TransMedics Group Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 1, 2023

There are 8 speakers on the call.

Operator

Afternoon, and welcome to TransMedics First Quarter 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 Johnson from the Gilmartin Group for a few introductory comments.

Speaker 1

Thank you. Earlier today, TransMedics released financial results for the quarter ended March 31, 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, including during the question and answer portion and 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 all forward looking statements including without limitation our examination of operating trends, the potential commercial opportunity for our products and our future financial which include expectations for growth in our organization and guidance and or expectations for revenue, gross margin and operating expenses in 2023 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 uncertainties appears under the heading Risk Factors on our Form 10 ks filed with the Securities and Exchange Commission on February 27, 2023, and our subsequent filings with the the Securities and Exchange Commission, which are available at www.sec.gov and on our website at www.transmedix.

Speaker 1

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 day, May 1, 2023. With that, I'll turn the call over to Wale Hassaneen, President and Chief Executive Officer.

Speaker 2

Thank you, Brian. Good Good afternoon, everyone, and welcome to TransMedics' Q1 2023 earnings call. As always, joining me today is Stephen Gordon, our Chief Financial Officer. Since our last update, we have continued building on our strong 2022 performance, making progress on many of our previously outlined growth goals for 2023. I'm thrilled to report that our Q1 results demonstrated significant commercial momentum we made progress in scaling our supply capacity of our OCS perfusion modules.

Speaker 2

Here are the top line results. In Q1, we achieved total revenue of $41,600,000 representing 162% year over year growth 32% growth over 4Q 2022. As predicted, NOP continued to be the primary driver for our revenue growth, a trend we expect to continue for the foreseeable future. Importantly, we also demonstrated continued improvement down the P and L as we benefited from increasing operating leverage, which Steven will detail in his section of today's call. Before I move on to discuss the 1Q details, I would like to take a moment to mention that TransMedics has released our 1st annual ESG report, which was published this morning on our website.

Speaker 2

Now, let me move on and provide some more granular highlights on 1Q 2023. Overall, 1Q represented another new high watermark for case volume, driven by liver and heart cases, which increased sequentially for the 5th consecutive quarter. Meanwhile, lung volumes continue to lag as we work to help rebuild this very important market. In line with our outlined growth strategy, we also grew the number of liver and heart transplant programs using OCS and NOP. There were 32 liver programs that used OCS and NOP in 1Q, of which 15 were active repeat users.

Speaker 2

For heart, there were 40 programs that used OCS and NOP, of which 11 were active and repeat users. There were 9 lung programs that use the OCS and NOP of which 6 were repeat users. We are not concerned by the lung center trend given the small numbers and our previous guidance that our initiatives will take approximately 12 to 18 months to materially impact lung program growth. In terms of the NOP contribution, approximately 91% of our total U. S.

Speaker 2

Case volume we're from NOP Program. We view these NOP penetration rates as very encouraging and in line with our goal of having TransMedics NOP managing the lion's share of U. S. Transplant volume over the next several years. In 1Q, we also began to increase production and sterilization The increase was driven primarily by the scaling of our 2nd shift in our operational existing cleanroom.

Speaker 2

We expect to see further gradual capacity expansion as we bring our new clean room online and fully operational. Given that we received FDA certification of our new cleanroom in 1Q, we are confident that the timeline for the new cleanroom to be operational remains on track for late Q2. Our 1Q results clearly demonstrated the fast pace of growing clinical demand for our OCS technology and the NOP service model. We remain laser focused on bolstering our supply chain and NOP infrastructure to sustain and further accelerate our growth, let me outline our key focus areas to keep up with this accelerated demand, specifically on OCS production availability and NOP infrastructure capacity. So first, production and product availability.

Speaker 2

As mentioned, we're continuing to invest in our manufacturing capacity and supply chain to ensure continuous product availability. More specifically, we are enhancing production and sterilization capacity as well as raw material supply chain management. For production and sterilization capacity, as stated, we are on track to bring our new cleanroom production space online by mid year. But we are not stopping here. We have already secured additional new space in our current facility to support the increased production build we are working with specialized 3rd party workflow optimization experts to revamp our production process workflow to maximize efficiencies within both cleanroom spaces.

