Good day, ladies and gentlemen, and welcome to the TransMedics First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call maybe recorded. I would now like to introduce your host for today’s conference Mr. Greg Chodaczek. Sir you may begin.

Thank you. Earlier today, TransMedics released financial results for the quarter ending March 30, 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 includes forward-looking statements within the meaning of the federal security 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 the expectations or predictions of future results or performance are forward-looking statements. All forward-looking statements, including without limitation or examination of operating trends, the potential commercial opportunity for our products and our future financial expectations, which includes the expectations for growth in our organization, regulatory approvals and reimbursement, guidance for revenues, 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 risk and uncertainties associated with our business, please refer to the risk factors section of our financial perspectives 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 conference call contains time sensitive information and is only accurate as of the live broadcast today, June 11, 2019. And with that, I’ll now turn the call over to Waleed Hassanein, President and Chief Executive Officer.

Thank you, Greg. Good afternoon, everyone. I'm delighted to welcome all of you to TransMedics first earnings call as a public company for Q1 2019. Joining me today is Stephen Gordon, our Chief Financial Officer. As many of you know, we completed our initial public offering in May, raising approximately $97 million in net proceeds. We would like to express our gratitude to all of the investors who participated in this offering. TransMedics is committed to expanding access to life-saving transplant procedures for patients suffering from end-stage organ figure across multiple disease conditions. Our initial focus is on lung, heart and liver transplantation. We strongly believe that we have positioned TransMedics to become a long-term growth opportunity based in the following six key paths. First, using our proprietary paradigm-shifting Organ Care System platform technology, we have created an $8 billion greenfield commercial opportunity in lung, heart and liver transplantation alone. The Orange Care System, or OCS, is the only portable medical technology capable of maintaining human organs in a living and functioning state outside of the human body. Living and functioning, heart is beating, lung is breathing liver is making bile. This unique capability enables the OCS platform to optimize and assess human donor organs for transplantation outside of the human body. Based on each unique capability, the OCS technology overcomes the two most significant challenges in the field of organ transplantation, which are low utilization of donor organs that exists today and the high and growing incidence of post-transplant clinical complications. Using the Organ Care System technology, we have generated substantial body of global clinical evidence, demonstrating that the use of OCS technology is associated with significant increase in donor organ utilization and reduction in post-transplant complications. For example, using the OCS Lung technology resulted in 87% donor lung…

Thank you, Waleed. And I am very pleased today to be reviewing our financial results for the first quarter of our 2019 fiscal year. When sharing revenue results, I will provide both gross revenues which is the amount we invoiced from our customers, as well as net revenue, which nets out certain clinical trial payments that we made to those customers who are involved in our clinical trials. So for the first quarter 2019, our gross revenue was $5.3 million, that’s a 92% increase over the first quarter of 2018. But our Q1 net revenue was $4.7 million, an 86% increase over the first quarter of fiscal 2018. This strong increase in sales was primarily driven in the U.S. from OCS Lung commercial sales, as well as solid clinical trial momentum in the OCS Liver PROTECT Trial. We also shipped our first disposables for the OCS Heart EXPAND Continued Access Protocol, or CAP trial in the first quarter. Our gross margin for the first quarter of 2019 was 55% that’s compared to 37% in the first quarter of 2018. And this increase was primarily driven by our overall increase in sales, higher average selling price of disposable sets in the U.S. as we transition from trial sales to commercial sales, and also overall improved efficiency in our production. Our total operating expense of $8.5 million in the first quarter of 2019 grew 50% compared to $5.7 million in the first quarter of 2018. And this increase was primary in SG&A as we transition our expense structure to support commercial growth in the U.S., as well as developing the structure required to support a public company. Our operating loss was $6 million in the first quarter of 2019 compared to $4.8 million in the first quarter of 2018, and our net loss for the first quarter of 2019 was $6.9 million that’s a 41% change compared to $4.9 million in the first quarter of 2018. Cash and cash equivalents was $12.2 million as of March 30, 2019, the end of Q1. And as you know, in May of 2019, we completed our Initial Public Offering, raising approximately $97.4 million of net proceeds after deducting underwriting fees. So turning to our outlook for 2019. We expect net revenue to be in the range of $23.5 million to $25.5 million, representing annual growth of 81% to 96% over 2018. Now, I’d like to turn the call back to Waleed for closing comments.

