Good afternoon, and welcome to the TransMedics Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s 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 the Gilmartin Group for a few introductory comments.

Thanks, Operator. Earlier today, TransMedics released financial results for the fourth quarter and full year ended December 31, 2023. 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 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 an examination of operating trends, the potential commercial opportunity for our products and our future financial expectations, which include expectations for growth in our organization and guidance and our expectations for revenue, gross margins, and operating expenses in 2024 and beyond 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 undue reliance on these statements. Additional information regarding these risks and uncertainties appears under the heading Risk Factors on our Form 10-K filed with the Securities and Exchange Commission on February 27, 2023, our subsequent Form 10-Q filings and the forward-looking statements included in today’s earnest press release, all of 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, February 26, 2024. With that, I will now turn the call over to Waleed Hassanein, President and Chief Executive Officer.

Thank you so much, Brian. Good afternoon, everyone, and welcome to TransMedics’ fourth quarter and full year 2023 earnings call. As always, joining me today is Stephen Gordon, our Chief Financial Officer. Our fourth quarter performance represents a new high watermark for TransMedics’ business. We ended the year on a very strong note, laying a solid foundation for continued growth. Also, the fourth quarter was the first quarter that we had TransMedics transplant logistics services operational during the full three months of the quarter. Although, it is early -- although, TransMedics logistics is in its early innings, I am thrilled to report on the early successes of the logistical services. We successfully executed on every front and overcame early operational challenges as we continue to expand our footprint and team. Let me share the summary of our results for Q4 and full year 2023. Total revenue for 4Q grew to $81.2 million, representing 159% growth from 4Q 2022 and a 22% sequential growth from 3Q 2023. For the full year 2023, total revenue was $241.6 million, representing 159% growth over 2022. So for the second consecutive year, we delivered on and even exceeded our aspirational -- our aspirations to double revenue year-over-year in the first years of OCS commercial launch. TransMedics logistics services revenue for 4Q was $9.2 million, up from $2.1 million in 3Q. We are proud of this success in the first full quarter of operations. Based on everything we know today, we are growing extremely confident and bullish on the significant potential positive impact of TransMedics logistical services to help us grow the use of NOP platform. We fully expect our integrated NOP and logistics services to enable TransMedics to deliver an end-to-end, seamless, efficient and safe solution to transplant programs across the U.S. Simply stated, providing…

Thank you, Waleed. I will now provide some additional detail on the Q4 results and other financial information for the quarter and the year. So starting with revenue, for the fourth quarter of 2023, our total revenue was $81.2 million. This is an increase of 159% from the fourth quarter of 2022 and a 22% sequential increase from last quarter. The $81.2 million included $1.1 million related to our flight school and $1.4 million related to Summit Aviation’s legacy business. So a total of $2.5 million that is non-transplant related. The $1.4 million of legacy business is not continuing and is expected to be zero in the first quarter of 2024. So that leaves $78.7 million of transplant related revenue worldwide. In the U.S., transplant revenue was $75.2 million. U.S. revenue also increased up over 100 -- 159% from the fourth quarter of 2022 and the U.S. grew 26% sequentially from last quarter and this included the $9.2 million of TransMedics logistics revenue. The organ breakdown on U.S. revenue was $54.7 million of liver, $17.6 million of heart and $2.9 million of lung. All organs growing substantially over Q4 of 2022. We did see a modest sequential decline in lung revenue while liver and heart continued strong sequential growth in Q4. Ex-U.S. revenue was $3.5 million, a 51% increase in Q4 of 2022, but also a sequential decline from Q3 of 2023. As we have stated in the past, our revenue outside the U.S. may not be consistent due to the nature of transplant and the lack of reimbursement outside the United States. The OUS organ breakdown was $3.2 million of heart and $0.3 million of lung. Next, I will cover the product and service revenue. Our service revenue includes the added amounts we charge for the surgical procurement and…

