TransMedics Group, Inc. Q3 FY2022 Earnings Call

Good afternoon, and welcome to TransMedics Third Quarter 2022 Earnings Conference Call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Brian Johnston from Gilmartin Group for a few introductory comments.

Thank you, operator. Earlier today, TransMedics released financial results for the quarter ended September 30, 2022. 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 section 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 forward-looking statements, including, without limitation, are 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 2022 are based upon 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 on our Form 10-Q filed with the Securities and Exchange Commission on August 3, 2022, and our subsequent filings with the Securities and Exchange Commission, which are available at www.sec.gov and on 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, November 3, 2022. And with that, I'll now turn the call over to Waleed Hassanein, President and Chief Executive Officer.

Thank you, Brian. Good afternoon, everyone, and welcome to TransMedics Third Quarter 2022 Earnings Call. As always, joining me today is Stephen Gordon, our Chief Financial Officer. Throughout 3Q, our commercial momentum continued to accelerate as NOP clinical transplant activity grew across liver and heart procedures in the US. The continued strength in demand for OCS further validates our growth trajectory and enabled us to deliver strong results once again as we posted the fourth sequential period of record year-over-year growth. Total net revenue in 3Q was $25.7 million. This includes new product revenue of $24.3 million and a $1.4 million favorable adjustment in the estimate of accrued clinical trial contra revenue, which Stephen will detail later on this call. New product revenue alone represents 349% growth year-over-year and 18% sequentially. Year-to-date 2022, we have achieved $62.1 million in revenue or $60.7 million, excluding contra revenue adjustment. This represents more than 100% year-over-year growth over the full year of 2021, and we still have Q4 remaining in '22. Notably, NOP revenue accounted for approximately 90% of the total US revenue in the third quarter, and we expect this to continue to grow. Stephen will cover the detail and organ split in his section of this call. Now let me provide some more granular highlights. For the third sequential quarter, liver and heart NOP clinical activities accelerated quarter-over-quarter. Lung activities were relatively muted in 3Q. However, as we've indicated before, we are working on a long-term initiative to revive the lung market throughout 2023. Approximately, 88% of our total US case volume came from NOP. On a per organ basis, approximately 95% of liver, approximately 81% of heart and approximately 67% of lung cases came from NOP. As we move forward, we expect to see NOP contribution to remain high and growing to the mid-90s as a percent of total US case and revenue. We are also very encouraged by the growing number of transplant centers that utilized our TransMedics NOP in 3Q. For heart, there were 26 centers that utilized NOP for heart transplants, of which 11 are frequent users and the remainder were new users. For liver, 12 centers used NOP, and all 12 were frequent users throughout the quarter. For lung, there were 9 centers that used NOP, of which 4 were repeat users throughout the quarter. This progress in terms of new center openings as well as early center activity validates a critical area of our growth strategy, as it proves that NOP is becoming more widely accepted within the US transplant community. These centers are relying on TransMedics to operate their transplant programs. This is significant from a competitive positioning standpoint. Again, NOP is becoming an integral part of many US transplant programs' workflow, and we plan to leverage this for our future growth. It is notable that we have achieved these strong results despite being in a backorder situation for a few weeks during 3Q, as the growth in demand of the OCS accelerated beyond our immediate capacity. Our team did a phenomenal job to minimize the impact of the supply constraints by mobilizing inventory from NOP launch points to meet the clinical demand across the US. Overall, we're very encouraged by our performance, the acceleration in demand for OCS and our achievements of 100% year-over-year revenue growth in '22 compared to the full-year 2021, a full quarter ahead of schedule. Now let me discuss our strategies to build on this momentum for the remainder of '22 and into '23 and beyond. First, we are well underway to expand our manufacturing and production capacity. As of today, we are on track to add new cleanroom production space that is 3 times the size of our existing cleanroom by year end. We are now focusing on staffing, training and securing FDA certification of the new cleanroom space. In the meantime, we have already instituted the second shift in the original cleanroom space to expand our production capacity to a level that will enable us to meet the current demands. We have expanded our sterilization capacity, and we are well underway to add more capacity in early 2023. In addition, we're continuing to expand our raw material inventory to meet the growing demand and mitigate against supply chain risks. Currently, we have adequate supply of raw material to meet the demand in the near term. Second, we're working to expand our NOP infrastructure. We're expanding our surgical capabilities and clinical support staff across the board and opening new launch points to expand our geographical reach and coverage in the US. Third, we are focused on reviving OCS Lung transplant volumes post-COVID era. We have initiated a national program with a goal to doubling lung transplant volumes in the US over the next few years. To do this, we are collaborating with leading transplant programs and as well as partnered OPOs in the US. We hope to benefit from this initiative over the course of 2023. Fourth, we plan to continue to gradually increase the number of transplant centers using NOP for each organ throughout '23. Finally, we are partnering with transplant logistics experts to create a dedicated air and ground logistical network across the US to support the growing NOP transplant activities. We're actively engaged with several potential partners to create this dedicated network and have it operational sometime in 2023. To date, we have unequivocally demonstrated the strength of our NOP program to accelerate commercial growth and OCS adoption. We're confident in our go-forward strategy and scalability initiatives discussed above. We fully expect to leverage these initiatives to further capitalize on our unparalleled foothold in the market and drive the next level of growth in 2023 and beyond. Excuse me. The call got interrupted with some music. We're not done.

