TransMedics Group, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless otherwise noted. TransMedics is a commercial-stage medical technology company focused on its Organ Care System (OCS), a platform for preserving and assessing transplant organs. The interim financial statements are unaudited.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Net revenue | $7.1 million | $7.5 million; down 6% |
| Gross profit / margin | $4.8 million / 68% | $4.9 million / 65% |
| Operating expenses | $11.3 million | $12.9 million |
| Operating loss | $6.5 million | $8.0 million |
| Net loss / diluted loss per share | $7.9 million / $0.29 | $8.9 million / $0.42 |
| Cash used in operating activities | $7.3 million | $8.2 million |
Revenue declined overall despite U.S. revenue increasing to $5.8 million from $5.2 million; revenue outside the U.S. fell to $1.3 million from $2.3 million. By product, Lung revenue rose to $2.4 million, Heart was approximately flat at $4.2 million, and Liver declined to $0.4 million from $1.4 million. Management attributed the U.S. Liver decline primarily to completion of much of the approved enrollment in its Liver trial; lower international sales were primarily associated with COVID-19 impacts on European transplant procedures.
Research, development and clinical trial expense decreased by $1.7 million to $4.5 million, mainly from lower trial activity and reduced testing and research-material costs. Selling, general and administrative expense increased slightly to $6.8 million, including higher personnel and stock-based compensation costs, partly offset by lower travel, conference and professional expenses. Gross margin improved principally due to production efficiencies.
At March 31, 2021, cash and cash equivalents were $26.7 million and marketable securities were $91.4 million, totaling $118.1 million. Current assets were $140.5 million and current liabilities $11.8 million. Cash, cash equivalents and restricted cash totaled $27.2 million. Investing cash inflow of $9.3 million largely reflected net sales and maturities of marketable securities, rather than operating cash generation.
Long-term debt had $35.0 million principal outstanding and a $34.8 million carrying value, net of discount and accrued end-of-term payment. The applicable rate was 9.5% at quarter-end; maturity is June 2023, with quarterly interest-only payments until then. Debt is secured by substantially all company and guarantor assets, including intellectual property. The company reported compliance with covenants, including a $3.0 million minimum-liquidity covenant.
Outlook, risks and notable items
- Management expects continued operating losses in the foreseeable future and stated that available cash, cash equivalents and marketable securities were expected to fund operations, capital expenditures and debt service for at least 12 months following the filing. It may require additional financing; availability and terms are uncertain.
- Management anticipated that COVID-19 would continue to negatively affect OCS sales in 2021. Reported effects included reduced or disrupted transplant activity, limits on customer and employee travel, supply-chain and trial disruptions, and regulatory-review delays. The company said transplant activity had recovered but remained below pre-disruption levels.
- On April 6, 2021, an FDA advisory panel reviewing the OCS Heart PMA voted 12–5 that benefits outweighed risks, 10–6 that there was reasonable assurance of effectiveness, and 9–7 that there was reasonable assurance of safety; some panel members abstained. The votes were non-binding. Management expected an FDA decision within three to four months after the meeting; approval was not assured.
- Two customers each accounted for 12% of Q1 2021 revenue. Two customers represented 23% and 16% of accounts receivable at quarter-end. Certain components are sourced from sole, single or limited suppliers.
- The company entered into a non-cancellable $9.5 million purchase commitment in January 2021 for specified annual minimum quantities through December 2029. It disclosed no material legal proceedings and no off-balance-sheet arrangements.
- Other risks highlighted include continuing losses and potential funding needs, dependence on OCS adoption and reimbursement, regulatory and clinical outcomes, competition, supplier and manufacturing dependence, and foreign-exchange and variable-rate interest exposure. No specific numerical revenue or earnings guidance was provided.
Important facts for investors to verify
- Subsequent FDA action and any conditions or timing relating to the OCS Heart PMA.
- Whether transplant volumes and international commercial sales recover, and how COVID-19 affects 2021 revenue and trials.
- Revenue mix and customer concentration, particularly the trajectory of Liver and non-U.S. sales.
- Operating cash burn, the stated 12-month liquidity outlook, and capacity to fund planned commercial, manufacturing and development spending.
- Debt terms, covenant compliance, the June 2023 maturity and the effect of the secured-credit provisions.
- Execution and potential financial impact of the long-term purchase commitment and reliance on limited-source suppliers.