Good afternoon, and welcome to TransMedics Second Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only-mode. After the speaker’s presentation there will be a question-and-answer session [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Mr. Brian Johnston from Gilmartin Group, for a few introductory comments. Please go ahead.

Thank you, operator. Earlier today, TransMedics released financial results for the quarter ended June 30, 2021. A copy of the press release is available on the company's website. Before we begin, I'd 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, are examination of operating trends, the potential commercial opportunity for our products and our future financial expectations, which include expectations for growth in our organization, regulatory approvals and reimbursement, and guidance and/or expectations for revenue, gross margins and operating expenses in 2021 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 our quarterly report on Form 10-K filed with Securities and Exchange Commission on May 7, 2021. 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, today, August 5, 2021. With that, I'll now turn the call over to Waleed Hassanein, President and Chief Executive Officer.

Thank you, Brian. Good afternoon, everyone, and welcome to TransMedics 2021 second quarter earnings call. Joining me today is Stephen Gordon, our Chief Financial Officer. As expected, 2021 is shaping up to be a transformative year for TransMedics. Building on our momentum from earlier in the year, we achieved another significant regulatory milestone in the second quarter of this year with a very strong panel vote in support of the OCS Liver indication. Given the panel outcome, we are now looking forward to FDA approvals of both OCS Heart and Liver indications in Q3 and early Q4, respectively. In addition to our success with our product pipeline, we also saw continued traction commercially. Net revenue for the second quarter was $8.2 million, representing 141% growth compared to 2Q 2020. It is important to note that this growth was achieved without any liver revenue contribution in 2Q due to completion of the OCS Liver CAP program. Now let me summarize our progress across our key strategic initiatives. First, the OCS Heart DBD PMA. Following our positive panel vote in April, we're now wrapping up labeling and post-approval program discussions with the review team. Given our current position, we are confident that we are proceeding towards approval of the DBD heart indication within the next several weeks. Second, the OCS Liver PMA. In July, we secured a nearly unanimous positive panel vote supporting the approval of the OCS Liver for both DBD and DCD indications. We're now actively engaged with FDA review team to finalize the labeling and post-approval program. We are confident that we are proceeding towards approval of the OCS Liver indications before year-end. Our third initiative is the National OCS program. We're continuing to expand and added one new region in Tampa, Florida, bringing the total to seven initiated…

Thank you, Waleed. I will now provide some additional details on the Q2 results and other financial information in the quarter and the year. For the second quarter of 2021, gross revenue was $8.7 million and net revenue was $8.2 million. Net revenue increased by 141% from the second quarter of 2020. That was a quarter that was highly impacted by the early onset of the COVID pandemic. In the US, gross revenue was $6.3 million and net revenue was $5.8 million. US net revenue increased 136% from the second quarter of 2020. And I would note that this revenue performance did not include any revenue from our OCS Liver product as all clinical activity in that program has concluded while the FDA completes overview. For further detail, the organ breakdown on US net revenue was $3.5 million of OCS Lung and $2.3 million of OCS Heart. And outside the US, revenue was $2.4 million in the second quarter of 2021. This is up 154% or $1.5 million from Q2 of 2020, and that included $2.3 million of OCS Heart and $0.1 million of OCS Lung. The key drivers of our Q2 revenue performance were; first, strong OCS Lung sales in the US. As US lung transplants have recovered, we have seen increased use of the OCS through both direct acquisition and our National OCS Program. Second, US heart sales were also strong as we completed the OCS Heart-DCD CAP trial enrollment. And finally, we saw some international recovery with revenue this quarter back to levels similar to pre-COVID. Gross margin for the second quarter of 2021 was 68% compared to 56% for Q2 of 2020, which was during COVID, and it's equivalent of 68% that we saw last quarter. Total operating expenses for the quarter were $15.5 million. This…

Thank you, Stephen. Before closing, I'd like to comment once again on how excited we are for the future of TransMedics. We're now closer than ever to having all three OCS products approved for commercial use in the US market. The expected approval of OCS Heart and the OCS Liver indication this year will fundamentally shift our growth trajectory for many years to come. These approvals will uniquely position TransMedics broad product portfolio to drive significant transformation of three transplant markets simultaneously in the United States. This will be a huge advancement to our transplant users, surgeons and patients. With that, I'll now turn the call to the operator for Q&A. Operator?

[Operator Instructions] Your first question comes from the line of Cecilia Furlong of Morgan Stanley.