Speaker 2

Lastly, we are significantly increasing our sterilization capabilities by qualifying a brand new major sterilizer, while working to expand the capacity and the throughput of our current sterilization partner. This expanded sterilization capacity will be online in H2 2023. For raw material management, historically, we've never had a raw material shortage. However, as we are significantly increasing our production capacity to we have established a new dedicated raw material planning and monitoring team within our operations team. This new team's function is to establish a scalable process to closely track our growing demand for raw material and proactively replenish our raw material to meet our near, mid and long term needs.

Speaker 2

Second, we'll continue to expand our NOP infrastructure. Specifically, we will grow our surgical and field clinical staffing throughout the next 12 months to 18 months to meet the growing demand for the NOP clinical services across the U. S. We are also planning to opportunistically add 2 to 3 new launch points later this year to expand our coverage and reach larger pools of potential donors faster and more efficiently. We will revamp and scale the logistical management of the NOP case flow.

Speaker 2

We have recruited a senior logistics executives from Amazon to lead our initiative to streamline, scale and digitize the entire logistical workflow of our NOP program, literally starting from the initial transplant center's call to the NOP hotline through the organ arriving at the transplant center. One key feature of this exciting new initiative is creating a digital Central Command, Control and Dispatch Center here in Andover to oversee and manage our national NOP workload. We hope to start sharing more granular detail on this exciting initiative towards the end of 2023. Additionally, we announced at ISH OT in April that we are planning for the launch of our customer facing portion of the TransMedics OCS Connect application. This is a secure and HIPAA compliant app that will provide surgeons and clinicians with real time updates on the overall status of the Oregon on OCS, as well as logistics and travel time information.

Speaker 2

It will also enable secure real time communication of case information between our team managing the organ and the transplant program clinical staff. We are very excited about this new function of our OCS Connect and we hope it will provide more transparency and confidence to our users about the status of their organs en route to the transplant center. Finally, and as we have stated several times, we fully intend to eventually control the entire air and ground transport function for the NOP transplant cases. This will help remove a critical bottleneck for our growth. We are seeing our NOP volumes are starting to outpace the capacity, the availability and flight radius of the fragmented transplant air charter model that we and the transplant programs are using today.

Speaker 2

We also announced at it should be that we expect to launch this important TransMedics aviation initiative sometime in H2 2023. We are actively engaged on several fronts to establish a national dedicated NOP transplant charter flight network to cover our existing and potential new hubs. I'm looking forward to discussing this exciting initiative further in the latter half of this year. In the meantime, please allow me to take this opportunity to discuss in detail and clarify the current way of air transportation for organ transplants in the United States. To start, it is important to recognize that all, I repeat, all air transport for hearts, lungs and liver transplants in the United States are transported via chartered flights.

Speaker 2

These flights costs are a part of the Oregon Acquisition Cost Center and are an allowed charge for the CMS cost report. All commercial transplant payers and CMS routinely reimburse these costs. Historically, when Organ Transport was limited to a short distance within the donor service area or DSA, of the involved organ procurement organization, or OPO, the OPOs were the main flight coordinators for the transplant programs. Consequently, a few OPOs purchased their own short range aircrafts to manage local travel. Back then, more than 90% of donor organ allocation came from the transplant programs local OPODSA, literally less than 250 miles and only less than 10% came from outside of the local DSA.

Speaker 2

Today, the reality is the complete opposite. Let me explain why and how. Approximately 5 or 6 years ago, organ allocation for lungs, hearts and liver transplants shifted from regional can and should be allocated to the matched recipient in Boston or New York Raleigh Durham, North Carolina. With that change, the rate of organ acceptance by nearly all the leading transplant centers flipped overnight to more than 90% national or distant allocation and only less than 10% local allocation. This led to many OPOs selling their jets and shifting most of the responsibility, if not all the responsibility of Air Transport Coordination back to the transplant programs.

Speaker 2

To make this more interesting, between 2020 2022, the the OCS technology became FDA approved in the United States and the NOP was established. This shift led to a very important shift in the United States organ placements because the OCS enabled safe, longer distance procurement across the entire country and from outside the continental U. S. Like Hawaii, Alaska, Puerto Rico and Canada. So how do transplant programs coordinate their organ transport charter flights today?

