Good afternoon, and welcome to TransMedics First Quarter 2024 Earnings Conference Call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Laine Morgan from the Gilmartin Group for a few introductory comments.

Thank you, operator. Earlier today, TransMedics released financial results for the quarter ended March 31, 2024. A copy of the press release is available on the company's website. Before we begin, I would like to remind you that management will make statements during this call, including during the question-and-answer portion, that will include forward-looking statements as defined under federal securities laws. Any statements in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements. All forward-looking statements, including our analysis of operating trends, the potential commercial opportunities for our products, and the timing of new clinical programs as well as our future financial expectations, which encompass expectations for growth in our organization and predictions for revenue, gross margins, and operating expenses in 2024 and beyond, are based on our current estimates and various assumptions. These statements carry significant risks and uncertainties that could cause actual results or events to differ materially from those anticipated or implied by these forward-looking statements. Therefore, you should not place undue reliance on these statements. Additional information regarding these risks and uncertainties can be found under the Risk Factors section of our Form 10-K filed with the Securities and Exchange Commission on February 27, 2024, our subsequent forms, and our upcoming Form 10-Q filings, as well as in the forward-looking statements included in today's earnings press release, which can be found 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 due to new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, April 30, 2024. And with that, I will now turn the call over to Waleed Hassanein, President and Chief Executive Officer.

Thank you, Laine. Good afternoon, everyone, and welcome to TransMedics' First Quarter 2024 Earnings Call. Joining me today is Stephen Gordon, our Chief Financial Officer. For the past two years, TransMedics has experienced remarkable revenue growth while making significant investments in our business. This year is critical not just for continued growth, but also for expanding our infrastructure and product offerings to enhance growth, profitability, and importantly, increase transplant volumes. We are concentrating on three main areas: first, completing the build-out phase of our aviation fleet and transplant logistics infrastructure; second, getting ready to launch three major clinical programs to accelerate the adoption of OCS Lung and OCS Heart, as well as expanding our clinical indications for OCS Heart in the U.S.; and finally, increasing national transplant volumes through our unique NOP program. We have begun the year with strong momentum towards these objectives. With first quarter results marking a new high for our company, let me outline the key highlights of our performance. Total revenue for the first quarter reached $96.9 million, reflecting a 133% increase compared to Q1 2023 and a 19% rise from Q4 2023. This increase was driven by higher utilization of OCS products across lung, heart, and liver, along with our transplant logistics service. It is important to note that our growth is diversified and not solely reliant on transplant logistics revenue. We anticipate that both product adoption and transplant logistics growth will significantly contribute to our future performance. Our transplant logistics service revenue for Q1 was $14.5 million, up from $9.2 million in the previous quarter, representing a quarter-over-quarter growth of about 58%. We are demonstrating that our integrated TransMedics NOP and logistics services provide real value to transplant programs nationwide. We will continue to strengthen our operational capabilities throughout 2024, which I will discuss further later on. Our overall gross margin for Q1 was 62%, up from 59% last quarter and in line with expectations. We are very confident in our ability to further improve gross margins over the next 12 to 18 months as we achieve economies of scale in both product and service operations. The excellent growth in revenue and gross margins allowed us to achieve a GAAP operating profit of $12.4 million, representing 13% of total revenue, with net income at $12.2 million. We take pride in these profitability achievements while continuing to invest heavily in future growth. We remain focused on delivering sustainable positive operating cash flow in the coming quarters. Before I move on, I want to acknowledge the entire TransMedics team for their hard work in achieving these results. We are focused on execution to build on our first quarter performance. Now, let me provide more detail on key operational metrics. As mentioned, we set a new record for case volume across all three organ markets in Q1, with NOP contributing over 98% of our case volume—a trend we expect to continue. Regarding our TransMedics transplant logistics metrics, we expanded our fleet to 14 owned aircraft by the end of the quarter. The average number of active TransMedics aviation planes was nine in Q1, up from seven in Q4 2023, and we expect this number to grow as we aim for 15 to 20 operational aircraft by year-end. Our owned aircraft covered about 49% of our NOP flight missions in Q1, compared to 35% in the previous quarter, indicating significant growth potential and efficiency within our logistics operations. At scale, we anticipate utilizing over 80% of total NOP missions with TransMedics logistics services for both air and ground transport, supplemented by carefully chosen reliable operators. Our customer base continues to expand, with around 105 U.S. transplant programs utilizing our logistics services in Q1, up from about 97 in the previous quarter. Having reached this critical mass, we are now focusing on deepening our relationships with these programs to better meet their transplant logistics needs. We are pleased with the success of our services and believe that transplant programs are recognizing the cost efficiency and reliability of TransMedics logistics. We look forward to further growth throughout this year and into 2025 as we enhance our fleet and ground operations. Additionally, we are encouraged by the growing clinical evidence supporting our offerings and the enthusiasm from clinical transplant users. We experienced this excitement first-hand during the International Society of Heart and Lung Transplant Conference in Prague this past April, where various experts presented data showcasing the benefits of OCS Heart and OCS Lung. Dr. Jacob Schroder from Duke shared insights about using OCS Heart for DCD heart transplants, indicating a significant portion of such transplants utilized OCS technology, leading to better patient survival outcomes. He noted that OCS NOP costs are more favorable than traditional methods, helping programs offer DCD heart transplants more efficiently. Dr. Mani Daneshmand from Emory presented that OCS DCD hearts were transported longer distances and achieved similar outcomes despite higher risk factors, emphasizing OCS Heart's safety profile. Other presentations highlighted OCS's ability to access extended criteria donors and achieve favorable outcomes comparable to standard criteria transplants. These findings reaffirm our strong clinical evidence and the positive impact of OCS and NOP on expanding the donor pool and increasing transplant volumes in the U.S. Moving forward, we are planning three new major clinical programs aimed at expanding OCS Lung and OCS Heart adoption as well as expanding our OCS Heart clinical indications. Pending FDA approval, we expect to start enrolling participants within the next year. Our OCS Lung initiative aims to reintroduce the value of OCS Lung in improving transplant volumes and clinical outcomes through targeted perfusion and optimal work hours. We plan to implement a study evaluating OCS NOP against standard cold storage. We're also working on two significant OCS Heart programs to enhance DBD heart utilization. Our goal includes developing a new cold oxygenated perfusion technology for heart preservation. Overall, we’re advancing a strong pipeline of clinical programs designed to drive significant growth in the OCS case volume and the national transplant volume. Furthermore, we are heavily investing in the next-generation OCS technology platform to optimize workflows and enhance clinical support, which we will detail later this year. In summary, we are pleased with our Q1 performance and are dedicated to initiatives to further drive growth for TransMedics products and services. Based on our strong Q1 results, we are raising our annual revenue guidance to between $390 million and $400 million, representing a 61% to 66% increase over full-year 2023 revenue. Now, I will hand the call over to Stephen to discuss the detailed financial results for the quarter.

