Ladies and gentlemen, thank you for standing by, and welcome to the TransMedics Third Quarter 2019 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker today, Brian Johnston from the Gilmartin Group. Please go ahead, sir. Brian Johnston;Gilmartin Group;Vice President, Investor Relations: Thanks, operator. Earlier today, TransMedics released financial results for the quarter ended September 28, 2019. A copy of the press release is available on the company's website. Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements. All forward-looking statements, including, without limitation, our examination of operating trends, the potential commercial opportunity for our products and our future financial expectations, which includes expectations for growth in our organization, regulatory approvals and reimbursement, guidance for revenue, gross margins and operating expenses in 2019 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 the final prospectus relating to our initial public offering that we have filed with the Securities and Exchange Commission. 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 call contains time-sensitive information and is accurate only as of the live broadcast today, November 6, 2019. And with that, I'll now turn the call over to Waleed Hassanein, President and Chief Executive Officer.

Thank you, Brian. Good morning, everyone, and welcome to TransMedics Third Quarter 2019 Earnings Call. Joining me today is Stephen Gordon, our Chief Financial Officer. We're delighted to report our Q3 results, which demonstrated continued growth of our business. Let me highlight the drivers for this momentum. First, we reported $7.2 million in net revenue for the quarter. This is off of $7.9 million of gross revenue. The $7.2 million represents 78% increase and growth versus the same period of last year. Our revenue growth was fueled by our U.S. programs in all 3 organs, lung, heart and liver, as well as our international business. Second, our OCS lung commercial status is on track. We're on track to convert the majority of our lung trials centers to commercial centers by year-end. Importantly, we're actively engaged with several strategic commercial initiatives to enable and facilitate broader adoption of the OCS lung technology. Third, our OCS Liver PROTECT trial had another quarter of accelerated pace of enrollment. In fact, we've successfully enrolled the full 300 patients ahead of plan by at least one quarter. Fourth, our OCS heart program is continuing to ramp nicely in the U.S. trial centers for both the continued access protocol as well as the DCD programs. Now I would like to share some key highlights from the third quarter and discuss our perspective on the remainder of 2019. This quarter results further validates our position that the strength of TransMedics' business is in our diverse product and clinical market offering. Specifically, while we are continuing to ramp up our lung commercial activities in the U.S., the revenue from our OCS liver, heart programs as well as our international business provided strong contribution to our Q3 results. We are happy to announce that we have successfully completed enrollment…

Thank you, Waleed. I'll go ahead and review the financial results for the third quarter of our 2019 fiscal year. As I have done in the past when sharing revenue results, I will provide both gross revenue, which is the amount we invoice from customers, as well as net revenue, which deducts certain clinical trial and data collection costs that we pay to the clinical centers involved in our trials. For the third quarter of 2019, gross revenue was $7.9 million, a 66% increase over the third quarter of 2018, and our Q3 net revenue was $7.2 million, a 78% increase over the third quarter of fiscal 2018. As Waleed mentioned, the strong increase in sales was realized across all products and geographies. The $7.2 million net revenue included $2.1 million of lung revenue, $3.7 million of heart revenue and $1.4 million of liver revenue. And on a geographical basis, $4.3 million was in the U.S. and $2.9 million was ex-U.S. The gross margin for the third quarter of 2019 was 59% compared to 53% in the third quarter of 2018, and the improvement in gross margin was driven by the increased sales volume, higher average selling price of OCS disposable sets and improved efficiency in production. Total operating expense of $11.5 million in the third quarter of 2019 grew by 89% compared to $6.1 million in the third quarter of 2018. The increase in spending was driven first by SG&A as we continue to invest to support sales growth as well as public company costs, and secondly, by R&D expenses related to new product development and clinical trials. Our operating loss was $7.2 million in the third quarter of 2019 compared to $3.9 million in the third quarter of 2018. And our net loss for the third quarter of 2019 was $8.3 million compared to $5.1 million in the third quarter of 2018. Finally, cash, cash equivalents and marketable securities were $88.3 million as of September 28, 2019, which equates to a reduction of $7.9 million from the balance at the end of Q2 2019. And our weighted average common shares outstanding for the quarter was 21.1 million. With that, I'll turn the call back to Waleed for closing comments.

