Q3 2024 TransMedics Group Inc Earnings Call
Good afternoon and welcome to the Transmetics 3rd Quarter 2024 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.
Speaker Change: I would now like to turn the call in Ritalaine Morgan from the Gilbarten Group for a few introductory comments.
Ritalaine Morgan: Thanks operator. Earlier today, transmedits were released financial results for the quarter-ended September 30, 2024. A copy of the press releases 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 proportion of the call, that include for the case statements within the meeting of federal security's laws.
Ritalaine Morgan: Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements. All forward-looking statements, including without limitation, are examination of operating trends, the potential commercial opportunity for our current and next generation products, services, and technologies, the potential impact of investments in infrastructure, the potential timing, impact, and outcomes of new clinical programs, as well as our future financial expectations, which include expectations for growth in our organization, and guidance and or expectations for revenue, gross margins, and operating expenses in 2024 and beyond are based upon our current estimates and various assumptions.
Ritalaine Morgan: These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements.
Ritalaine Morgan: Accordingly, you should not place undue reliance on these statements.
Ritalaine Morgan: Additional information regarding these risks and uncertainties appears
Ritalaine Morgan: Transmedicine claims 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.
Speaker Change: This conference call contains time-sensitive information and is accurate only as of the live broadcast today, October 28, 2024. And with that, I will now turn the call over to Waleed Hassanein, President and Chief Executive Officer.
Waleed Hassanein: Thank you so much, Lane. Good afternoon, everyone, and welcome to TransMedic's third quarter 2024 earnings call.
Waleed Hassanein: As always, joining me today is Stephen Gordon, our Chief Financial Officer.
Waleed Hassanein: As the market leader in organ transplantation, we have continued to scale operationally while also laying the groundwork from a business and product perspective to support our next phase of growth.
Waleed Hassanein: Specifically, we have been and remain focused on three things.
Waleed Hassanein: First, completing the first phase of building our transplant logistics network and aviation infrastructure to better position us to capitalize on the growth anticipated next year and going forward.
Waleed Hassanein: Two, continuing to invest in our NOP clinical and technology infrastructures.
Waleed Hassanein: And finally, completing the first phase of next-gen OCS heart and lung technologies.
Waleed Hassanein: development to enable the launch of new clinical programs in 2025.
Waleed Hassanein: From a revenue perspective, we continue to deliver significant year-over-year growth, particularly in the U.S., offset by an overall U.S. transplant volume headwinds, as well as routine scheduled aircraft maintenance, which we discussed on our last call.
Waleed Hassanein: Meanwhile, OUS revenue, which represents a modest part of our business, was impacted by variability that we have come to expect.
Speaker Change: Thank you for joining us. We appreciate it. Thank you.
Speaker Change: From a sequential perspective, we saw a 5% decline in total revenue from Q2 2024.
Speaker Change: U.S. sales declined 3% sequentially and all U.S. sales declined 45% sequentially.
Speaker Change: David Rescott, David Rescott, David Rescott, David Rescott
Speaker Change: TransMedics Transplant Logistics Service revenue for Q3 was $20.1 million, up from $2.1 million in Q3 2023 and up from $19.1 million in Q2 of 2024, an approximate 5% increase sequentially from Q2.
Speaker Change: Our overall gross margins for 3Q was 56%, down from 61% in 2Q 2024.
Speaker Change: The extent of sequential decline was somewhat expected given continued investment in our logistics network, clinical resources, and next-gen OCS technologies.
Speaker Change: Finally, we delivered a GAAP operating profit of $3.9 million in Q3, representing 4% of total revenue.
Speaker Change: Through Q3 we continue to expand our fleet of owned aircraft reaching 18 by end of Q3. We also continue to invest in hiring and training pilots.
Speaker Change: Importantly, we also made a strategic investment in our internal aircraft maintenance infrastructure by building and staffing at TransMedics Aviation Maintenance Hub in Dallas, Texas in Q3.