Thanks Stephen. As we continue, we’re very inspired and excited about the potential of TransMedics and the OCS technology to transform organ transplantation globally. Before opening up the call for questions, I’d like to take a moment to thank the entire team at TransMedics who has worked tirelessly to execute on our vision. We’re just at the beginning of our journey to transform organ transplant market, and I'm extremely proud to be a part of this team. With that, we will now open it to questions. Operator?

Thank you. [Operator Instructions] Our first question comes from David Lewis with Morgan Stanley. Your line is now open.

Good afternoon. Just a few questions for me, maybe two for you Waleed and one for Stephen. So really just starting off on expanded indications for lung, specifically DBD and DCD, I guess two part question. How soon can we see the full commercial launch? And I'm curious what impact if any is the approval having on the standard criteria launch, or center interest or adoption? And I have couple of follow-ups.

Thank you, David. I’ll start with the second half of the question. We think achieving that PMA approval for the expanded DBD and DCD indication will be a catalyst for the adoption of the OCS Lung technology across the entire lung line in the U.S. And it will clarify a lot of the clinical indications questions that we were getting in the early commercial phase of the lung program. So, we believe that this approval will streamline, the process will streamline the adoption process. Then back to your first part which is when do we see full-blown commercialization of the full indication. I expect that to be in the Q4 timeframe of 2019.

Okay, very helpful. And Waleed just a catalyst update for everyone, quick one for Stephen, which is on catalyst. When do you think you expect to do the interim look on liver this year? And do the panel date yet for heart in the fourth quarter?

So, I want to clarify one thing, David. The interim look in the liver is really a formal statistical sample size re-estimation. It's been pre-specified in black and white in the protocol to be done by an independent biostatistician to really give us a very simple go no-go decision on whether do we need an increased sample size to increase the power, or the current sample size of 300 is more than enough to meet the study objectives. So, we're not going to get any more specific details on the data analysis. That is pre-specified in the protocol that way to avoid any issues with interim look of the data. So that should happen in late Q3 early Q4. We will get an independent biostatistical firm to tell us is the 300 number is where we stopping the file and concluding the trial, or do we need to add X number of patients to increase the power for the study analysis, and we will get the number from the biostatistician. That date will be end of Q3 beginning of Q4. We will not get any specifics on the outcome data for this study nor do we want to, to protect the trial integrity. As far as the hearts panel, we expect that to be in Q4 timeframe. We don't have a specific date identified yet, David. But I hope that once we have the majors' deficiency letter responses file to FDA, that we will get an indication from FDA, whether that's going to be November, December or some other timeframe. So, we expect that in Q3, we will know definitely the exact date of that heart panel.

And then Stephen just last from me, and I'll jump back in queue. Obviously, guidance is pretty straightforward. Anything you'd offer us in terms of quarterly cycling or volatility across the quarters? Or is the right way to think about 2019 you stable ratable improvement of revenue across the quarters? Thanks so much.

David, it's definitely the latter. Just steady improvement across the quarters as we've added this additional approval and as we start to do more transplants in our heart CAP and DCD trials, it's going to be steady growth across the quarters.

Thank you. And our next question comes from Robbie Marcus with JP Morgan. Your line is now open.

Thanks and congrats on the good quarter. Maybe I could start with just a housekeeping question first and then a couple operational questions. Can you help us with maybe how lung versus heart versus liver revenues broke down in the quarter? And then, any updates on how many centers you're utilizing with the OCS?

Sure, Robbie, this is Stephen, and I'll give you a breakdown of the net revenue for the three organs. So for lung, the net revenue was $1.4 million; for heart, it was $1.9 million; and for liver, it was $1.3 million. And just a little more color. For lung and liver, most of that's in the U.S. for heart, most of that's outside the U.S. As far the number of centers...

So, Robbie, this is Waleed. I think the number of centers right now stands at around 17 initiated centers in the U.S. We expect to see those numbers growth to about 20 by year end. The focus on us is not the number of centers, the focus that we are, Tamer and his team are focusing on is, how we're penetrating in these centers and trying to get the -- now with the two indications in hand, get these centers to be utilizing the OCS Lung in both indications and continue to ramp up the utilization gear. We expect to end the year between around 20 centers. But from that on, we're going to be drilling into the utilization adoption curve within these 20 centers.