Thank you. Please continue.

To date, we have unequivocally demonstrated the strength of our NOP program to accelerate commercial growth and OCS adoption. We are confident in our go-forward strategy and scalability initiatives we discussed above. We fully expect to leverage these initiatives to further capitalize on our unparalleled foothold in the market and drive to the next level of our growth in 2023 and beyond. As mentioned, 3Q results continue to outpace our forecasted demand plans and challenge our finished goods inventory. We are fully cognizant that as we are aggressively expanding our production capacity and infrastructure, we may experience some temporary shortage in supply of finished OCS products in the immediate term. Importantly, we need to allow the proper time to ensure that we are growing our production with the highest quality staff, training and products. During this ramp-up process, we may find ourselves in another backorder situation in 4Q. Please standby whilst we try and reconnect with today's speaker.

Thank you for your patience. Today's call will continue once we have reconnected with today's speaker.

Sure. I apologize for these technical difficulties, everyone. Let me repeat the last paragraph, and we will continue. As mentioned, 3Q results continue to outpace our forecasted demand plans and challenge our finished goods inventory. We're fully cognizant that as we are aggressively expanding our production capacity and infrastructure, we may experience some temporary shortage in supply of finished goods OCS products in the immediate term. Importantly, we need to allow the proper time to ensure that we are growing our production with the highest quality staff, training and products. During this ramp-up process, we may find ourselves in another backorder situation in 4Q. That said, based on our 3Q and year-to-date results and balancing these results with the expected finished goods pressures. For the third sequential quarter, we are raising our annual revenue guidance for the full-year 2022 to USD80 million to USD85 million, up from USD67 million to USD75 million for the same period. This represents a phenomenal 164% to 181% growth over 2021. The guidance raise excludes the $1.4 million adjustment based on the change in estimate of the contra revenue this quarter. Again, I want to stress that the guidance raise excludes the $1.4 million adjustment experienced in Q3. With that, let me turn to Stephen Gordon to cover the detailed financial results for the quarter.