Thank you, Stephen. We're pleased with our results for the first 3 quarters of 2019. We remain focused on executing our plans to drive broader adoption and growth for our 3 OCS technology platforms in lung, heart and liver transplants. We're encouraged and excited about the future of TransMedics, where we are influencing and driving a significant transformation in the global transplant field. And with that, we are confident that the OCS will become the next standard of care for lung, heart and liver transplantation. Looking forward, we're excited about many key milestones that will become major catalysts for our growth for the next several quarters. Starting with the expansion or expanding our commercial traction for OCS lung in the U.S., announcing the first successful U.S. DCD heart transplantation, achieving OCS heart FDA approval to position the OCS as the only cardiothoracic and the only multi-organ platform approved by U.S. FDA for transplantation in the U.S., announcing the readout of the OCS liver pivotal trial and driving towards the approval of the OCS liver in 2021. And finally, further developing the integrated turnkey service model to expand donor organ utilization and maximize donor organs availability using the OCS technology. Again, thank you so much for being on this call. And now we can open for questions. Operator?

[Operator Instructions] And our first question comes from David Lewis with Morgan Stanley.

A few questions, Waleed. Just to start, just thinking about international dynamics in the third quarter, ex-U.S. is very strong. U.S. was somewhat flattish sequentially. Can you sort of walk us through 2 things, what drove those 2 dynamics in the U.S. and ex U.S.? Number one. And number two, what you're seeing from an underlying traction perspective in lung specifically on standard versus extended criteria? And then I had a couple of follow-ups.

Sure. The driver for growth for our international business in Q3 was stemming from the addition of these new centers with new geographies. That was really the driver for that significant growth in Q3. In the U.S., we saw growth in all the organs, the lung was a bit flattish. And we discussed this before, there were some stocking orders for the lung in Q2 that we hope that it might not impact us in Q3, but it might have a -- it did impact us in Q3. We -- as we sit here today, we see -- we are not concerned about that dynamic. We know that the U.S. transplant market is moving in the direction we are expecting for the OCS, given the scale and given the magnitude of the centers and their volumes. We're allowing that to develop over time. We have high degree of confidence that, that will correct itself over the next 1 or 2 quarters. And in 2020, we don't see any -- we don't have any concerns about that -- our ability to grow the business in the U.S. for lung and, frankly, other organs as well. The second part of the question, David, was -- can you remind me the second part of your question, please?

Just within lung, specifically in the U.S., what you're seeing, specifically on standard criteria versus extended criteria, where the traction is? Is it better or worse?

Yes. I would say it's approximately 60-40, 60% extended criteria and DCD, and 40% standard criteria. And again, we're seeing that line in the sand in the active centers is really starting to disappear. I'd like to wait and see more centers, that line in the sand, starting to disappear. Our vision, as we discussed before, David, that within the next 2 or 3 quarters, definitely, in 2020, people would not be recognizing a standard criteria and extended criteria with the OCS. And we're starting to see that in the active centers in the U.S.

Okay. And just 2 more from me. Stephen, just thinking about the guidance for fourth quarter and Waleed's comments around liver trial finishing earlier, how should we think about revenue growth? I mean guidance implies, obviously, midpoint or upper end of the range, 2 different dynamics. Should we expect flattish? Or should we expect revenue to grow sequentially? And just help us understand this fourth quarter dynamics. And then Waleed, just update on the liver interim look? And are you still expecting second quarter heart approval given the FDA panel update?

So let me address the liver and the heart. We have not done an interim look in the liver. Given the accelerated pace of enrollment, we're driving directly to the filing of the PMA. From everything we know to date, we're very excited about this trial. We're looking forward at the final analysis, which we expect to have in the Q1 2020 timeframe. As far as the heart approval, we are anxiously waiting that schedule of the panel date in Q1, and we feel confident given our knowledge of the data set, given our knowledge of the questions that we've seen so far from FDA, that we would be able to address any questions. And we will be able to present a solid, clinical, robust case to the panel, and we're hopeful that we will be successful in obtaining that panel support in Q1, and hopefully march towards an approval in the Q2 time frame. Obviously, all that will be further brought into focus once we know exactly when the panel date is, and we're hoping that we will have that visibility before year-end. But we feel very confident, David, and based on the data set, based on our knowledge of all the analyses we performed, based on all the questions we've seen from FDA to date, that we feel confident in our ability to address any question that could come from panel. We feel very confident in our ability to present the trial results and support the approval decision for our heart indication, and we hope that, that would be in the Q2 time frame. So I'll turn it over to Stephen.