And then, Waleed, I saw you guys at the ISHLT meeting. You had a really positive conference. You showed-off some great EXPAND data. Can you just give us an update on how your discussions are going with the clinicians? Where people are most interested in using OCS? As we sit here, we have the question of why wouldn't more centers adopted and more rapidly. So maybe give us some thoughts on the discussions where doctors said not use it, why? And then, how that's picked up since you've presented the data? Thanks.

Robbie, first of all, thank you for attending that conference. And as you saw, there was significant interest and momentum around dealing with the data on both heart and lung. And since the meeting, there has been high, I'll call it, high intensity around when is the PMA is going to be approved for the indications to lung. There is significant momentum picking up on the heart front, even though the PMA is still under review. But when we announced the final results for the EXPAND Heart, that generated significant momentum across the U.S. And we expect and we hope to show that momentum in our Q2 and Q3 results. So net-net, as I told David earlier, we are extremely fortunate that we secured that PMA approval for the lungs in Q2. We really think that will play a key role in accelerating our adoption and smoothing, I would say, smoothing our adoption and facilitating our adoption to avoid any confusion in the indications. And we're looking forward to executing on that goal and demonstrating that in Q2, Q3 and Q4 results.

And may be just last from me, in your discussions, where do you think doctors are most excited about using OCS in lung? Is it in the standard criteria? Or is it more in the expanded criteria? Thanks.

I think, Robbie, that's an interesting question. And obviously, that question exists when you only have one PMA approval. But when you have both indications approved, what we envision is the following. What we envision is a year from now we are not going to see a line in the sand, call it, standard criteria and expanded criteria. I think that line existed fictitiously because of the way that PMA review cycles has been going on. Ultimately, we stand by our technology and what we believe is if we -- and once we replicate the results we’ve seen in the trial in these centers in the commercial phase, centers should adopt the OCS technology broadly, both from the expanded criteria, routine indication because OCS adds value in both indications. So in summary, I think a year from now our goal is to look at the penetration, look at the total volume increasing the center and that will give us the answer to that question. Right now, people are just turning -- beginning to turn the wheel of adoption on. And once we see the outcome, we’re seeing centers, new centers that haven’t even participated in our study, just use the system a couple of times. And all of a sudden, every lung is coming on board. We hear that they are trying to go out with OCS. And we envision that to continue and we envision that to grow. And over the next three to four quarters, we envision that that delineation will go away. But we need to prove it and we demonstrated to validate that vision.

Thank you. And our next question comes from Josh Jennings with Cowen. Your line is now open.

Hi, good afternoon. Thanks for taking the questions. And congrats again on the expanded use criteria in the lung approval. Hoping just start on the reimbursements side. And I think clearly, you guys have proven that Medicare and private payers will pay for clinical trials, and as you ramp up in commercial lung cases and now with the approval. Can you just help us understand where do you see that? I know you've had some comments in the prepared remarks. But maybe you could expand on those and just talk about how successful you’ve been in terms of payer decisions to-date on the commercial side? And just how reimbursement is flowing through the organ acquisition cost center for your customers?

Sure. Thank you, Josh. The reimbursement and flow through the organ acquisition cost center is just the process. It’s the way the technology is being reimbursed -- has been reimbursed, given the trial. And it’s the commercial reimbursement mechanism then that’s not going to change. So that’s number one. And that’s been validated as we transition centers from trials to commercial lung centers. I guess the educational piece of that our group, our commercial team and U.S. reimbursement team is going through right now is mainly with new centers that hasn’t established the billing history throughout the trial and just learning the billing techniques, billing mechanisms and building the billing history for commercial payers. And that’s our team and Tamer's team is doing a phenomenal job, walking them through the process. We have built a repository of case examples and best practices that again our team is leveraging with new centers. And we obviously can plan and hope to continue to demonstrate that in our quarter-over-quarter growth. We see the reimbursement issue as something that we need to continue to focus and educate new centers on. However, we don't see that as a burden at all.

And then just on the follow-up question on just the heart CAP program, Continued Access Program. Can you just remind us where you are in terms of the ramp there exiting Q1? I think I may have missed to some of the details in the prepared remarks. And then just how do you expect that to ramp over the course of 2019 in front of the FDA approval?