Thank you, Waleed. I will now provide some additional detail on the Q3 results and other financial information for the quarter. As Waleed mentioned, we had a favorable $1.4 million change in estimate in Q3 related to contra revenue that was accrued during the clinical trial phase of several programs. And now we've updated our estimates, resulting in a lower amount of clinical trial payments expected to be paid, and therefore, we see a favorable impact to revenue. So for the third quarter of 2022, I want to focus on the commercial or gross revenue, which represents the true commercial revenue for the quarter. Commercial revenue for the quarter was $24.3 million. This was an increase of 349% from the third quarter of 2021. As a reminder, the third quarter of 2021 was the period after our clinical trials had continued enrollment and for the most part before we received our FDA approval, so revenue in that period was fairly low. The reported $24.3 million for Q3 2022 also represents 18% sequential growth over Q2 of 2022, a good indication of the momentum we are experiencing. In the US, the revenue, again, excluding the $1.4 million favorable revenue adjustment, was $21.9 million. This compares to only $3.2 million that was reported in Q3 of 2021 in the US. The US sequential growth was 21% in Q2 2022. So the organ revenue breakdown in the US was as follows. $12.4 million of liver, $8.2 million of heart and $1.3 million of lung. And I'll repeat that again; $12.4 million of liver, $8.2 million of heart and $1.3 million of lung. Outside of the US, our revenue grew 20% on a constant currency basis. However, taking into consideration unfavorable currency movements, our reported revenue was $2.4 million. This is up 6% from Q3 of 2021, and that includes $2.2 million of heart and $0.3 million of lung, which is fairly consistent with what we did last quarter. The key driver of Q3 revenue performance was, again, the growing adoption of the natural OCS program in US liver and heart. The success of this program is evident in the strong revenue performance. Gross margin for the third quarter of 2022 was 71% compared to 70% in the third quarter of 2021. And excluding the favorable revenue adjustment, the gross margin would have been 69%. This is slightly lower than last quarter and reflects the larger NOP component. Over time, we do expect margins to gradually improve as we improve our NOP efficiency. Total operating expenses were $23.7 million in Q3 2022, a 53% increase over Q3 2021 operating expense and a slight decrease from the $24.1 million reported in Q2 of 2022. The significant increase in expenses compared to Q3 2021 was primarily due to our commercialization efforts in the US and our NOP in particular, as well as R&D investments in our next-generation platform. The fairly flat sequential spending shows that we have leveled off somewhat from the pace of growth we were seeing over the last several quarters as we were ramping up our NOP teams. We do expect to continue to see growth in expenses but at a slower pace than in the last few quarters. Operating loss was $5.5 million in the third quarter of 2022 compared to $11.7 million in the third quarter of 2021, primarily a result of the growing revenue in the business. Our net loss for the third quarter of 2022 was $7.4 million compared to $13 million in the third quarter of 2021. Cash and cash equivalents were $204.5 million as of September 30, 2022, and the increase is a result of our debt and equity financing activity in Q3 of 2022. In July, we refinanced our debt with a new $60 million term loan, which netted about $23 million of cash on the balance sheet. And in August, we completed an equity raise, which provided approximately $140 million in net proceeds. This put TransMedics in a very strong position as we continue to execute our strategy and increase OCS utilization throughout the organ transplant field. Weighted average common shares outstanding for the quarter were 30.23 million shares. And finally, I will confirm that our guidance, which excludes the impact of the favorable revenue adjustment of $1.4 million is $80 million to $85 million, which represents a range of 164% to 181% growth over 2021. With that, I'll turn the call back to Waleed for closing comments.

Thank you, Stephen. In summary, we're very pleased with our 3Q and year-to-date performance and the strong clinical demand we are experiencing for our OCS technology and NOP offering. We strongly believe, however, that we are just at the early stages of capitalizing on the significant greenfield opportunity that we've created in the transplant space. We plan to leverage the solid foundation we established in '22 to drive TransMedics to the next level of growth for our business in 2023. TransMedics' OCS technology and NOP program are becoming an integral part of performing organ transplants in the US. Now, our goal is to leverage this structure to ensure that we are managing the vast majority of heart, liver and lung transplants, while we are growing the annual transplant volumes in the US. We're thrilled for the future of TransMedics and look forward to further capitalizing on our global leading position in transplant therapy. With that, I will now turn the call to the operator for Q&A. Operator?