Thank you, Stephen. We’re very humbled by and proud of TransMedics’ performance in 2023. We more than doubled our overall revenue. We helped grow the national U.S. heart and liver transplant volumes by double-digit numbers. We launched a new TransMedics logistics network to drive more operational and cost efficiency for our clinical users. And we achieved our first GAAP operating profit quarter for the business. In totality, we set a solid foundation for sustained growth of our business and our mission of growing transplant volumes to help patients in need for an organ transplant. Now, we are laser-focused on our 2024 operational plans and on our path towards achieving 10,000 OCS transplants by 2028. With that, I will now turn the call back to the Operator for Q&A. Operator?

[Operator Instructions] Our first question comes from Allen Gong with JPMorgan. Please go ahead.

Hi, team. Thanks for the question. Congrats on the good quarter. I wanted to start off diving a little bit deeper into your guidance. You provided the gross margin outlook by disposables versus service, but I think a big question that we still have is, when we think about your disposables versus service on the top line, how should we think about the drivers of the growth that you’re expecting to see?

Yeah. Allen, as far as drivers of growth, I mean, we continue to, as Waleed mentioned, we want to penetrate deeper across all three organs and we want to deliver a clinical program in lung that will help increase the lung later in the year. And the impact of the logistics business is not just for the growth in logistics, it’s also to grow the case volume, which we expect to happen.

Yeah. Allen, thank you for the question. From our perspective, I agree with Stephen, but let me give you a little bit more granular response. We’re nowhere close to being done growing in transplant volume. We will grow our transplant volume by growing -- by going deeper into existing accounts, by adding more DCD and DBD organs across all three organs, by reinvigorating the lung program, by adding new accounts in areas where we don’t have enough accounts, like the lung program, as well as adding more DBD to our heart franchise. We are just in the beginning of this commercial ramp up. The other impact is the indirect or direct impact of operational efficiency with the TransMedics logistics. It may even drive more growth into the actual case volume and overall revenue growth from the logistics aspect of our business. So it is -- we monitor and drive both sides of our business, the disposable and the product, as well as the service and the synergies that exist between the two will also have an important catalyst to adoption of the disposables.

Got it. And then just as a quick follow-up, we’ve seen the letter that you sent in response to the congressional letter, so I won’t dive more into that, but there also was an article out kind of talking about a more thorough investigation of OPOs as a kind of a continuation of the investigation that’s been ongoing over the last few years. How should we think about the potential for that to disrupt the underlying transplant market and how should we think about the longer term impact on TransMedics? Thank you.

Thank you, Allen. As you said, what was announced today in the Washington Post is just a continuation of what’s been ongoing for several years, trying to disrupt or revamp the OPO network in the U.S. The bottom line is the following. TransMedics went out alone and developed a unique model called the NOP. We built it, we executed it and we delivered results to grow transplant volumes in this country by double digits, numbers that hasn’t been seen in almost a decade. We are going to continue to do that and we are proud of what we’ve accomplished. We don’t think what’s happening with the OPOs or what’s been announced earlier today has anything to do with us, but we are here and we’re proud to show anybody who cares to know how to grow transplant volumes in this country. We’ve already done it and we will continue to do it. So, again, it’s unfortunate what’s going on, but as you said, it’s been going on for several years. In the meantime, we are focusing on our business. We’re focusing on driving more organ transplants in this country successfully with excellent results using our NOP service and now our logistics service.

Next question, Operator.

The next question comes from Josh Jennings with TD Cowen. Please go ahead.

Hi. Good evening. Thanks for taking the questions. Congrats on a strong finish to a remarkable year. I wanted to just ask about the congressman’s letter. He provided us a strong rebuttal, shooting every accusation, allegation. Waleed, do you think there could be any short-term disruption to the business with these headlines floating around? Our sense is that you’ve added so many transplant programs as customers. They’re all aware of the business model. Don’t seem to have any issues with it. But just, one, any short-term disruption potential? And then two, any next steps that you expect from this inquiry by the congressman?