Speaker Change: These investments were made to maximize the operational efficiency of our current and growing fleet, and to prepare for the expected growth in demand for OCS NOP missions in 2025 and beyond.
Speaker Change: As we stated in our Q2 earnings call, we also completed routine maintenance on several of our own aircraft scheduled in Q3. This resulted in lower average daily planes available for missions compared to 2Q2024.
Speaker Change: Still, our owned aircraft covered 61% of our NOP flight missions in Q3, up from 59% in 2Q of 24. We used third-party logistics partners to meet NOP missions while our planes were in maintenance.
Speaker Change: Now, with this background, I'll provide more context on these results.
Speaker Change: Thank you for watching. I'm Stephen Gordon. I'll see you next time.
Speaker Change: First, let me discuss the revenue and case volumes.
Speaker Change: In Q3, overall U.S. national liver and heart transplant volumes declined sequentially approximately 5% while total lung volumes declined by approximately 3% in the U.S.
Speaker Change: There is no clear reason for these declines other than normal variability of donor availability and potential summer seasonalities.
Speaker Change: and Waleed Hassanein.
Speaker Change: So the sequential decline in the U.S. case volume was directly in line with the decline in national transplant volumes.
Speaker Change: Importantly, we did not see any degradation of our market share or center penetration on all three orders.
Speaker Change: I want to take, I want to make it crystal clear.
Speaker Change: We have not seen any fundamental or competitive dynamics playing any role in the slight sequential decline in case volume for OCS in Q3.
Speaker Change: Let me repeat it again.
Speaker Change: I there has not been or we have not seen any fundamental or competitive dynamics playing any role in the slight sequential decline in case volume for OCS in Q3.
Speaker Change: On the OUS revenue decline, as we've discussed previously, OUS revenues end and will remain a very small part or portion of our business in the near term.
Speaker Change: We are working on several initiatives to launch liver and lung technologies OUS and to secure broader national reimbursements in Europe or European countries to catalyze growth of OUS over the mid and longer terms.
Speaker Change: Second, let me discuss the transient impact on our margins.
Speaker Change: As we discussed earlier,
Speaker Change: We are continuing to invest in our logistics network, clinical resources, and next-gen OCS technologies to capitalize on the significant growth opportunity ahead of us.
Speaker Change: In Q3, the primary driver of transient decline in gross margin was related to the impact of investments in our infrastructure and a higher utilization of third-party logistics partners to cover NOP emissions.
Speaker Change: To be clear, the near-term variability in quarterly margin is a direct result of our growth profile and our ongoing investments to catalyze future growth.
Speaker Change: As we start gaining efficiencies of scale and further case growth, we are confident that service margins will grow to healthier levels.
Speaker Change: In summary, we believe margins will remain variable over the next several quarters as we've said before, given the ongoing investments in our business.
Speaker Change: However, we have a very high degree of conviction that these investments will position us optimally for future growth and profitability.
Speaker Change: Moving now to our OCS Heart and Lung Clinical Programs, which we plan to launch next year in 2025.
Speaker Change: As I mentioned earlier, these programs are anchored by our next-gen OCS technology developments and designed specifically to drive significant momentum in our lung market and broadening our clinical indications and adoption for OCS heart technology.
Speaker Change: We are increasingly confident in the potential clinical impact of these new clinical programs.
Speaker Change: As preclinical testing has consistently demonstrated superior outcomes for OCS heart and OCS lung up to 24 hours of OCS perfusion.
Speaker Change: These advancements stand to enable morning hours, heart and lung transplants for the first time in history.
Speaker Change: which would represent a huge milestone that the cardiothoracic transplant field has long been aspiring to achieve.
Speaker Change: Please see the complete disclaimer at https://sites.google.com & www.sites.google.com
Speaker Change: Detailed preclinical results will be formally and publicly presented at the upcoming Heart and Lung Transplant Scientific Conferences in 2025.
Speaker Change: Again, we are excited about our product pipeline and the potential transformative nature of these programs to catalyze the near, mid, and long-term growth of our OCS platform, and to drive more lung and heart transplant volumes nationally.