The first question we have comes from the phone line of Allen Gong of J.P. Morgan.

Congrats on a great quarter, and thanks for the question. So I guess, the first question I have is, we clearly saw that even with a little bit of backlog in the third quarter, you came in pretty high above expectations and based on the guidance raise, you essentially raised fourth quarter expectations by around the same amount. So how much of that is really influenced by just the trends you've seen so far in October and I guess, how you expect those to continue from the strength you obviously saw in the third quarter?

The trends we are observing in October do not affect our guidance at all. In fact, we are experiencing acceleration this month. However, we are mindful of the supply chain issues concerning finished goods inventory, which is why we chose to exercise caution in our Q4 estimations. If we were not currently in a growth phase and ramping up our production capacity, our guidance would be different. This is why we adopted a conservative approach for our guidance, reflecting our situation in the ramp-up phase.

Got it. And I think given you seem to be a little conservative, but it sounds like a lot of these supply challenges and manufacturing work should be done by the time you get into 2023. You've previously talked about your ambitions to essentially double revenues again in 2023 and maybe even in the years after that, similar to what you're on track to do this year. Is that a reasonable target that you're still holding to, given the momentum that you're seeing and the fact that you should be in a much better supply situation come the New Year?

From a high-level goal, Allen, again, we believe that the success we've achieved in '22 and the rapid acceleration is just the tip of the iceberg. That's what we believe. I would not comment yet on our expectations for '23. We will do that at the beginning of the year. And as always, we are going to be prudent and realistic in our estimation. But at a high level, our expectation is TransMedics is in the early innings of a significant growth curve, driven primarily initially from the US NOP and the acceleration of our adoption in the US across the three organs we are working with. So that hasn't changed. In fact, the results of '22 validate that. But we'll comment on the guidance for '23 early next year.

If I could sneak a final quick one in. You're talking about the next-gen OCS system. We've also heard you mention ambitions in other organs like kidney. Should we expect to get more concrete additional updates next year? And do you have any preliminary expectations around timelines for both of those product updates?

I think next year, we will discuss both topics. That's our expectation, starting with the first phase of the next generation. By the end of 2023, the kidney might also be included. Next question please, Operator?

We now have Cecilia Furlong of Morgan Stanley.

Great. Congrats on the quarter. I wanted to start just with the guidance and how you're thinking about Q4. You talked previously about some air transport constraints. How that situation is playing out? And then, just really what you're thinking or what's contemplated either from lung recovery, what you're seeing in heart recently? Just would love to have a broader take on organ-specific contributions in Q4.

We don't expect air transport to negatively impact Q4 or early '23. We anticipate continued growth in heart, liver, and lung sectors. However, it's reasonable to assume that lung growth will become noticeable in Q1 and Q2 of '23 instead of Q4. Nonetheless, we foresee no risks to Q4 revenue from air transport. We expect heart and liver momentum to keep accelerating, and we're hopeful for lung recovery in Q4, but realistically, we will likely begin to see that in Q1 and Q2 of '23.

Could you clarify your guidance in relation to potential supply dynamics? Does the high end of your guidance truly reflect your current outlook, and is there the possibility of seeing upside due to possible supply pressures? Additionally, I'd like to know your thoughts on NOP expansion in heart, particularly regarding further expansion in Q4 and your insights on utilization for DBD and DCD.

Regarding the first part of your question, could you please repeat it about the guidance? Is there potential for exceeding the guidance? Yes. The primary risk influencing our guidance is the supply chain challenge. In Q4, we are facing two main issues: a shorter quarter due to about three weeks of holiday time from Thanksgiving to New Year, and the possibility of an additional week or two of backorders. This is why we aimed to be cautious and realistic. We do not foresee any other risks in Q4 aside from the production of finished goods inventory that we mentioned. Is there potential for upside? We remain hopeful, but we wanted to set realistic expectations. Now, regarding the second part.