Thank you, Josh. Josh, the first part of your question. Listen, one has always to assume some level of confusion, okay? This letter came out of left field. It was not supported by any facts. It was completely unfounded. I am sure whomever is behind this is going to try to use that letter to try to distract from TransMedics’ business. But what they’re not counting on or what you guys should expect, is TransMedics is not going to stand still. We are going to defend our practice, our success, our goal to grow transplant volumes, our ability to support these transplant institutions to deliver the best clinical support for their organs and for their patients as we have been doing for the past 25 years. And we all -- you all know that TransMedics defend our positions very vigorously and fairly. So we’re not going to be standing still. We’re going to try to minimize that distraction as much as we can. Do we expect distraction? Absolutely. Because it’s natural. As far as the next part of the question, I really don’t know, Josh. I don’t know where this -- how this letter came about, other than it appears that there’s some misinformation being propagated. But our response is pretty strong and it was designed as such to make sure that if anybody wants to go down the same path, that they need to know exactly the facts before they come and levy these accusations against TransMedics. And of course, we’re doing that with the full coordination of our senior advisors and legal team in Washington, D.C. But we don’t know what the next steps are, other than we have responded on time and in a comprehensive fashion and we are propagating our positions to all the right people around TransMedics and on -- in the Congress as well.

Thanks for that. Just a follow-up. Just you mentioned, Waleed, about the plan to present some data analyses demonstrating improved clinical outcomes, U.S. transplant using -- transplant centers using the NOP and the OCS within the NOP. Any metrics you can share with us that we should be looking for and how impactful do you think these data analyses can be in terms of driving increased demand and adoption trends for NOP and OCS? Thanks for taking the questions.

Thank you, Josh. I think our key metrics are the ones we’ve been monitoring all the time. We’re looking at both short- and long-term definitive outcomes. We’re looking at rates of PGD, primary graft dysfunction, early allograft dysfunction. We’re looking at patient and graft survival, both at six months and 12 months. So these are the metrics we -- these are the metrics that transplant programs are measured by and also we’re looking at penetration and growth of the case volume within each transplant program in each market. So these are the metrics we’ll be discussing at ISHLT and ATC and ILTS.

The next question comes from Bill Plovanic with Canaccord. Please go ahead.

Great. Thanks. Good evening. Thanks for taking my questions. Yeah. Very strong quarter. It looks like especially in the liver, and I’m just curious, by our math, it looks like the liver procedures were probably up about 20% sequentially and almost triple year-over-year. I was just kind of -- if you could help us understand, what is kind of the really driving the liver adoption, because it seems to be going much faster than the heart, which looks like it was up sequentially, but just not at the scale and pace at which liver is.

Thank you, Bill. I think there’s several reasons, and frankly, several expected reasons for that. We all know that liver transplant procedures are nearly double or even 2.5x heart transplant procedures. So that’s number one. Number two, liver transplantation is a dedicated service at transplant programs versus heart transplant is always adjunct to regular open heart surgery and cardiothoracic surgery in general. That’s number two. I think we are confident that the heart will pick up. Liver will always lead the way just because of the sheer number of procedures. I think over the next two years or three years, the heart will get up there as we continue to demonstrate growth and the overall transplant volume. We will get the number of procedure up, we will see the long-term effect of OCS as we will start reporting that at the next ISHLT and we are extremely confident that the heart will pick up the pace. And more importantly, we’re going to go out on a limb and say that over the next couple of years, we should see the lung starting to really become more contributing to our overall growth. Again, not at the same level of liver because of the sheer number of procedures, but that’s our goal is to get all three organs to be contributing close to each other.