Speaker Change: In conclusion, we are encouraged by our 2024 results.
Speaker Change: We are now focused on ending 24 on a strong note and preparing for several growth catalysts throughout 25 and beyond.
Speaker Change: To that end, we are maintaining our annual full year revenue guidance range of $425 to $445 million, which represents 76 to 84% growth over full year 2023 revenue. With that, let me turn the call
Speaker Change: to Stephen to cover the detailed financial results for the quarter.
Stephen Gordon: Thank you, Waleed. I will now provide some additional detail on our Q3 results and other financial information for the quarter.
Speaker Change: and Johnston. Thank you. Thank you.
Stephen Gordon: Starting with revenue, for the third quarter of 2024, our total revenue was $108.8 million. This is an increase of 64% from the third quarter of 2023, and a 5% sequential decline from last quarter.
Stephen Gordon: In the U.S., transplant revenue was $104.9 million.
Stephen Gordon: U.S. revenue increased 76% from the third quarter of 2023 and was down 3% sequentially from last quarter.
Stephen Gordon: The organ breakdown on U.S. revenue was 76.7 million in liver.
Stephen Gordon: 24.5 million at heart.
Stephen Gordon: and 3.7 million in Lung.
Waleed Hassanein: and Waleed Hassanein.
Waleed Hassanein: The OUS organ breakdown was 2.4 million in heart and 0.2 million in lung.
Waleed Hassanein: Next, on product and service revenue.
Waleed Hassanein: As a reminder, our service revenue includes the NOP Clinical Service of Surgical Procurement and Organ Management, Logistics Revenue, and Flight School Revenue.
Waleed Hassanein: In Q3, product revenue was $65.9 million and service revenue was $42.9 million.
Waleed Hassanein: The service portion was 39.4% of the total.
Waleed Hassanein: In reviewing revenue this quarter, there were several headwinds. As discussed last quarter, while OUS revenue was a very small portion of our business, we expected this international revenue to decline sequentially as we had some stocking orders in Q1 and Q2 that we knew were not going to recur in Q3.
Waleed Hassanein: We also pointed out that lung revenue was not yet on a growth trajectory, so both of these were headwinds as expected.
Waleed Hassanein: And the other driver of sequential decline was the overall decline in U.S. transplants from Q2 to Q3, and our performance reflected this as well as we discussed.
Waleed Hassanein: Moving to gross margin for the third quarter of 2024, our gross margin was 56%. This was down from 61% in the third quarter of 2023.
Waleed Hassanein: In comparison to Q3 last year, this reflects the higher service component of our business.
Waleed Hassanein: Also, Q3 2023 did not include a full quarter of logistics.
Waleed Hassanein: Our product margin in Q3 was 80%. This is up from 77% in Q3 of 2023 and steady from last quarter.
Waleed Hassanein: Excuse me.
Waleed Hassanein: On the service side, margin was 19%.
Waleed Hassanein: It declined from Q2 of 24.
Waleed Hassanein: and this was driven by several factors. First,
Waleed Hassanein: Similar to last quarter, we are spending ahead in clinical service, excuse me,
Waleed Hassanein: Second, as Waleed mentioned, we have initial expenses related to our new Aviation Maintenance Hub.
Waleed Hassanein: And third, we have made additional investments in our NOP hubs, again, preparing for required future demand.
Waleed Hassanein: All in, this represents approximately $2 million of non-recurring costs.
Waleed Hassanein: And we also saw higher reliance on third-party logistics partners to cover NOP cases, which also had a negative impact on service margin.
Waleed Hassanein: What I can say is that I feel very confident that our service margin will improve over time as we gain greater efficiency.
Waleed Hassanein: For example, we already know that the additional planes we have added will add efficiency and operational availability.
Waleed Hassanein: And we also know that the non-recurring cost items that I just mentioned will not repeat in Q4.
Waleed Hassanein: and Waleed Hassanein.