Number of centers.

As far as growing the number of centers and number of hubs, we are growing the number of hubs in Q4, but we are more focused on the growth in the number of centers and making sure that those new centers that came in Q3 become repeat centers in Q4. And that's going to generate its own momentum, and we're adding new centers in the heart and we're doing the same thing for the lung. I think the big lesson and the big metric that we learned from '22 is small number of centers, there is significant leverage with a small number of centers that are regularly adopting that could generate significant acceleration in revenue. So right now, we are increasing the number of centers. Now we're focusing on driving repeat utilization from NOP. Operator, can we go to the next question, please?

We now have Joshua Jennings of Cowen.

Congratulations on a strong quarter. Wanted to ask Waleed and Stephen just about the market growth. Those databases suggest that transplant volumes are growing in the high single-digit to low double-digit range at least in Q3, seems like in October as well. OCS is the new technology that's been added to the market. Is there any way to parse out the market growth contribution that OCS and NOP are reporting? And the reason I'm asking is I want to know if there's any kind of read-through as CMS and HHS and Congress are working to transform the US transplant network? There's evidence now that the OCS is growing the market as you stated in the earnings call. But any way to quantify it? And can that have an impact?

Yes, we are definitely playing a big role in the growth in the transplant volumes in the US. The source of growth, it's really multifactorial, Josh. The source of growth is coming from DCD, is coming from DBD, it's also coming from more centers that are comfortable with NOP. And you ask me how is that going to grow the volume? I'll give you one anecdotal example. Several centers in Q3 commented to us directly that with the NOP, historically, when a center is busy, meaning the surgeons are busy in an OR doing either transplant or doing another surgical procedure and you get a donor offer, historically, they would turn down that donor offer because they are busy. Now with the NOP, they would accept that donor offer, send the NOP team to procure the organ, bring it back, keep it overnight or stagger it when the OR is free and when the time allows to do the transplant procedure. And I've heard this from several institutions across the three organs, not just in one organ. So yes, we think the OCS and the NOP are playing a key role in growing the transplant volume by accessing more DCD, accessing more DBD organs, either that are long distance, older age or that normally would not be utilized and through the logistical piece of historical logistical challenges that transplant programs are not able to accept organs while they're busy doing another transplant procedure, today, they can do that. Now to address your part about the national initiatives from CMS and HHS, I think we're still in the early innings, Josh. I think these big federal organizations, they're focusing on just keeping up with what's going on. I think over the next year, however, we expect them to be more and more aware as the numbers continue to grow. I hope I addressed your questions.

You definitely did. I have a follow-up regarding some discussions with surgeons about a paper published by the National Academy of Sciences earlier this year that suggested ways to restructure the US transplant network. One recommendation was the establishment of a donor organ unit, which some surgeons showed interest in, along with the idea of creating a perfusion unit as well. Could you help us understand this setup better and share your thoughts on the likelihood of it being implemented?

The paper you mentioned was created before the NOP was implemented in the United States. The authors were attempting to devise a system without fully understanding the NOP, aiming to create a temporary structure to manage organ storage in a centralized way. This approach has limits due to their lack of understanding. Today, such a concept is impractical as it increases costs, complexity, and delays. Ultimately, previous attempts did not enhance organ transplant rates. We are confident that the NOP is a lasting solution. It offers the most efficient method to increase transplant volume while operating within the existing US transplant system's constraints, maintaining the workflow and centralized control of transplant cases. The idea of centralizing organ management and transporting them during off-hours without knowledge of their condition is not feasible. This reflects our stance regarding the paper, which sought innovative solutions before the NOP became standard practice. We believe that the NOP will continue to expand in the US over the coming year.

We now have the next question from Bill Plovanic with Canaccord.