Thank you, Waleed. I will now provide some additional detail on the Q1 results and other financial information for the quarter. So starting with revenue. For the first quarter of 2024, our total revenue was $96.9 million. This is an increase of 133% from the first quarter of 2023 and a 19% sequential increase from last quarter. The $96.9 million included $0.9 million related to our flight school. We have now exited all of the Summit Legacy Charter business. So other than this $900,000 from the flight school, all revenue is transplant-related. In the U.S., transplant revenue was $91.9 million. U.S. revenue increased 145% from the first quarter of 2023 and 22% sequentially from last quarter. And as Waleed said, Q1 2024 revenue included $14.5 million of logistics revenue. The organ breakdown on U.S. revenue was $67 million of liver, $20.2 million of heart, and $4.7 million of lung, all organs growing substantially over Q1 2023 and sequentially from Q4 2023. Ex U.S. revenue was $4.1 million, a 1% increase from Q1 of 2023 and a 16% sequential increase from last quarter. The ex U.S. breakdown was $3.1 million of heart and $1 million of lung. Next, on the product and service revenue. As a reminder, our service revenue includes the added amounts we charge for the NOP clinical service of surgical procurement and organ management and also includes the logistics revenue. The flight school is also included in service revenue. In Q1, product revenue was $61.3 million, and service revenue was $35.5 million. So the service portion was 36.7% of the total. Gross margin for the first quarter of 2024 was 62%. This is down from 69% in the first quarter of 2023 and up from 59% last quarter. In comparison to Q1 last year, this reflects the higher service component of our business, which did not include logistics in the first quarter last year. Product margin was 77% in Q1, recovering as expected to more normalized product margins from the 73% we saw in Q4, which included a one-time unfavorable item. Service margin was 36%, improved from 35% last quarter as we continue to gain efficiency in our service offering. And as a reminder, all costs related to aviation, including fuel, pilots, maintenance, and depreciation are included on our service COGS. Total operating expenses for the quarter were $47.5 million, 54% above Q1 2023 OpEx. This expense growth was driven by 94% growth in R&D related to investments in new product development, NOP tools, and product quality and regulatory resources. SG&A grew 45%, primarily related to higher personnel costs and overall corporate infrastructure. I want to point out that our operating expenses grew significantly throughout the year last year. So the year-on-year growth comparison next quarter should not be as pronounced as it was this quarter. Given the strong revenue and margin performance, we were able to deliver GAAP operating profit of $12.4 million or 13% of revenue. Net income was $12.2 million. These compared with an operating loss of $2.6 million and also a net loss of $2.6 million in Q1 of 2023. And basic earnings per share in the quarter was $0.37, and diluted earnings per share in the quarter was $0.35. Total cash at the end of the quarter was $350.2 million as of March 31, 2024. This is down $44.6 million from December 31, 2023. $39 million of cash was used to purchase 3 additional jets in Q1, bringing our total number of owned jets to 14. Basic weighted average common shares outstanding for the quarter were 32.8 million, and diluted weighted average common shares outstanding for the quarter were 34.7 million. In summary, Q1 was a very successful quarter financially for TransMedics. We grew our revenue both annually and sequentially, improved our gross margin, and showed good drop-down to profitability. All of this continues to validate our strategy of leveraging our NOP clinical service and logistics service to increase utilization of the Organ Care System and to increase the number of transplants in the U.S. Finally, just to repeat Waleed's earlier comment, we are updating our annual revenue guidance to be in the range of $390 million to $400 million, which represents 61% to 66% growth over the full year 2023.