Great. Good afternoon. Thank you for taking the questions. Waleed, I wanted to start off just with the recent lung performance in the U.S. If you could just talk through, kind of, what you saw during Q2 as the quarter unfolded in terms of traction? And then just with the service model as well, really what you've been able to see on the ground leveraging that and driving awareness around lung and the platform overall?

Thank you Cecilia. So the growth in the lung business in Q2 was really driven by both the direct acquisition and the national program. As we stated before, we expect the national program to be a stimulus and a driver, not only through more adoption of the national program lungs, but also for active lung centers as they become more aware of the capabilities of the OCS and the national lung program to drive adoption there. So that's really the combination of both, the national program, the awareness, the successful cases that are starting to accumulate, the addition of new OPO regions, the awareness even within the OPO community starting to spread. And nothing drive adoption more than actually seeing the product being delivered in regions that would have never been delivered to from far distance, and that created significant momentum for the lung program in Q2. Again, this is driven by both direct acquisition and the national program. As we move forward, we expect that momentum to continue, and we expect the national program to continue to increase, and that's very exciting for us to see that growth in our lung franchise.

Great. Thank you. And if I could just continue as well with the national program, you talked about building resources around that program for the back half of the year. But can you just walk through your planned investment, key areas of investment through the back half of this year and really what you incorporated in your OpEx outlook that you walked through as well? Thank you.

Thank you. Cecilia. So the investments we're making is primarily in support teams in three major verticals; surgical capabilities for cardiothoracic procurement, surgeons capabilities across the United States, in clinical support capabilities that are regionally specific to support each active region, as well as coordinators, clinical coordinators, transplant coordinators that are monitoring, managing, screening every donor organ and communicating and quarterbacking the logistics for all the missions that are involved in the National OCS Program. That's at a high level, the three verticals that we're investing in.

Okay. Thank you.

Next question comes from the line of Josh Jennings of Cowen.

Hi. Good afternoon. Thanks for taking my questions. Waleed, I was hoping to just better understand the setup for the Heart and Liver indication launches in the U.S. If you could just help us think through, why or why they wouldn't resemble the launch of the lung indication previously? And why that is either similar or different?

Sure. Thank you, Josh. We expect it to -- we hope, and we expect not to make it resemble the Lung launch in anyway, shape or form. Let me be clear, why do I say that? When we launched the Lung, we didn't have a single active lung center in the United States with the OCS product, for at least 14 months to 16 months. In the case of the Heart and Liver, we have 20 and 25 centers that literally up to a few months ago we're actively using the heart and the liver products in the CAP programs for DCD and the CAP program for the Liver PROTECT. So that's number one. Number two, the Lung post-approval registry was a very complex design, that we understood the rationale for it. And it took several months, if you remember, Josh, to get through different IRBs and local IRBs at the centers and the like. Our design of the post-approval registries for both, Heart and Liver have incorporated numerous changes to facilitate rapid deployment of the product into the clinic, while capturing the data in a streamlined fashion that doesn't require significant upfront time commitment to get the registry setup. These are the two major differences that we are focusing on. And then to add on top of that, the whole new initiative with the National Program that is completely new, that didn't exist in the Lung. And to start with seven active regions, probably by the time the Heart and the Liver is approved, you will have more active regions that gives us significant leverage towards ending the year on a very strong position on the launches of both Heart and Liver, while we're continuing to grow the Lung.

Great. Thanks for walking through, both those indications for us. And -- you mentioned the number of investigator sites that have been active in both Liver and Heart, in the markets, OCS Heart, OCS Liver, prior to approval. But can you give us a sense of indications of interest or demand levels from investigator sites? And maybe more color on how low that hanging fruit actually is? Thanks for taking my questions.

Thank you, Josh. Actually, I'll give you an indication of sites that are not even in the user group. As I mentioned in the previous call, we have anywhere between 10 centers to 15 centers, additional centers, in the Heart. And 10 to 15 additional centers in the Liver that are in the pipeline waiting to be initiated once the product is approved. In over and above the 25 heart centers that are active or was active with the DCD and the 20 Liver centers that just finished the CAP. The interest is very high. I had liver surgeons and liver centers call us after the panel date to congratulate us and said, "Can we start using the OCS again?" So again, we take this momentum with a high degree of responsibility. And we are working with our centers to make them as prepared as we can, prior to the approval. So once the approval order is in hand, we can move quickly, but in an organized fashion, in a smooth fashion to initiate them commercially. And get the product and get the program back on track.

Great. Thanks for those answers.

Next question comes from the line of John Plovanic from Canaccord.

Yes, Bill Plovanic here. So, thanks for taking my questions. First question is, Stephen, I'm sorry, I kind of missed this, but can you remind us the U.S. and OUS Lung number for the quarter, net?