I would like to gain a deeper understanding of the challenges related to supply constraints. Are these issues stemming from raw materials, capital, disposables, or solutions? Is it specific to certain organs? Can you clarify what the specific challenges are? Or is it simply a case of needing to run more shifts and challenges with product sterilization? It would be helpful to understand these aspects so we can better grasp the guidance and the limitations you are facing, as well as the measures you are taking to mitigate these risks in the near term. You have a situation where demand is outpacing supply. Is this a short-term issue that will be resolved quickly, or is it something that will persist until you achieve increased capacity, which you indicated is dependent on FDA clearance and might not happen until the end of this year or next year?

Let me explain the situation. We do not have any problems with raw materials for the next 18 months. There are no issues with our solutions; we have enough inventory to last us at least 18 to 24 months, and we have multiple orders coming in throughout next year. The main challenge we are facing is the throughput on the production floor related to perfusion modules, which became apparent at the end of Q2. We implemented aggressive measures to increase staffing and doubled the production shifts. It took some time to fully transition to this double shift, and we are also working on expanding our new cleanroom, which will be three times larger than the previous one. Regarding risks, we anticipate they are primarily short-term, affecting the next one or two quarters, and we do not expect this to be an ongoing issue. We are committed to resolving it quickly, ideally within one or two quarters. Concerning the certification of the cleanroom, we are actively communicating with the FDA and are confident that the process will take about 30 to 60 days, rather than longer. However, we cannot consider it complete until it officially is. That sums up our situation.

And just for perfusion modules.

The actual disposable unit that goes with every organ, not the hardware. It's not a hardware issue. It's not a sensor issue. It's not a solution issue. It's not a raw material issue. It's really the assembly part of the raw material into an active sterile perfusion module. As far as sterilization capacity is concerned, Bill, we've increased near term our sterilization capacity. We're working on the mid and long term, even further increasing that capacity because we did not want to solve for the production piece and forget about sterilization. So, we're on it and we already achieved some efficiencies for the near term. Now it's just cranking the gears and building more of these disposables.

It seems that you've removed all non-productive disposable inventory from the field and have been actively shipping and moving it, which is likely contributing to your higher cost of goods sold. You have an operational team working to maximize output, and I believe you mentioned that it took some time to train your staff, but they are now fully operational. I'm curious as to why there isn't a sequential increase in production. Is it simply a matter of working through existing inventory and operating on a hand-to-mouth basis at the moment? I'm trying to understand if you're apprehensive about any potential issues in the future.

Yes. Exactly. We are hand to mouth at this point, Bill. And we don't like that. And with hand to mouth, there are always hiccups. So that's why we have to be prudent. And what we're trying to do is over the next couple of quarters start building strategic reserves like we used to have in Q1 and early Q2. Right now it's literally hand to mouth.

Thank you for the detailed information. It's really useful for understanding our guidance. I have one more question regarding the lung product. You mentioned that progress has been a bit slower. Have you had any updates or discussions with the FDA about altering the post-approval study? From what I've gathered, that has been a significant limitation, almost like conducting another full clinical trial to acquire patient sign-ups, which has posed a major barrier to commercializing that product. Can you provide any updates on your interactions with the FDA and what your expectations are?

Sure. We're engaging with the FDA on updating the design of the post-approval study as a part of that national initiative that we are leading to revive the lung. That being said, that is not the main driver here. It's a key part, but it's not the main driver. The main driver is we need to get the lung transplant community in this country, laser-focused again on lung transplantation in the post-COVID era. COVID caused a lot of the transplant program to be distracted from lung transplantation and it became even further consolidated. So, we need just to get the community focus back again on lung transplant and show them the success of NOP in heart and liver and the amount of growth that these organs have been experiencing in the US as proof of concept that if they can apply the same model, they can achieve the same results, which is growing their transplant volume without growing their workload, without growing their staffing needs. And now, we have the tangible proof of that. It's no longer a hypothesis or a vision. It's actually happening. They're seeing it. Some of them are seeing it even in their own institutions. So, these are the two-pronged approach that we are pursuing to revive the lung program.