Speaker 2

They rely exclusively our few regional charter flight brokers who owns no jets or even have the license to operate a charter flight, they rely those charter flight brokers rely exclusively on the 3rd party owners and operators this is a very cost and operationally inefficient way of running organ transplant transportation and will become a major bottleneck for NOP growth going forward. This antiquated fragmented approach is not geared to the distances that we are now covering, the volume of donor organ missions that we do on daily basis using NOP or the volume expected in the near and long term future. Importantly, many of the jets used today are older vintage with very limited flight range and lacks WiFi communication capabilities, we saw firsthand in 2022 the massive cost inefficiencies that exist in the current model, and we believe TransMedics managing our own logistical network will create value for our clinical users, their patients and other critical stakeholders in organ transplantation in the United States. We believe strongly that securing this dedicated national network of charter flights under TransMedics Aviation would act as an additional significant catalyst for the growth of NOP and TransMedics business in the United States.

Speaker 2

Again, I hope to share more details as we get this initiative operational later this year. There is no doubt our OCS technology and NOP service model are driving a transformative shift in organ transplantation in the United States, as demonstrated by our first quarter we are not stopping or slowing down. We have bigger goals in mind and we fully intend to execute on our strategy we remain laser focused on execution we are now in the process of navigating this steep growth curve to drive continued success. As I've done in the past, I would like to share with you all what we see as a potential challenges that could temporarily impact our growth trajectory for the remainder of 2023. First, constraints on our supply chain and production capacity.

Speaker 2

As stated earlier, we need to be cognizant of our demand for raw materials as we increase production capacity, though we do not currently foresee any issues, we could face some delays regarding some parts availability or obsolescence issues that could temporarily hamper our immediate term growth. 2nd, clinical NOP staffing delays could limit our ability to cover new regions hubs temporarily until we resolve it. Finally, delays in securing our logistical network and air transport could temporarily slow us down later this year and into 2024. That said, given our strong 1Q 2023 results increased confidence in the trajectory of our finished goods supply, balanced with potential scalability challenges above, we are increasing our annual revenue guidance for the full year 2023 to be between $160,000,000 to $170,000,000 up from our previously communicated guidance of $138,000,000 to $145,000,000 this new guidance represents 71% to 82% growth over full year 2022 total revenue. With that, let me turn the call to Steven to cover the detailed financial results for the quarter.

Speaker 2

Steven?

Speaker 3

Thank you, Waleed. I will now provide some additional details on the Q1 results and other financial information for the quarter. For the Q1 of 2023, our total revenue was $41,600,000 This is an increase of 162% from the Q1 of 2022 And a 32% sequential increase from last quarter. In the U. S, revenue was $37,500,000 an increase of 177% from Q1 2022 and 29% sequentially from last quarter.

Speaker 3

The organ breakdown on U. S. Revenue was $23,100,000 of OCS Liver, dollars 13,000,000 of OCS Heart and $1,400,000 of lung. Ex U. S.

Speaker 3

Revenue was $4,100,000 a 75% increase from Q1 of 2022, ex U. S. Revenue was made of $3,800,000 of part $200,000 of lump. Regarding the breakout of product and service revenue this quarter. As a reminder, the service revenue includes the added amounts we charge for the surgical procurement In Q1, product revenue was $34,000,000 And service revenue was $7,600,000 So service revenue was 18% of the total in Q1.

Speaker 3

Gross margin for the Q1 of 2023 was 69%. While this is down from 76% in the Q1 of 2022, it is a sequential increase from the 66% reported in Q4 of 2022. The margin on product revenue was 79% in Q1 and the margin on service revenue was 27% in Q1 2023. The sequential improvement in service margin reflected some of the improvements in production capacity and drove the overall the higher overall sequential gross margin. Total operating expenses for the quarter were $30,900,000 44% above Q1 2022 operating expense, driven primarily by our continued investment in scaling both the NOP as well as the overall company operations.

