TransMedics Group, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; filed November 4, 2022. TransMedics is a commercial-stage medical technology company focused on its Organ Care System (OCS) platform for preserving and managing transplant organs. Its National OCS Program provides outsourced organ retrieval and OCS organ management services.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net revenue | $25.7 million | $5.4 million | $62.1 million | $20.6 million |
| Gross profit / margin | $18.1 million / 71% | $3.8 million / 70% | $44.6 million / 72% | $14.2 million / 69% |
| Operating expenses | $23.7 million | $15.5 million | $69.2 million | $42.3 million |
| Operating loss | $5.5 million | $11.7 million | $24.7 million | $28.1 million |
| Net loss | $7.4 million | $13.0 million | $29.5 million | $31.5 million |
| Basic and diluted loss per share | $0.25 | $0.47 | $1.03 | $1.14 |
Q3 revenue growth was driven mainly by U.S. OCS Liver and Heart sales following FDA approvals, partly offset by lower Lung sales. For the nine months, U.S. revenue was $55.0 million and international revenue was $7.1 million. National OCS Program customers represented approximately 90% of U.S. revenue in Q3 and 85% for the nine-month period. Program retrieval and organ-management services contributed 17% and 13% of total revenue, respectively.
SG&A increased to $16.9 million in Q3 and $48.2 million for the nine months, reflecting commercial team growth and National OCS Program startup and logistics costs. R&D and clinical expense was $6.8 million in Q3 and $21.1 million for the nine months. Management expects continued investment in commercialization, manufacturing, product development and regulatory work.
Cash, liquidity and debt
- At September 30, 2022, cash and cash equivalents were $204.5 million; total current assets were $250.6 million and current liabilities were $20.7 million. The company reported no marketable securities at quarter-end.
- Operating activities used $41.8 million of cash in the first nine months, versus $22.2 million in the prior-year period. The 2022 outflow included a $16.3 million increase in accounts receivable and a $6.1 million increase in inventory.
- Investing activities provided $57.3 million, mainly from marketable-security maturities and sales, partly offset by $9.1 million in property and equipment purchases.
- Financing activities provided $164.9 million. The August public offering generated approximately $139.9 million net; the company also borrowed $60.0 million under its new CIBC facility and repaid the prior $35.0 million OrbiMed principal.
- CIBC debt principal was $60.0 million, with a $58.5 million carrying value net of discount. The facility matures in July 2027, is secured by substantially all company and material-subsidiary assets, and has variable-rate interest. The rate was 4.5% at September 30, 2022; the company reported compliance with its financial covenants.
Management believes cash on hand is sufficient for operating expenses, capital expenditures and debt service for at least 12 months following filing. It also expects operating losses to continue and notes it may need additional financing.
Material changes, outlook and risks
- Growth and mix: Nine-month revenue rose substantially as Heart and Liver sales expanded, while Lung revenue declined. Q3 gross margin was 71%, compared with 70% a year earlier; nine-month margin rose to 72% from 69%.
- Unusual item: Gross profit included a favorable $1.4 million impact from updated clinical-trial accrual estimates in the nine-month period, also reflected in Q3. The company says estimates may be updated as trial follow-up information is received.
- Commercial and regulatory outlook: Management expects long-term revenue growth from U.S. approvals and wider adoption, including expansion of the National OCS Program. OCS Heart and Lung CE Marks, and the Liver Console and disposables CE Mark, were recertified in September 2022. The company had applied for the Liver solution-additives CE Mark and expected a decision within 12 months. No numerical revenue or earnings guidance is provided.
- Key risks: Continued losses and cash use; adoption and reimbursement; dependence on OCS and a limited number of customers; scaling manufacturing and sterilization; sole- or limited-source suppliers; foreign-exchange and variable-rate debt exposure; and potential COVID-19, inflation or supply-chain disruptions. The company also cites regulatory, clinical, competition and financing uncertainties.
- Other matters: The VA patent license terminated after the licensed patents expired; management does not expect a material financial impact. A non-cancellable goods purchase commitment had $8.0 million remaining through December 2029. The company reported no material legal proceedings.
Most important facts for investors to verify
- Whether Heart and Liver growth and National OCS Program activity persist, and whether the Lung revenue decline continues.
- Whether reported margins and profitability trends are sustainable after the $1.4 million favorable clinical-accrual adjustment.
- How quickly operating cash use and receivables grow relative to revenue, and whether management’s stated 12-month liquidity outlook remains supportable.
- Current CIBC interest costs, covenant headroom and compliance, including the revenue-plan covenant and secured-asset implications.
- Progress on Liver CE Mark approval for solution additives, manufacturing capacity, reimbursement and supplier availability.