We now have another question on the line from Suraj Kalia of Oppenheimer.

Waleed, Stephen, can you hear me all right?

We can hear you just fine.

Gentlemen, congratulations on a strong quarter. Waleed, I have three questions. I believe liver approval was in November '21, and DCD heart was around late Q1 '22. Can you describe the adoption trends for liver and heart? What differences are you observing, and what are the factors contributing to these differences?

As we sit here, we don't see a difference. We do not see a difference at all. The difference was early in the year when liver really jumped on the NOP bandwagon quicker and that resulted in the uplift of the liver. But we said, the heart will be shortly thereafter and we're seeing that. We saw that in Q3. So, I think our original statement will prove to be true. Liver and heart will catch up with each other by end of this year or Q1 of next year.

And Suraj, this is Stephen. So just the number sequentially, heart sequentially grew about 40%, liver sequentially grew about 30%. So, they're both on a pretty good trajectory. I don't know if it's the approvals as much as the utilization of the NOP, which is really driving the slope of these curves.

I was curious if there was any difference in excitement among the organs. It seems there isn't. Waleed, you mentioned there are frequent NOP users, 11 in heart and 12 in liver. When a transplant site is a frequent NOP user, what might lead them to use NOP plus OCS for one organ and not the next month? Also, could you clarify how you define frequent?

Sure. I was going to address that question, Suraj. We define a frequent user as a center that consistently uses the OCS each month, with a minimum of 3 to 4 uses per month. Centers that we categorize as users but not frequent users include those that start using it occasionally, like the few centers that joined in Q3. We expect them to increase their usage following the same pattern. Centers that use it only sporadically will not sustain their engagement, as those that try the NOP tend to continue using it once they see positive results. We do not anticipate the erratic usage patterns that were common during the trial phase. When we encounter centers that do not engage consistently, we shift our focus to those that are more committed. However, it is only a matter of time before those less engaged centers return, especially as they notice growth in their region. An active user is defined as a center that utilizes the OCS consistently, at least 3 to 4 times per month throughout the quarter.

Okay. That's great additional information. Finally, Waleed, from my side. Waleed, you have given a lot of clarity in terms of some of the supply issues, labor, manufacturing or rather the facility inspections and all that. If I take a step back, Waleed, this is a pretty complex field, right? And I remember from the Thoratec, HeartWare days, right, you start ramping up and then somewhere there might be a quality hiccup, right, which might cause advisory notice. As you look at OCS in the current manufacturing chain, in the production chain, what is the weakest link for quality control that you're like, you know what, we need to keep an eye on this as we ramp up the 2x, 3x, the current levels?

Suraj, it's what we said. Actually, we are not going to make the same mistakes that others may have done in the past. One of our main reason for us to be very prudent is exactly what I stated in my script, that we need to give it the proper time for attracting the right talent, training them adequately and ensuring that we have the highest quality product to leave our floor. We are not going to cut corners in our quality of our product. As we stand here, we do not see a weak link in our quality process. If I'm standing here and I know that there is a weak link, I don't deserve to be here. So, we are making sure that every aspect of our quality chain is addressed, taken care of. We're allowing the time for the team to be ready and we're not demanding them to triple the production capacity overnight. We're doing it in stages. We're making sure that the quality metrics are met. We're really being very prudent and giving them the appropriate time to scale to avoid these issues from happening. Could something happen that we're not aware of? Yes, everything is possible. But again, the key for us is to give it the proper time, proper training, making sure our quality metrics are met before we even release the product to the market. So, we're not going to cut corners to meet the supply demand. We have to make sure that our product quality is of the highest category because that's what's going to sustain this business and help us grow it.

Thank you. We have no further questions on the line. So, I'd like to hand it back to Waleed for any final remarks.

Thank you. Thank you so much for your time. And I apologize for the technical difficulties. Have a wonderful evening, everybody.

Thank you for joining. This does conclude today's call. You may now disconnect your line.