point, we do not anticipate conducting further trials to obtain the label for the extended criteria. The trial I mentioned is a post-approval registry, which has been part of our proposed post-market program to the FDA. So to clarify, the label we are discussing should cover all the expanded criteria related to the hearts studied in the EXPAND Trial.

Okay, great. Thank you. And then switching to the Lung. I know you saw in the previous quarter some pent-up demand and some backlog to work through. What are some of the commercial dynamics you've seen progressing through this quarter? Have you seen recoveries in broader med tech? Is that something you've been seeing in the lung franchise and what do you expect going forward from here?

We anticipate that the Lung will continue to recover. While it is still lagging behind the other two organs, it’s improving, and we expect this recovery to persist as long as we avoid another peak in COVID cases. Recently, we’ve observed an increase in the number of patients being transplanted after suffering from COVID. Younger patients are now entering the transplant waiting list in critical conditions and receiving lung transplants due to COVID-related damage that has severely impacted their lung function. This trend is something we are closely monitoring, as it could lead to an ongoing demand that remains with us in the long term. However, this is the only new trend we noticed in the first quarter. More younger patients, rather than the typical lung failure patients, are seeking lung transplants due to their COVID experiences from last year.

Your next question comes from the line of Cecilia Furlong from Morgan Stanley.

I guess I just wanted to start with the service model. Could you talk a little bit more about the traction you've seen in Q1, COVID kind of disrupted to certain extent, pathway. So I guess just the value proposition right now in a world recovering from COVID of the service model. And then what you're thinking about commercialization for Heart, just how you roll that out between active centers in the CAP versus moving hard into the service model?

Certainly. Regarding the national program, we are excited about it and believe it will significantly influence the adoption of our technology in the mid to long term. In the first quarter, we broadly communicated the value proposition across various dimensions, including clinical, economic, financial, and work-life balance considerations, as well as COVID-related impacts, to all lung transplant programs. We are starting to see some traction build and expect this to continue into the second and third quarters. By the end of this year, I anticipate noticeable momentum from this program. However, due to the COVID environment, we recognize that things may take a bit longer than we had hoped. The first quarter served as a positive indication of growing momentum, but we need to remain patient and consistently reiterate the value proposition over the next two quarters. By year-end, we hope to see concrete evidence of this momentum reflected in our revenue. In terms of Heart commercialization and the approach for Liver commercialization, we plan to follow a similar strategy. We will begin with the active programs that have experience with OCS, whether through the CAP expand or the DCD program. Although they have primarily been involved with DCD, they now appreciate the value of an OCS Heart, so we will prioritize these programs. We also plan to layer in the national program. Our vision is to offer flexible mechanisms for adopting our technology through direct acquisition and the national program at least through 2021 and into mid-2022, allowing for one or both to become prominent as we move forward. We are committed to maintaining flexibility and enabling both paths to drive adoption without disrupting the initial adoption curve. We believe this situation will differ from what we experienced with the Lung program for reasons we have discussed previously.

And I guess to just on OCS DCD heart performance in the first quarter, could you just talk about the trends you saw as COVID headwinds listed and just really what you're seeing at the end of the quarter and into the kind of April timeframe just from a cadence standpoint. And then, just on Liver as well, when we could hear a bit more clarity on this second tranche go through or if you just progress to the panel?

We're very optimistic about the DCD Heart program for a couple of reasons. Firstly, the enrollment pace is at an unprecedented high compared to any previous programs we've conducted. What adds to our confidence and excitement from Q1 is that enrollment is no longer concentrated primarily in the top three or four leading centers. We're now seeing a more widespread distribution across 25 centers, which is very encouraging. Additionally, medium-volume transplant programs are performing a significant number of cases in Q1, which will positively impact their overall volume. From a macro perspective, in the U.S. during Q1, there were around 65 to 70 new heart transplants compared to last year. Out of those, 45 were made possible due to OCS as they were DCD hearts. These represent new hearts that would not have been transplanted otherwise. Consequently, OCS contributed to about 50% to 60% of the growth in heart transplants during Q1, which is very exciting for us. We anticipate that this upward trend will continue in the heart sector. Regarding the Liver CAP, we are really in a tight situation. We are making every effort to persuade the FDA of the importance of the CAP. However, the panel is scheduled for mid-July, and by the time we receive approval, it will likely be around early to mid-June. Therefore, it will be quite clear during Q2 whether we will have a second tranche in the CAP or if we will simply proceed through the panel to get those approvals. We hope to gain that clarity within the next 60 days.

Your next question comes from the line of Josh Jennings from Cowen.

Brian here for Josh. I just wanted to start with a clarification on your comment on the Liver CAP. So I understand the view that approvals clearly outweigh the CapEx activity in terms of priority for the company. But what is the rationale you've gotten specifically for not increasing the CAP, given that the data we've seen is very favorable and don't raise any concerns about the safety or efficacy?

That's a great question, but I can't provide specific details. However, on a high level, the feedback we received suggests that we are close to the panel and should go through the approval process. We are revisiting some of the points you raised, and we hope to be successful as we wait for the next 60 days. We share your perspective and recognize where they are coming from, but we aren't aware of anything concerning. The data is robust, and we are just as perplexed by the feedback as you are, while also being mindful of the timeline for the panel.

And maybe changing gears to O-U.S. Can you just share the month to month progression of the trends you've experienced recently and just whether you see that getting better or sort of staying the same over the next couple of months?