Speaker 3

Operating loss was $2,100,000 in the Q1 of 2023 compared to $9,400,000 the Q1 of 2022 demonstrating the strong leverage in the business as we grow our revenue. Our net loss for the Q1 of 2023 was $2,600,000 Compared to $10,600,000 in the Q1 of 2022 and our total cash was 195,400,000 as of March 31, 2023, which equates to a reduction of $5,800,000 from the balance at the end of Q4, 2022. Our weighted average common shares outstanding for the quarter were 32,300,000. Overall, our financial results in Q1 2023 reflect our continued execution of the OCS and NOP growth plan. We have been able to unlock additional production capacity as planned, which was reflected in both our top and bottom line results.

Speaker 3

And just to repeat our guidance update, we are increasing annual revenue guidance to the range of $160,000,000 to $170,000,000 which represents 71% to 82% growth. Now I would like to turn the call back to Waleed for closing comments.

Speaker 2

Thank you so much, Steven. We are thrilled by our 1Q results and continued growth of clinical demand for our OCS technology the NOP Clinical Services. That said, as I said before, we strongly believe we are still in the early stage we are not basking in our success. We understand that this steep growth curve could pose potential challenges. We remain focused laser focused on driving our operational, commercial and clinical initiatives, while navigating any potential challenges to meet our near and long term growth potential.

Speaker 2

We look forward to continuing to make strides on our strategic initiatives throughout 2023. With that, I will now turn the call to the operator for Q and A. Operator?

Operator

We will now begin the question and answer our first question is from Bill Plovanec with Canaccord. Please go ahead.

Speaker 4

Great. Thanks for taking my questions and good evening. I'm going to start out with and congratulations on the quarter. Just curious, how did capacity issues impact new account adoption? Like are you constraining your sales folks from bringing on new accounts and what's that over this past quarter?

Speaker 4

And then what does the new clean room add in terms of net capacity and how does that come online over the next few quarters and how does that impact gross margin?

Speaker 2

So, Bill, thank you for the question. I'll address the first two parts of the question and then I'll let Steven address the impact on gross margin. So, the ramping up of the capacity limited to a lesser extent in Q1 compared to Q3 and Q4 of last year, our ability to go deeper in some of the accounts. We tried not to limit new accounts addition in Q1. That's why you see the growth in the new accounts for heart and liver, but you noticed that the repeat and active users remain slightly It's because we wanted to get new accounts in, yet we wanted to supply our traditional users with the added capacity that started in the beginning of Q1.

Speaker 2

At the end of Q1, this constraint pretty much dissolved based on the increased capacity. As far as the new clean room capacity, we expect At least, and this is a guesstimate at this point, because I believe the additional workflow optimization and efficiencies would even increase that substantially. We guesstimate approximately 4 times the capacity, I would say, over the next 18 to 24 months because When we open that new clean room, it's not going to be fully staffed, it's not going to be double shifted. It will take time. But it will add additional capacity gradually.

Speaker 2

That's why I said gradually. But definitely over the next 18 months to 24 months, we expect a significant capacity increase. The key point To the audience or the people listening is we're not just stopping at the current we are constantly looking at capacity. We're constantly we do not want to get back to a situation where we were at in Q2, Q3 and Q4 of last year. So Nick and the team are constantly monitoring that and we are going to be aggressive on making sure that we avoid significant back order situation from happening to us again.

Speaker 2

With that, I'll turn it on to Stephen to discuss the gross margin.

Speaker 3

Yes. Hi, Bill. This is Steven. So regarding gross margin, we did we were able to see a sequential increase. Primarily that was around the service margin this Because we didn't have as much logistical costs of moving disposables quickly around the country to meet NOP needs.

Speaker 3

We're able to kind of reduce that some. At the same time, we do have additional costs from the new clean room that's already kind of baked into our margin. As I've said in the past, I expect moderate increase in margin as our revenue grows and sequentially and I still feel like that's the right answer.

Speaker 4

Great. And for my second question, just on the aviation, you talked about the potential expansion and thanks for going through that in detail. A, what's the most likely pathway to business in the cost to do so to get into? Is this an acquisition or is this building it kind of plane by plane? And then B, do you think you'll need to raise capital or equity or debt or some form to do what you're looking how does this impact the revenue gross margin the P and L revenue gross margin operating?

Speaker 4

And thanks for taking my question.