Great. Thanks. And my second question, if I could, is just aviation ramp has gone a lot faster than we expected. You’re at 13 planes now. You said you get to 16 to 20. How do we and I think you gave us the metric of 80%. When do you expect to hit the 80%? Then how should we think about average revenue per case for aviation as you get a little more information and you’re getting deeper into this? And then how do we think about that service gross margin longer term is, I think originally you thought it’d be 30%, you’re already surpassing 35%? And thanks for taking my questions.

Thank you, Bill. As always, three layered questions. The first aspect, we hope to be fully operational at the scale of doing 75%, 80% of our transplant missions with our own fleet when we surpass 20 operating TransMedics flights or aircrafts, which means we’re talking sometime second half of 2025. So that’s number one. The second part of the question was, remind me again, Bill, please. Oh, the price per -- the average price per mission. We can’t comment on that until we are completely dispersed equally across the two sides of the United States, East and West, because it -- the mix is different and that will happen hopefully as we exit 2024. Then finally, as far as the margin is concerned, I think, it’s early. I think we are going to be in the 30%s. I will leave it as that for now and then we will see how we’re executing going forward.

Okay. Great.

I would just add, as I mentioned, we do expect modest improvement over the year as we -- really what’s important is we ramp the number of hours on the planes that we have and cover more of the fixed costs of the aviation plane.

Great. Thanks.

The next question comes from Ryan Daniels with William Blair. Please go ahead.

Yes, guys. Congrats on the strong quarter and the year and thanks for the questions. Stephen, maybe we wanted to start with the margin front. It’s more revenue-related actually. This quarter it looks like about 34.5% of your sales came from the logistics and that’s with you only covering about 35% of your NOP cases with your own logistic solutions. So why would that percentage, the 65%, 35$, stay the same as it ramps towards 80% given that you’re only at 35% today, just trying to square that up?

Yeah. I think it’s important to note that that mix today, that’s not just logistics. That’s all of the NOP service. So we only had $9 million of logistics service, which is a smaller percent of the total.

Okay.

And so as we grow this business, a couple of things are different. One is we -- part of the service revenue this quarter was some overhang from non-transplant-related revenue. That’s going to go away in Q1. So that’s a little bit coming out of the service. The other thing is we expect international to kind of come back to where it was last quarter and so that is higher product revenue. So both of those are skewing the service product mix in the wrong direction, I would say, in Q4. It will change a bit in Q1. And then it remains to be seen how we pass -- how we go through the rest of the year. But generally speaking, I think, the service portion is going to be in the mid to kind of maybe slightly upper 30% range. I don’t think it ever gets to 40% of our business.

Okay. That’s very helpful color. And then maybe a broader strategic question. Obviously, with the growth and dynamic opportunity here, a ton on your plate, but you’ve also got Bridge to Life Technology acquisitions, new product development. You’re really building out the logistics business, hiring a lot of clinicians to support your growth targets. I’m curious if you could perhaps outline maybe two or three of the largest strategic initiatives that we should be keeping an eye on in 2024, not to set the platform as much for this year, but really to set that platform getting to the 10,000 cases? Thanks.

Ryan, thank you for the question. We’re planning to detail all these in our next earnings call. But very important, we are doing all of the above and we are looking forward to sharing more specific and granular details about our goals in 2024 and beyond in our next earnings call.

Okay. I look forward to that. Thank you.

The next question comes from Suraj Kalia with Oppenheimer & Company. Please go ahead.

Waleed, can you hear me all right?

We can hear you just fine, Suraj.

Perfect. Gentlemen, congrats on an excellent quarter. So, Waleed, two questions. First, our math says you exited Q4 with liver, heart and lung market shares of approximately 25%, 20% and 4%. You guys do not put out guidance lightly, especially given your performance in the last two years and how the street starts building things in. And rough math is telling us, based on your FY 2024 guide, you guys are looking to get somewhere close to 25% to 30% share in heart and livers and 10% to 15% in lungs. I’ll be approximately right in our math and can you give us some additional granularity? How are you thinking through DBD, DCD or site movement? I guess just strip down the $360 million to $370 million guide a little more for us, if you could.