Actually Josh, that's an excellent question. We expect two things to ramp over Q2 from Q1 to Q4 in 2019 in the heart front; one is the heart continued access protocol and two is the actual DTD heart program. These are the two heart pre-approval U.S. programs that will be generating clinical momentum and revenues in the U.S. while we're awaiting the panel decisions, hopefully, in Q4 of this year. We're seeing ramp in the heart activities in the U.S. In Q1, we saw some but we're seeing that ramping up in Q2. And we envision that continuing into Q3 and Q4. The DTD will add further momentum into the heart program. If we step back for a second, in 2018, we only had revenue in the U.S. from lung and liver. We didn't have any access for heart revenue or any clinical activities in heart in the U.S. And 2019 is the first year that we have revenues from lungs, revenues from heart and revenues from liver. And we saw the beginning of Q1 seeing that in the heart, we expect that will continue into Q3 and Q4 of 2019.

And then my last question just sticking with heart and there's a question about panel comment potentially. Can you just walk us through what is left in terms of the submission process for FDA approval for heart? Is there any other back and forth with the FDA, or answering of questions, is all that in the rearview mirror. But maybe just to frame up what's left in front of the panel and through approval? Thanks a lot for taking questions.

Thank you, Josh. We believe we received all the questions that the FDA has on the application piece that's our assumption as we sit here today. Right now, our team is working on addressing all the questions, consolidating all the answers. And we are targeting to file our formal response to the full list of FDA interactive questions in Q3. And we are hoping that that's the time point where we nail down the panel date. In parallel to that, we've already engaged with our FDA panel prep teams to begin the process of preparing for the panel. It's the same team we've worked with before for the lung. So we're taking it very seriously. And obviously, we're moving forward as if we're having a meeting in Q4 2019. But the response to FDA will go in Q3.

[Operator Instructions] Our next question comes from Jason Mills of Canaccord. Your line is now open.

Hi, this is actually Cecilia on for Jason. And I just wanted to continue on the discussion around heart. And just ask if you could contrast the physician you'll be in with heart and centers in U.S. post approvals to ramp your volume versus the dynamics that it have and are currently playing out with lung.

Thank you, Cecilia. We envision a slightly different dynamic. Assuming we have a positive panel vote, we have a fairly large core group of centers that would have been already active with the heart technology either through the CAP program or through the DCD program. And these are the type of indications that -- other than the DCD, these are type of indications that would be under approval. So we envision this to switch into post market. And there are steps that we have to go through to transition from a pre-market study to a post market that includes getting the post market registry protocol approved by the local center IRB, establishing a data collection agreement with institution and data transfer agreement with the institutions. But we expect that to be streamlined given that these institutions would have been already active in the CAP or the DCD. So we envision that to be a little bit more streamlined. We envision more editing existing agreements rather than creating new agreements, which was the case for us in the lung. Of course, our initial focus is ensuring that we've filed the interactive questions list, followed by securing positive panel outcome. The execution piece and the centers we believe is going to be much more streamlined. But our focus is to make sure that the FDA panel is positive and we get this OCS Heart approved in the U.S. as soon as early 2020.

And then just quickly shifting to liver. Could you just provide an update in trends that you're seeing, enrollment trends in the PROTECT Trial, and just momentum that you've seen in Q1 flow through? And what you expect going forward through the balance of the year?

Thank you, Cecilia. I'm going to go on the limb here, which I usually don't like to do too much of. But the liver program has seen the highest rate of enrollment of any program that we've done to-date. That's our sixth or seventh clinical trial, and it is the highest enrollment rate for quarter we've seen in Q1. We expect to see the same rate in Q2. And we should be in a position throughout the study up by the end of this year assuming no increase in the sample size. That enrollment momentum is generated based on what we are hearing centers are seeing the value for the technology. And we were encouraged and humbled by that. Now we are focused on making sure that we get this trial completed, turn it into a PMA submission as soon as possible, and begin the path towards approval of this very important indication for us.

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to management for any closing remarks.

Well, thank you so much. We greatly appreciate you taking the time out of your busy schedule to be in this call. And we look forward to meeting in the Q2 results. We greatly appreciate your time. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone have a wonderful day.