Speaker 2

Thank you, Bill. Again, I'll address the first two parts of your question and let Stephen address the impact and the P and L. We evaluated all different options of how to build the TransMedics Aviation business in TransMedics. We've completely eliminated the organic option of adding one plane at a time because it will take significantly long time for TransMedics to secure a Part 135 Charter operating license is going to take at least 12 to 18 months. So our 2 most efficient paths are either acquiring a Part 135 operator that had significant assets of jets that we can leverage quickly or creating a joint venture with 1 operator that had again, a license and a significant number of assets.

Speaker 2

These are the two options that we are actively pursuing across the United States. As far as the ability to finance this, we've always stated publicly that we do not expect to tap into our current balance sheet to finance anything related to the Aviation business. So we're exploring different modalities of financing that is non dilutive or less dilutive forms of financing options in front of us. And we're working with our advisors on the different options. I'll turn it on to Stephen.

Speaker 3

Yes, Bill from a P and L perspective, so today the revenue for flights is not in our P and L. So we would think of that as an adder from a revenue perspective for each transplant, whether it's a $20,000 or $30,000 depends on the length of the flight. So that will be one change. So more of our revenue would be on the service bucket, although we think the service revenue the service margin will be improved. The overall company gross margin percent may come down a bit.

Speaker 3

But from a dollar perspective, it should be you know, an accretive to our income and you know, once we're in positive EPS, it would be favorable to EPS.

Speaker 4

Great. Thanks for taking my questions.

Speaker 2

Thank you, Bill.

Operator

The next question is from Alan Gong with JPMorgan. Please go ahead.

Speaker 5

Hi, thanks for taking the question. Congratulations on the really strong quarter. There's obviously a lot of really exciting things to talk about when it So heart and liver, but I do want to like kind of touch on lung a little bit. It's clearly continuing to face pretty significant challenges The rest of your portfolio is taking off. I understand that lung really was impacted quite a bit by COVID and has not really come back necessarily in the same way for you, even as transplants have recovered, so what kind of details can you provide on your strategy to really get that market back up and running for OCS?

Speaker 2

Thank you, Alan, for the question. I think as I'll focus on what I stated publicly before and hopefully as the year progresses, we will be able to reveal some of more granular detail about our initiatives. So basically, what we're doing is literally, we are trying to leverage 3 things. We're trying to leverage the NOP and the success of the NOP in liver and heart to rev up the lung market. So that's one angle and we discussed that in detail at the ISHLT.

Speaker 2

The second angle is we're trying to reeducate the market, market in general, including patients group About the importance of OCS Lung and what does it mean to a patient on the waiting list, waiting for a lung transplant. And Also the market in the form of the pulmonologist and the transplant surgeons, because I believe the last 3 years of I mean the 3 years with COVID, people just kind of lost focus on even understanding what the importance of machine perfusion for lung would be. So, that's another area. The 3rd area is where we and this is the area that I'm going to be as vague as I can and hopefully as the year progresses, we will provide more granularity around it. We're trying to find the right mix of catalyst to kind of quickly galvanize a major clinical focus on machine perfusion for lung using our platform, our NLP.

Speaker 2

I'll leave it at that, Alan, but I promise you that hopefully within the next quarter or 2, we will discuss in detail. Again, I am not concerned about the trend we saw in Q1. We're watching what's happening in Q2 and we feel that the early initiatives are starting to bear fruit, but we're not stopping here. We're going to continue to push forward with all three prongs as we move forward, and we will explore other modalities as well. So, this is an important market for us, and we're not going to give it up that easy.

Speaker 5

Thanks. And then another question with a bit of a more positive slant. When I look at your updated guidance, it looks like a really impressive we will be in the quarter, but when I look at what you kind of left for yourself in 2Q, 3Q, 4Q, you're basically implying flat revenues, right, On a quarterly basis. Now I'm not saying the cadence will exactly be like that, but what's really holding you back from meaningfully outperforming that once you have capacity up and running at the end of 2Q, like why shouldn't you be able to really outperform this bar you set for yourself? Thank

Speaker 2

you. Thank you, Alan. Excellent question. So Alan, we were trying in the script, we're trying to identify a nuance that is taking place as we ramp up production capacity, which has been our Achilles' heel for the last three quarters, now we're straining our ability to secure raw material at the same pace or at the same volume as we historically had kept in inventory. So we have to be conservative and prudent To make sure that we allow Nick and the team to have enough buffer of raw material, They don't know what's coming around the corner.