Yeah. Suraj, this is Stephen. So, I don’t think we can give where we expect share to be. We definitely expect share to improve from where we are today. As we said, we looked at it on an annual basis and we were kind of at 16% to 17% share in heart and liver, and we certainly expect to improve that as we go into 2024. And your -- the next part of your question, Suraj, remind me?

Yeah. Just in terms of any additional color, how are you thinking about DBD versus DCD, and also the bell curve [ph] for site distribution? I guess just trying to understand is that, how are you targeting or getting to those numbers?

Yeah. Suraj, let me address that one and thank you for the question. I think, Suraj, the way we approach this is very broad. I mean, we look at our case distribution and here’s what we expect. We expect, if we’re heavily used in DCD, we expect that to continue and we expect to continue to drive that forward across all three organs. But we’re not going to stop here. We are going to find ways to invigorate DBD utilization. We do that through a variety of different programs and mechanisms to drive adoption in that area to drive overall national transplant volume. So number three, we look at areas that are quiet or relatively quiet or lower penetration like the lung and we find ways to reinvigorate the lung and it doesn’t matter at that point whether it’s DBD or DCD. Can you imagine if we are more than where we are in the lung and near heart at least, what would that do to our revenue mix and penetration overall? It would be great. After that, as far as the transplant programs is concerned, again, our service is universal. Our service has been proven to result in every promise that we set to achieve or every hypothesis or value that we set to achieve and now it’s up to transplant programs to decide whether or not they want to be thriving and growing in the future of being a leading transplant program and that is the way every transplant program should look at OCS and NOP and transplant logistics. This is the future and we know that, we’ve proven it and we are standing by our commitment to transforming the field and we welcome and expect many of the transplant programs will be contributing part of our growth going forward, because we are contributing to their growth. So it’s not a one-size-fits-all. We have to be dynamic. We have to be flexible. We have to tackle it in a broad range across all three organs, across the two different types of donors and be creative on how we pull the levers to achieve our goals, and again, we are very early given the penetration rates we discussed.

Fair points. Waleed, if I could quickly ask a follow-up. Very nice sequential jump in the number of sites using TransMedics Aviation. So, Waleed, as it normally happens, right, even at our site visit, one of the comments you had made was like, look, we want to make it like a one-stop shop, attach TransMedics Aviation to every run. So you go to sites, the 98 sites you talked about in Q4. What has been the reception? And I’m trying to understand, is it like you all went to, I don’t know, pick a number, 200 sites, 98 are on board, the remaining one or two are resisting for whatever reason. Just set the stage for us to slice and dice how aggressive TransMedics is or lack thereof. Gentlemen, you guys are on a roll. Congrats again. Thank you for taking my question.

Thank you very much, Suraj. Unfortunately, I might disappoint you by saying, I cannot give you more granular detail other than remind you that there are not 250 programs out there that we would go to. Again, our approach to these programs is very, very simple. When we get called for an NOP case, we provide them the option to use our TransMedics logistics. We provide them a price quote and it’s up to them to decide whether they want to use us or not. Some centers liked using us, came back and asked Tamer and Andre for a long-term contract. Some centers are -- we don’t require that, but some centers wanted to do that and we are there to help them achieve that goal. The bottomline for us is, we know and we are confident that we are providing an operationally scalable and the most efficient cost structure in transplant logistics in the United States and it’s going to get better from here as we have more leverage and more plane and more capacity to meet many of these cases. And it’s up to the transplant program to participate in this, if cost-effective or efficient model or not. I hope I addressed the question, and I’m sorry, I can’t give you more granular detail than that at this early stage of launching logistics. It’s only one quarter, Suraj.

Fair enough. Fair points. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Waleed Hassanein for any closing remarks.

Thank you, Operator. Thank you all very much for being with us this evening and we look forward to speaking again in May. Have a wonderful evening.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.