Thank you, Stephen. Overall, we are humbled and proud of our Q1 results as we simultaneously drove continued revenue growth, expanded our infrastructure, and achieved profitability while advancing our clinical and R&D pipelines. We're looking forward to continuing to execute on all the major initiatives throughout 2024 to drive broader adoption of OCS NOP and the growth of the overall transplant volumes to help patients in need of an organ transplant. With that, I will now turn the call to the operator for Q&A.

Today's first question comes from Allen Gong with JPMorgan.

Congratulations on a really strong quarter out of the gate. I understand that aviation likely helps support the beat in the services, but I think it was the beat in disposables that might be a little bit more surprising given the fact it kind of to be on a dollar basis, at least relative to my forecast growth more of the upside. So I guess other than pull-through of some of the NOP cases that you were maybe previously losing due to the limitations of outside logistics, what else kind of went right in the quarter for you to drive these additional volumes?

Thank you, Allen, for your question. We experienced several positive developments in the first quarter, and we aim to maintain this momentum moving forward. The key factor is the results we are achieving, which are now clearer to clinical users. Specifically, our liver segment continues to expand. In regards to the heart and lungs, we are seeing improvements in lung outcomes. Our team has been dedicated to educating the market and showcasing the enhanced results from our newer usage model, which has resonated well this quarter. Additionally, positive outcomes in the heart segment are contributing to market growth. The disappointing results from the cold perfusion study presented at ISHLT may have influenced this trend. Ultimately, it is the outcomes that are driving our growth, and we plan to continue focusing on them, which is why we are investing in three key cardiothoracic programs. The liver segment is performing well and will keep expanding, as we add more centers and deepen our presence in existing ones. Everything aligned positively. Moreover, growth in our logistics business has played a crucial role in providing access to cases we previously could not reach. Overall, the fundamental growth of our product is driven by clinical outcomes.

Got it. And then a follow-up just kind of on seasonality and how should we think about that strength carrying forward. If we kind of take the quarter you just put up, back it out of your updated guide, it really looks like you're setting what should hopefully be a very achievable bar for the balance of the year, especially as you're adding more planes, you're going to be starting the quarter with more planes than you had on average in the first quarter. So why is this kind of the right target to go with? And how should we think about the seasonal cadence implied by that guidance? Should it be relatively flat? I guess like while that'd be the case, I shouldn't view the growth sequentially.

Thanks, Allen. There are many factors to consider in answering that question. We are always aware of potential operational challenges ahead. For instance, we are proud to have 14 planes operating, hopefully by the second quarter. However, we know that in the latter part of the year, some of these planes will require annual service, making them unavailable to us. We have taken this into account in our guidance. Additionally, we've considered any potential seasonality due to summer vacations and holidays. We approach guidance with caution and seriousness, so these considerations are reflected in our expectations. Stephen?

And Allen, I would just say, look, we don't expect a down quarter sequentially. We expect modest growth quarter-over-quarter. And that's the way we've modeled it, and I would expect that's the way we'll come in.

