TransMedics Group, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020; comparisons are to the periods ended June 29, 2019. The company is a commercial-stage medical technology business developing and selling its Organ Care System (OCS) for lung, heart and liver transplantation.
Key financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Net revenue | $3.4 million | $5.7 million | $10.9 million | $10.3 million |
| Gross profit | $1.9 million | $3.3 million | $6.8 million | $5.9 million |
| Gross margin | 56% | 59% | 62% | 57% |
| Operating loss | $(7.9) million | $(7.7) million | $(15.9) million | $(13.7) million |
| Net loss | $(8.5) million | $(9.2) million | $(17.3) million | $(16.1) million |
| Basic and diluted loss per share | $(0.36) | $(0.70) | $(0.78) | $(2.21) |
- Q2 revenue fell 40% year over year, primarily because COVID-19 reduced transplant procedures and sales of disposable sets. Lung revenue was $0.4 million, heart $2.2 million and liver $0.7 million.
- Six-month revenue rose 6%. Heart revenue increased to $6.4 million from $4.6 million, while lung revenue declined to $2.4 million from $3.6 million. Management cited higher U.S. disposable-set pricing and heart clinical-trial sales as contributors to the period’s revenue and margin improvement.
- Six-month operating expenses increased to $22.6 million from $19.6 million, reflecting higher personnel costs, clinical-trial activity and public-company costs. The six-month net loss widened despite higher revenue and gross profit.
Cash, liquidity and debt
- At June 30, 2020, cash and cash equivalents were $51.2 million and marketable securities were $88.2 million, totaling $139.4 million. Current assets were $158.2 million and current liabilities $13.8 million.
- For the six months, operating cash use was $16.7 million, investing cash use was $28.0 million and financing provided $75.7 million. Cash, cash equivalents and restricted cash increased $31.1 million to $51.7 million.
- The May 2020 share offering generated approximately $75.0 million in net proceeds from 5.75 million shares. The company reported 27.1 million shares outstanding at June 30.
- Debt principal was $35.0 million, with a net carrying value of $34.4 million. The credit agreement matures in June 2023; interest was 10.0% at quarter-end, with quarterly interest-only payments and principal due at maturity. The company reported covenant compliance, including its $3.0 million minimum-liquidity covenant.
- The company repaid in full the $2.2 million Paycheck Protection Program loan on May 1, 2020.
Outlook, risks and notable items
- Management expects the $139.4 million of cash, cash equivalents and marketable securities to fund operating expenses, capital expenditures and debt service for at least 12 months following filing. The company expects continued losses and may need additional financing; no specific revenue or earnings guidance was provided.
- Management said COVID-19 negatively affected Q2 sales and anticipated further negative effects on OCS sales for the remainder of 2020. Transplant activity had begun recovering but remained below pre-disruption levels. Manufacturing and distribution resumed to pre-COVID levels in May, but prolonged disruption could affect procedures, supply, clinical trials and sales.
- The FDA advisory committee review of the OCS Heart PMA application was postponed because of COVID-19; management anticipated a meeting in the second half of 2020. Timing and outcome remain uncertain.
- Other significant risks include continuing losses and potential funding needs, reliance on OCS adoption and a limited number of customers, reimbursement and regulatory uncertainty, sole- or limited-source suppliers, and competition. One customer represented 17% of Q2 revenue.
- The company extended its Andover leases through December 2027 and expanded leased premises; disclosed future minimum lease payments totaled $15.0 million. It reported no material legal proceedings and no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether transplant volumes and OCS sales recover from the COVID-related Q2 decline, and whether pandemic effects persist beyond 2020.
- Progress, timing and FDA outcome for the OCS Heart PMA advisory review, as well as clinical-trial and regulatory milestones for other products.
- Revenue mix and durability: heart clinical-trial sales and higher U.S. pricing supported six-month results, while lung revenue declined.
- Cash burn relative to management’s 12-month liquidity estimate, future financing requirements, and compliance with debt covenants and June 2023 maturity obligations.
- Potential supply constraints, customer concentration, reimbursement and adoption trends, and the financial impact of expanded lease commitments.