Yeah, the U.S. Lung number was $3.5 million. OUS was just $0.1 million -- $100,000 OUS.

Okay. And as we think about kind of Q3, obviously, without the DCD, the CAPs for Liver or Heart basically, we see nothing in the U.S. in Heart, if we don't get the approval. And obviously, Liver is what it will be. Just confirming that, right?

That's correct, Bill.

Okay. And then, on the Heart label, thank you for the granularity in terms of the FDA discussions. I think that's very helpful. As we sit there and think about label, because that would be the next kind of data point, is there anything in the discussions that's different from what we would have heard from the panel or the original submission for Heart?

Bill, as you know, we do not comment on our active discussions with FDA, specifically around label. But I am optimistic that the label will meet -- will be reasonable, will meet our expectation. And it will be data-driven. And it may not resemble some of the discussions, we've heard on the panel date.

Great. And I know that it's tough to answer those questions, especially as you're in those discussions. If I could switch over and ask two more questions on Lung and then, I'll jump off. One is, just what is the percent in the U.S.? I mean, that was a very strong Lung number. What's the U.S. kind of non-CAP business? And of the non-CAP, what's kind of the spread between OCS and non-OCS kind of business, if you're willing to share that? And then my last question is, what -- can you help us understand the significance of the OCS Lung solution for cold preservation of lungs. Just help walk us through why that matters. Thanks for taking my questions.

Thank you. Thank you, Bill, so I'm not sure, I understood the first question. But are you talking about, how much of that $3.5 million were capital equipment versus disposables, or -- you said, CAP.

Yes. I'm sorry. Yes, the U.S. wouldn't be CAP, I apologize. So how much is US? Yes. Is kind of -- US Lung is driven by OCS versus non-OCS?

All the $3.5 million are all OCS revenue. There's no non-OCS revenue in that number.

Has it been matched? Yes, the National Program, I'm sorry.

I think the National Program is somewhere between 15% and 20%. The bulk is direct acquisition. And we expect that to be the case in the next two quarters. I think we will start seeing the National Program kind of increasing early 2022 and throughout 2022. But the presence of the National Program is creating a catalyst for the direct acquisition. And as we ramp up our resources, as we add up new region, as we staff the new region, we're going to start seeing the National Program number growing up. That's our expectations. And as far as the second question around the OCS Lung solution for cold preservation, we look at that, Bill, as a significant competitive advantage. It's not that we are changing our business to cold preservation, but having that lever is a huge strategic and competitive advantage to enable us to fill in the gap between a center that is completely not using the OCS today. Until we turn a center into 100% OCS or fully integrated OCS Center, we can drive revenue from sale of cold solution. It also gives us a strategic competitive advantage in existing centers that are using OCS, leveraging that and increasing our OCS volume through having a unified call point for everything related to lung preservation. And I think I'm addressing your question though, please correct me if I'm wrong.

That was perfect. Thank you.

[Operator Instructions] Your next question comes from the line of Mike Ott of Oppenheimer.

-- Suraj, today. A lot of our questions have already been answered, but one more maybe on the Liver PROTECT data, presented at panel last month. Curious, if you can expand any more on the physician reaction to that Liver data?

It's extremely positive. I think the Liver data reaction, actually, we saw that, Mike, at the American Transplant Congress, where the Liver data, won the most impactful presentation out of more than 25,000 abstracts and presentations. So that says it all. So extremely positive. As I said, some of the congratulatory calls we got the next day after the panel, people thought that they could start using the OCS again. And obviously, that's not the case, but it just shows the momentum and excitement. And now we're excited about where we are to drive that into an approval and move on throughout the end of this year and into 2022 with three approved products, Heart, Lung and Liver.

Excellent. That's great to hear. And realize while you're limited in what you can say with the ongoing FDA discussions on labeling, but can you just say if they're kind of tracking to your expectations so far?

I think -- Mike, I think, again, I want to be very cautious. I want to respect our relationship and collaboration with FDA, and I don't like to comment on those, but I am optimistic and confident that it will be data-driven, it will be supportive of the results achieved in both trials. So I'm optimistic, and I'm confident. But that's all I could say.

Okay. That’s perfect. Thanks so much.

[Operator Instructions] I don't see any questions at this time. I will turn it over back to Waleed for any closing remarks.

Thank you so much, operator. Again, thank you very much for joining us in this call, and we're looking forward to our next quarter earnings report. Thank you, and have a wonderful afternoon.

This concludes today's conference call. Thank you for participating. You may now disconnect.