Speaker 2

We are ramping up our purchasing of every raw material we use for the build of all of our products solutions, so we had to leave some room to allow for some surprises to take place. And also, as you know, we are conservative by nature and we like to be realistic. We know what the I think in MedTech, having 70% to 80% growth is not an easy thing to do. And we think This is very realistic and we hope to do better, but right now I cannot we have to be prudent that the team is working very hard to make sure that we don't run out of raw material. The other area as I stated on the call, the other area is making sure that we're ramping up our staffing And also ramping up our control of our logistical networks, specifically aviation.

Speaker 2

If we get all these 3 done, Alan, this is really when I feel confident that going forward in our long term growth trajectory. But this is a year that we're still building. We're still building our supply infrastructure, our NOP infrastructure. We're we're upgrading and scaling our logistics. We're adding a whole new business unit in TransMedics called TransMedics Aviation.

Speaker 2

So we have to be prudent, we have to be realistic, and we feel pretty strongly and pretty excited about The opportunity here and the potential in front of us, and we feel that the guidance we outlined reflect reality from where we see it.

Operator

The next question is from Cecilia Furlong with Morgan Stanley. Please go ahead.

Speaker 6

Great. Good afternoon. Thanks for taking the questions and congrats on another Strong quarter. I wanted to start, Waleed, some of your comments in the Q and A, just about the center targeting balance, that you talked about in 1Q as you we're through some of the supply. And as you think going forward, just as capacity increases, can you talk about how you're thinking about the focus on bringing on new or the earlier stage NOP users versus really circling on And driving deeper utilization across your current repeat users.

Speaker 6

And then also as we think about 2032, what are you contemplating the balance from a commercial standpoint I'm trying to reinvigorate lung versus driving those heart as well as liver sites going forward.

Speaker 2

Thank you, Cecilia, for the question. I think my answer for both questions will be the same, Cecilia. We've always said from the day we went public, we've said TransMedics is not a single organ company. We're not a single trick pony. TransMedics' full potential happens when we have all three organs firing in all cylinders.

Speaker 2

Also, as we gained FDA approval of heart and liver, we also stated publicly that that kind of makes the business more resilient to any headwinds in one organ, I. E. The lung delays. So from our perspective, we are going to continue to push on all three fronts to achieve our overall growth for the business regardless where it's coming from. So that's number 1 or the second half of your question.

Speaker 2

The first half of your question, again, we stated this last quarter that our growth strategy is not a single focus We're focusing on going deeper in our existing accounts or existing centers, but also growing the number of users in the United States. And that's something we're going to continue to pursue. That's why at some point, hopefully in the future, At some point, the number of centers is really going to be moved to us. It's really as long as we're demonstrating growth, and the third element to the is growing the overall U. S.

Speaker 2

Transplant volume. So one can argue, if we just stay with one core group of centers and we were able to penetrate their existing volume deeper and grow their overall volume by 30% or 40% that could significant success growth wise for TransMedics, but that's not what we're doing. We're doing all of the above. We're targeting existing centers to grow their penetration and overall volume, we're targeting new centers to hook them up on NOP and its benefits for them and for their patients and for their staff And going deeper and growing their overall volume. So that's what we'd be doing over the next few years and that we believe that if we achieve that coherent strategy, that is the recipe for a huge growth and success for TransMedics.

Speaker 2

And In our humble view, makes TransMedics more resilient to any of these headwinds that we could experience throughout this growth potential.

Speaker 6

Great. Super helpful. And if I could follow-up as well, just on margins, and specifically the service margin component of gross margin that we saw tick up. Stephen, if you could talk through how we should think about just that component of gross margin to the balance of the year? And then secondly, on OpEx as well as we think Specifically SG and A, some of the initiatives you talked about in terms of building out, adding incremental components to NLP, just how we should think about the balance This year from an OpEx and SG and A standpoint.

Speaker 6

And thank you for taking the questions.

