TransMedics Group, Inc. — Q2 2022 Form 10-Q
Business context and period. Commercial-stage medical technology company developing and selling its Organ Care System (OCS), a platform for preserving donor organs for transplantation. This unaudited report covers the quarter and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods. Amounts below are in U.S. dollars unless noted.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net revenue | $20.5m | $8.2m | $36.4m | $15.2m |
| Gross profit / margin | $14.4m / 70% | $5.6m / 68% | $26.5m / 73% | $10.4m / 68% |
| Operating loss | $(9.7)m | $(9.9)m | $(19.1)m | $(16.4)m |
| Net loss | $(11.5)m | $(10.7)m | $(22.1)m | $(18.6)m |
| Net loss per share, diluted | $(0.41) | $(0.39) | $(0.79) | $(0.68) |
- Quarterly revenue rose about 151%; six-month revenue rose about 139%. U.S. sales drove most of the increase. Liver and heart product growth more than offset declining lung revenue.
- Q2 operating loss improved slightly despite higher expenses, but net loss increased, including $0.8m of foreign-exchange losses in other expense. For the half year, both operating and net losses widened.
- Q2 operating expenses were $24.1m, including $17.4m selling, general and administrative (SG&A) and $6.7m research, development and clinical trials. Six-month SG&A increased to $31.3m from $15.9m, principally reflecting commercial-team expansion and National OCS Program startup and logistics costs.
- Operating cash use was $27.5m for the six months, versus $12.9m in 2021; property and equipment purchases were $6.2m. Cash, cash equivalents and marketable securities totaled $58.1m at June 30, down from $92.5m at December 31, 2021. Current assets were $95.1m and current liabilities $22.7m.
- At June 30, long-term debt, net of discount and accrued end-of-term payment, was $35.5m. On July 25, the company borrowed $60m under a new CIBC facility and repaid $36.3m owed to OrbiMed, increasing principal debt by $25m before fees. The CIBC facility matures in July 2027 and is secured by substantially all company and guarantor assets.
Material changes, outlook and risks
- OCS Liver revenue was $9.6m in Q2, compared with none in Q2 2021; OCS Heart revenue increased to $8.1m from $4.6m. OCS Lung revenue declined to $2.8m from $3.6m. FDA approvals, including the April 2022 DCD heart indication, and growth of the National OCS Program supported U.S. sales. That program accounted for about 84% of Q2 U.S. revenue.
- Management expects continuing losses and higher spending as it expands commercial operations, the National OCS Program and manufacturing, and pursues product development and regulatory approvals. It expects gross margins to improve over the long term with scale, while acknowledging quarter-to-quarter variability.
- Management believes cash and marketable securities, together with net proceeds from the July CIBC financing, will fund operations, capital expenditures and debt service for at least 12 months after filing. This depends on assumptions that may prove incorrect; additional funding may be needed, and may not be available on acceptable terms.
- EU CE Mark re-certifications for OCS products were due to expire in September 2022. The company warned that delays could limit EU sales to inventory already shipped to its distribution center until re-certification is obtained.
- Other identified risks include continuing losses and financing needs; reliance on OCS adoption, transplant volumes and reimbursement; dependence on some large customers and sole- or limited-source suppliers; COVID-19-related disruption, supply constraints, inflation and logistics costs; and regulatory, clinical, competitive and intellectual-property risks. One customer represented 17% of revenue in both Q2 and the first half of 2022.
- The VA license terminated after the final licensed patent expired in November 2021; the company stated it did not expect a material financial impact and no longer owed royalties. An unconditional, non-cancellable purchase commitment had $8.0m remaining at June 30, 2022, with specified purchases through 2029. The filing reported no material legal proceedings.
Guidance: The filing provides no specific numerical revenue, earnings or cash-flow guidance.
Key facts for investors to verify
- Whether revenue growth—particularly in liver and heart products and through the National OCS Program—continues, and whether lung sales recover.
- Whether EU CE Mark re-certifications were obtained on time and what impact any delay had on sales.
- Actual cash burn, working-capital needs and the duration of the stated 12-month liquidity runway.
- The CIBC facility’s effective interest cost, covenant headroom and compliance, including its minimum-liquidity and revenue requirements.
- Customer concentration, supplier availability, and the remaining purchase commitment and its implications for cash requirements.