Yes. Brian, this is Stephen. So if you look at kind of where we are in April, we are definitely seeing some uptick in the international business. It's slow and steady. I don't think it's a trend yet, but we definitely are seeing that come back from where it was early in Q1.

Your next question comes from the line of Bill Plovanic from Canaccord.

Two questions. Just first is clarification on the Heart approval. Do you have any FDA audits remaining to gain that approval?

No, we passed all the audits with flying colors a while back.

Okay. And then in terms of the discussion on the label, have you completed the label discussion that pushed on for approval and then same question for the post-approval study? Where are you in those discussions?

Right. So Bill, those are great questions. At this point, we are focused on waiting for them to make a final decision. Once that decision is made, the remaining tasks are the PAS design and the final label language, so we are waiting on those two things.

Okay. And then have they provided a time frame? Or do you have a time frame? Would you have expected at that kind of final decision before you move on to the labeling PAS?

I believe the time frames we previously communicated remain unchanged, which is three to four months from the panel date, and I am confident that these time frames will remain valid based on our recent discussions with the FDA.

Okay. I just want to confirm that we're not going to be required to conduct any additional animal testing for regulatory approval. I'm not sure if that is even possible, but I wanted to clarify.

I cannot predict what the FDA will request. I mentioned before that there has been a significant mischaracterization here. We submitted data from tens to nearly hundreds of animals. For some reason, this was not included in the panel discussion. We have access to this data and all the results necessary to address the questions raised during the panel, which gives us confidence. Regarding the second aspect, as you know, the FDA always prioritizes human data over any preclinical testing. We are confident that we can clarify any misunderstandings or mischaracterizations based on the data we have. This is the point I was trying to convey: we have strong confidence in our preclinical program and data, which will help resolve any outstanding questions from the FDA. Furthermore, the statement made during the panel was not accurate, given the substantial number of animal studies that were presented and submitted in this PMA.

Okay. That's really helpful. Thanks. My second question is about the OPO program. You mentioned a podiatry site. Could you provide some details about the first and second sites that signed up, particularly regarding their traction? I appreciate that you now have six sites, but I'm interested in understanding how the initial one or two have performed. Have they seen business growth, such as doubling or tripling their activities, or are they still in the early stages? I'm trying to gauge the potential outcomes as you expand this program to more participants and what the timeline might look like for that.

Sure, that's a great question. What I can share is that among the six, four have recognized the value of OCS, particularly in cases that previously would not have resulted in transplants. The involvement has varied; one OPO completed five cases, another two, and another one, reflecting their different times of joining the program. I can assure you that four out of the six see the benefits of what OCS can offer in increasing lung transplants. One of the other two has acknowledged the potential of using OCS for lungs, but this has not yet led to transplants because they are among the newer OPOs we are collaborating with. One remains to achieve a successful case, given its recent activity. We anticipate continued progress and are aiming for year-end to report critical mass, potentially establishing a trend into 2022 regarding our growth. For now, I need to safeguard this program, allow it to develop, and include more significant OPOs so we can effectively monitor the overall results by year-end.

Your next question comes from the line of Suraj Kalia from Oppenheimer.

So Waleed, a few questions. Let me start out with the DCD trial. Waleed, remind me, it's a non-inferiority trial, and there is no hierarchical analysis for superiority relative to cold storage, right?

Not quite, Raj. This is a DCD trial, which means we are comparing two different things. We are talking about cold storage standard plicera hearts. The trial was designed this way because these parts would not have been transplanted otherwise. It's very unlikely that I would halt the trial at this point. We indeed questioned whether conducting a randomized trial for this purpose was valid and will wait to see the results. However, our design remains what it is, which is another trial. I don't recall if we have a testing for superiority or not. Typically, we test for superiority in these cases, but I don’t have that information right now. I will follow up with you offline to provide the exact answer based on the protocol.

Waleed, regarding the liver data, we’ve seen the top line results. Following up on the heart panel, could you explain whether there are any details in the data beneath the top line? The PMA was filed in Q2 of 2020, so the FDA has been reviewing this data for quite some time. Do you think there might be an issue for the FDA concerning the liver data?

Suraj, I cannot predict what could be a hiccup for the FDA on any of their applications. All I can assert is the following: our liver data is the cleanest and the highest number of statistical superiority endpoints that we've ever achieved in any trial we've conducted in the history of TransMedics. I'm sure the FDA could pick on something that is relevant. But from a clinical perspective, from an implementation perspective, we feel very strongly that our liver data is what I just described. It's the cleanest. It's the highest rate of endpoints achieving statistical superiority in any trial we've conducted.

And Waleed, one final question, and I'll hop back in queue. Post the panel, the heart panel, I'm just trying to get a practical assessment of the feedback you are getting from the ground. Post the heart panel, how many new centers do you expect to add in the heart centers in the U.S. and O-U.S. once you'll get DBD approval in heart?

I think once FDA approval is in hand, I think we are targeting anywhere between 25 to 30 heart launching sites. These are the 25 DCD heart sites, plus the five that we're involving in the expand CAP. That would be our sort of the low hanging fruit.

Okay. I don't see any question at this time. I will turn it over back to Waleed for any closing remarks.

Thank you, operator. Thank you, everybody, for joining us on this call, and we look forward to our next call. Have a wonderful afternoon. Bye-bye.

This concludes today's conference call. Thank you for participating. You may now disconnect.