Yes. Also, finally, Allen, to put a bracket around that, we're operating from a much bigger starting point now. So we have to be cognizant of that.

And our next question today comes from Josh Jennings with TD Cowen.

It's great to see such an impressive start to the year. I was hoping it would lead back to our earlier discussion about your numerous pipeline initiatives on both the technology and clinical development sides. How should we consider the OCS system in terms of potentially decreasing the percentage of DCD donors that do not progress in heart, liver, and lung? Is this something we might expect to happen in the next 12 to 24 months?

Josh, that's exactly our goal. As we discussed, this is the only system that we're aware of that exists out there that could help that picture is the OCS. So that's something we're planning to leverage over the next 12 to 24 months for sure. And we're hoping that once we launch these clinical programs, that becomes an opening to the next program being focused on specifically growing the DCD utilization.

Excellent. With ILTS starting this week, I wanted to gain a better understanding of the benefits and advantages of using OCS warm normothermic perfusion in fatty livers, along with the percentage of donors that have fatty livers and the extent of the difference in preservation between OCS and cold storage or even cold hyper oxygenated perfusion.

Thank you. Thank you, Josh. Thank you for asking the question. It's a very important question. Without running the risk of burning some of the key plenary session presentations at the upcoming ILTS, the community should be expecting that we will reveal data that shows clinical superiority of fatty livers using warm perfusion compared to any other modality. And I'll leave it at that. It doesn't make sense to put fatty livers on ice, whether for perfusion or controlled or noncontrolled static cold storage. It just doesn't make any sense because fat cells with cold storage or any cold form of preservation congeals and then the liver becomes more of a foreign object than a physiologic body. So we're looking forward to our investigators and lead users to be presenting this data at the plenary session on Saturday.

And sorry to sneak a follow-up then, but just any help just thinking about the percentage of donor livers that are fatty. I imagine it's a sizable chunk of the donor pool.

It's a very sizable chunk. And again, the definition of fatty, it's varied. Some people consider fatty liver anything greater than 15%. We'll be presenting data on fatty liver greater than 25% or 30% even. So we experienced the full gamut. And again, there's a tremendous evidence supporting warm perfusion on the OCS platform having superior outcomes to any other modality for preservation of fatty livers. And I'll leave it at that, Josh.

And our next question comes from William Plovanic with Canaccord.

It's John on for Bill tonight. I just wanted to first touch on aviation. You said 80% is probably the terminal rate of U.S. cases that will be supported by you. What services and what level of jets are needed to reach that 80%? And when could we see that?

Thank you, John. Based on the current estimates, we believe that having between 25 and 30 planes will enable us to reach our goals. However, we anticipate that those estimates will surpass 10,000. Our main focus is to build enough capacity during this phase to showcase our growth. As our needs increase, we will acquire more planes. For now, we aim to finish this year with around 20 planes, between 15 and 20, and ideally, by the end of next year, we plan to have between 25 and 30. After that, we'll evaluate our progress.

Great. Maybe more for Stephen, but any operating profit, cadence, or guidance for the remainder of this year?

John, this is Stephen. I'm not prepared to provide any guidance beyond stating that we are pleased with our performance in Q1. We believe we are on track for sustainable profits going forward, as we are slightly ahead of our expectations. That's all I can share at this time.

Great. And maybe to just squeeze one more in here. But while we have the cold option perfusion for the heart for only 6 hours, especially with the competitor cases that are notably going much longer than that.

Thank you, John. You heard the outcomes with me. They failed a trial in Europe, so why would I put us at risk for poor results? We are taking a sensible approach because we want to protect the outcome for the patient. We’re also providing a lower-cost solution for this small segment of the market that is under 6 hours. For longer durations, we aim to demonstrate that warm perfusion is a superior solution compared to cold perfusion, based on the new heart program. This is the reasoning behind our current limitations, at least from an indication perspective. Additionally, keep in mind that all the data discussed at the ISHLT does not meet FDA standards; they came from a few centers and a limited number of cases, aside from the European multicenter trial that did not meet the primary effectiveness endpoint.

And the next question comes from Suraj Kalia with Oppenheimer.

Congratulations on a fantastic quarter. Waleed, I’d like to revisit a point you made at our conference about a month ago. You mentioned the next-generation trial during this call. Can you clarify the standard criteria for DBD hearts that are currently off-label for you? This will help everyone understand the market penetration comparison. Also, regarding the trial you mentioned that is set to start early next year, while it involves cold perfusion, will it include physiologic beats as well?