Speaker 3

Thanks, Cecilia. So first on the service margin, we were able to see, as I mentioned, An increase in Q1 from this kind of challenging situation we're in Q4. So I think we should see that So we should be kind of at that level. I don't expect a big increase in that level that we were in Q1, but we should remain there as long as we don't fall into another device or disposable shortage situation. So that will help as our revenue grows, it will help our overall margin for the company.

Speaker 3

As far as OpEx, I mean, we grow OpEx about 44%. I think I mentioned in the last call kind of growth overall annually in the 30%, 35% range. That includes a

Operator

the next question is from Suraj Kalia with Oppenheimer. Please go ahead.

Speaker 7

Good afternoon, Wally. It's Stephen Tamer. Can you hear me all right?

Speaker 2

Yes, perfect, Suraj.

Speaker 7

Perfect. Gentlemen, congrats on another nice quarter. So, Waleed, I was asked a question by a client and suffice it to say through me for a loop, maybe you can help clarify. So the question was, should TransMedics have waited to get into the logistics, I. E.

Speaker 7

TransMedics Aviation, can a critical mass of organs are under their belt. I believe you gave a number of 535 done build sometime in April. Would it have made more sense to reach 1,000,000,000,000, any additional color there would be great.

Speaker 2

Sure. Suraj, thank you for the question. We of course, we would have never entertained this thought if we do not believe that not only we've put the entire logistics into a screeching halt. So, we feel very confident that we are on the we have enough critical mass today, but more importantly, we're very concerned that Our volume by year end is going to literally be at a much higher scale that could actually start becoming a bottleneck Finding airplanes. We're having problems finding airplanes for our missions today, not at the end of the year.

Speaker 2

And we know our volume is going to be significantly higher by year end and definitely into 2024. So It makes perfect sense. The question makes sense. And we want to reiterate that we believe we have reached a critical mass today and what we see coming would even, behoove us to act quickly and decisively before it becomes another area that we are talking about on these calls.

Speaker 7

Fair enough. Walid, one for you and one for Stephen and I'll hop back in queue. So, Waleed, it's been a little over a year with the heart approvals. Whether it's heart, whether it's livers, how should we think about the pie? Are you all taking away share from cold storage?

Speaker 7

Or do you think the overall pie is increasing? Wally, that's for you. And Stephen for you, if I may. So when TransMedics Aviation, we look at it, would it be a separate subsidiary, So the P and L would be different or would everything be under the TransMedics umbrella, traditional reporting, so to speak, and OpEx and so on and so forth? And Stephen, would I be too far off in saying all said and done in 2 years, including 25 surgeons Per Oregon, let's say 16 planes leased, obviously the form, but we are talking about an incremental expense Somewhere $50,000,000 $70,000,000 per year.

Speaker 7

Gentlemen, thank you for taking my questions and congrats again.

Speaker 2

Thank you, Suraj. So let me address the first question. The answer is both. We're taking a significant portion of the existing market and we're growing the overall market. And again, the numbers speak for themselves.

Speaker 2

We've seen heart grew by 9% last year, lung grew by 7%, liver grew by 3%. We expect the overall growth of these organs to be higher in 2023. And we're taking a meaningful percentage of their current volume. Why? Because we're streamlining the process through the NOP.

Speaker 2

And this is what I said earlier to Cecilia's question. Our strategy is not just to cannibalize the existing market. Our strategy is to do that plus we

Speaker 7

will continue to

Speaker 2

grow the overall market and I think our I believe that our results speak for themselves. We have demonstrated our ability to do both in our 2022 results and we are continuing to see that trajectory in 'twenty three and we expect that to continue I'm going forward.

Speaker 3

And Suraj, let me address the question on the subsidiary. I don't expect it to be a separate subsidiary separately, I expect it to be part of our overall P and L. And when it comes to well, I can't really talk about the investment At this moment, what I can say is it will include a revenue component, added revenue as well as cost. So it's not going to be a breakeven. It will be added bottom line to TransMedics as well.

Speaker 3

Hope that makes sense.

Speaker 2

Thank you. We thank you all for your time this evening, and we look forward to having our next call for Q2 results. Have a wonderful evening.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Remove Ads
Powered by Quartr
Earnings Conference Call
TransMedics Group Q1 2023
00:00 / 00:00
Remove Ads