So David, so related to the guidance, so given the dynamic that Waleed mentioned about the liver trial and the FDA, we did feel like we could narrow the guidance. So we left it at $2 million range. And it's not -- I would not say it's weighted on one end or the other, we're kind of looking at the middle of the range.

[Operator Instructions] And our next question comes from Jason Mills with Canaccord Genuity.

Waleed, can you hear me okay?

I can hear you just fine, Jason.

So I wanted to go back to a couple of the points made in David's question. So outside of the United States, congratulations on 3 new centers. And wanting to make sure that -- or to ask you about the context of the revenue. With those 3 new centers coming on board, were there any -- were the revenues generated in the quarter procedures? Or were there any stocking or onetime revenue bumps in the quarter from OUS?

They were -- I would say they were mix, Jason. Certainly, the order came in as a stocking order, but the centers already started doing cases. But these 3 centers were brand-new centers, so by definition, it was a stocking order.

Okay. Great. So in the United States, one of the things that we've spent a lot of time on with physicians during due diligence was the extended criteria, obviously, and how they will employ this over time. What was quite clear -- or the major lung centers in the United States would like to do far more lung transplant procedures than they're doing today, but what also is quite clear is they wanted to maintain the high level of successful outcomes that they had generated heretofore with standard criteria. So can you talk about the pace here of centers simply just doing more lung transplantation procedures. That doesn't seem to be happening yet, notwithstanding that we're now a couple of quarters beyond the approval for extended criteria. And what do you think the inflection point is going to be? The data were quite clear. Clearly, the centers can make more money, if they're doing successful procedures. On the other hand, if they're not doing successful procedures, that could be a liability. So they're going to be careful. But what is the inflection point in your mind? And when do we start to see OCS lung in the United States show the promise or show the results that really is encapsulated in the promise for that extended criteria opportunity?

Sure. So Jason, I -- the main reason why we haven't seen that inflection point -- there's actually 2 reasons why we haven't seen that inflection point yet. The first one is really just procedurally, which is these centers have to go through the process to convert from a trial center into a commercial center that included several cycles of transferring from research to post-market with an IRB approval cycle in between. The good news is, we are at the tail end of that process. The next one is actually 2 parts. One is that piece of center getting comfortable with doing more cases, seeing the outcomes in their own hands not being compromised. And I think we're achieving that in the active centers in Spain. Then the next point is really broader dissemination of that data and addressing the logistical piece, and that's the initiatives that Tamer and his team has been heavily engaged with in Q3 and well into Q4. I have high degree of confidence. Let me repeat that one more time. I have a high degree of confidence that OCS lung is going to demonstrate the promise that we've witnessed in the trials because I'm aware of these initiatives and I'm aware of how the market is receptive to this. And I suspect that by mid-2020, this is going to be obvious to everybody, and not just TransMedics, but it's going to be obvious to the entire community, including our shareholder base. So we want to make sure that we proceed deliberately. We wanted to make sure that we are laser-focused on the outcome, we're laser-focused on the quality of the outcome. And I have no doubt that we will be able to demonstrate that across all stakeholdership within the next 2 quarters. So that's my answer.

It's good to hear, Waleed. Last question for me, and I'll get out of the way here. Your pilot program with respect to the service model showed some really promising events a quarter or so ago. Can you update us on that program and whether or not there are plans for additional service cases to be done over the course of the next quarter or so?

I usually don't like to talk about things before they actually happen, Jason, as you know. But given that you asked me, I fully suspect that we will be announcing several programs that are of the same nature of the Hawaii programs, but in the Mainland U.S. And these are the initiatives that I was referring to earlier, and I was hoping to address them, hopefully, in the Q1 call. But these are -- the Hawaii program has caused a significant momentum and awareness of the capability of the OCS technology across major U.S. transplant stakeholdership and OPOs in the mainland U.S. So these are the initiatives that Tamer and his team are heavily engaged with. And I fully suspect that, that will materialize within the next quarter. At least the leading edge of that will materialize in the Q1, and then it's going to grow from there.

[Operator Instructions] Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.