Thank you, Suraj, for the question. I will address this in several points. Currently, our FDA-approved indication does not include standard criteria DBD hearts, but we plan to obtain a new indication to include that. Regarding the market segment, the category of less than 4 hours includes about 900 transplants, and up to 6 hours, around 1,200 transplants, based on last year's data. Regardless of the size of this market segment, our goal is to tap into it. In two years, we aim for every heart transplanted in this country to be preserved using TransMedics technology, whether through cold or warm perfusion. We aspire to have a comprehensive range of FDA indications similar to what we have for lungs and livers. As for our heart programs, we have one focusing on warm techniques for therapeutic and optimization methods for DBD donors, which we expect to launch by year-end. The cold program, requiring a completely new system and circuitry, is set to begin in the first half of 2025 and will focus on the new FDA clinical indication. I hope this answers your question.

Yes. Fair enough. And...

I apologize, Suraj. Yes, the cold perfusion will be pulsatile, which is a unique aspect that sets us apart from others.

Thanks, Suraj. I can address the question regarding our depreciation practices. We depreciate our planes over a period of 10 years with a 50% residual value, which we've been transparent about since the beginning. This information is included in our quarterly and annual reports. While we haven't discussed the margins for aviation versus service in detail, overall, we're at a margin of 36%, and we anticipate some improvement. I can say that the aviation margin tends to be a bit lower than the service margin, which is higher. However, we haven't provided further specifics on that. This is what I can share regarding that question.

And our next question today comes from Ryan Daniels with William Blair.

Yes. This is Jack Senft for Ryan Daniels. Congrats on the strong start to the year. Can you share any general feedback from customers that have used TransMedics aviation? And maybe if or how that feedback has changed since you began integrating the aviation segment?

Thank you for the question. The only thing I can share publicly is to highlight the results, particularly the rapid pace at which we acquired 105 customers using our TransMedics logistical services. We expect to deepen our relationships with these accounts. Centers are beginning to witness the improved structure, more efficient cost structure, and the availability provided by TransMedics logistics. Again, I want to emphasize the results.

Understood. Can you just provide an update here on what you're seeing in the international markets and kind of what the expectations are there? And just as a quick follow-up then to, are there any encouraging opportunities following the ISHLT meetings that took place?

Excellent question, and thank you for asking it. There is a tremendous focus on the success of NOP in the United States. There are many major European countries are coming to TransMedics and offering to collaborate on establishing NOPs across Europe. We're seeing similar behavior in the Middle East, specifically in Saudi Arabia. We had several discussions at the ISHLT. The way I want to characterize it is, absolutely, we're focusing on replicating the success of the NOP because we believe the problem that the NOP solves for in the U.S. is exactly the same problem ex U.S. However, we want to prioritize securing reimbursement first to make sure that our services will get reimbursed. And one final qualifier. When I talk about NOP ex U.S., we're talking only on the clinical support service, no logistics and no surgical procurement, just for clarification purposes. So yes, there's a huge momentum around NOP replication OUS, and TransMedics fully expects to be ready to implement those once we are confident that our services will be reimbursed.

Congrats again.

Thank you.

Our next question comes from Matthew O'Brien with Piper Sandler.

This is Samantha on for Matt. To start off, could you provide more information about your guidance for the remainder of the year and what factors contribute to the low and high ends of that range?

Samantha, this is Stephen. Yes. I mean we think there's an opportunity to continue to kind of grow sequentially, as I mentioned in an answer to the earlier call. And if we're able to add or go deeper in a few of our centers, we should be able to get to that high end. I mean some of these things will come to fruition. And so the low end is just being a little bit more conservative about the pace of how we do that. So it's a pretty narrow range, and we feel confident that we'll be able to meet it.

Great. And then just one more from us. I know you've talked a little bit in the past about the expected product-service mix. And how can we expect that to change throughout the year particularly as your costs increase throughout the year?

Yes, that's a good question. We have been monitoring the product and service mix, which currently stands at 36.7% service. I believe it will rise slightly, likely falling between 37% and 39%, with 39% being the upper limit. This is somewhat higher than my earlier expectations for the year based on the outcomes we are observing. Nonetheless, we still anticipate an overall improvement in gross margin.

And this concludes our question-and-answer session. I'd like to turn the conference back over to Waleed Hassanein for closing remarks.

Thank you so much, operator. Thank you so much, everybody, for joining us on this call this evening, and we're looking forward to our next call. Have a wonderful evening, everyone.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.