Speaker Change: Total operating expenses for the quarter was $56.9 million and this is 36% above Q3 of 2023 and flat from last quarter.
Speaker Change: R&D was up 28% from Q3 of 23, excluding $27.2 million of in-process R&D that was recorded in Q3 of 2023. And R&D was up 3% sequentially from last quarter.
Speaker Change: This represents investment both in near-term OCS innovation, which will be included in our new clinical programs next year.
Speaker Change: and Waleed Hassanein.
Speaker Change: SG&A grew 39% from Q3 of 2023 and was flat from last quarter.
Speaker Change: As I've mentioned in the past, we still expect expenses to grow, but the rate of growth is coming down as we saw this quarter.
Speaker Change: https://www.youtube.com or the link in the description below.
Speaker Change: Our GAAP operating profit was $3.9 million or 4% of revenue. Net income was $4.2 million. Please compare with an operating loss of $28.3 million and a net loss of $25.4 million in Q3 of 2023.
Speaker Change: Earnings per share was 13 cents, and diluted earnings per share was 12 cents.
Speaker Change: Total cash at the end of the quarter was $330.1 million as of September 30, 2024, and this is a decrease of $32.7 million from June 30, 2024.
Speaker Change: And for context, we generated about $7 million in operating cash in the quarter, and we purchased three aircraft, costing approximately $42 million.
Speaker Change: Basic weighted average common shares outstanding for the quarter were 33.4 million and diluted weighted average common shares outstanding for the quarter were 35.7 million.
Speaker Change: In summary, Q3 again showed strong year-over-year growth.
Speaker Change: While we did see a pause in our consistent sequential growth trajectory that we have maintained since our initial commercial launch, we believe this is short-lived and is more reflective of the overall U.S. national transplant volume and quarter-specific dynamics than a slowdown in our commercial momentum.
Speaker Change: Meanwhile, I have extremely high confidence that our gross margins will continue to improve and normalize given our expectations for 2025.
Speaker Change: Finally, to repeat Waleed's earlier comment, we are maintaining our annual revenue guidance to be in the range of $425 million to $445 million, which represents 76% to 84% growth over the full year of 2023.
Speaker Change: Unknown Speaker 00.00.00.00
Speaker Change: Now I would like to turn the call back to Waleed for closing comments.
Speaker Change: and Waleed Hassanein. Thank you.
Speaker Change: Thank you for watching. Please subscribe to my channel. I hope to see you again soon. Until then, take care.
Waleed Hassanein: Thank you, Stephen.
Waleed Hassanein: https://www.youtube.com.uk
Waleed Hassanein: Overall, we're proud of our year-to-date performance in 2024 and the significant progress our team has made across several initiatives designed to propel transmedics into the future as the leader in organ transplantation.
Speaker Change: Our commitment to delivering world-class technologies and services to our transplant clinical partners while enabling further transplant volume growth remains unwavering.
Speaker Change: We look forward to continuing to execute on each of the major initiatives discussed today and remain extremely bullish on the future of transmedics, particularly as we begin to benefit from the several investments made this year. With that, I will now turn the call to the operator for Q&A. Operator?
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Waleed Hassanein, Unknown Attendee, Stephen Gordon
Speaker Change: Our first question comes from Alan Gong with J.P. Morgan. Please go ahead.
Speaker Change: and Waleed Hassanein.
Alan Gong: Hi, thanks. So I guess, you know, my first question looking forward a little bit is just on the dynamics you're seeing so far in fourth quarter, right? You know, I think it's fair to say that third quarter came in a little bit shy of what the street was expecting, you know, because of some of those dynamics that you've been highlighting. But have you been able to see a recovery in the fourth quarter that gives you confidence and reiterating that guide, you know, given that we're about a month in now?
Speaker Change: Thank you for watching. Please subscribe to my channel. I hope to see you again soon.
Speaker Change: Thanks Alan for the question. We have seen the dynamic starting to normalize in in early October and that's why we are reiterating the guidance that we we set for ourselves.
Alan Gong: Got it. And then I guess...
Alan Gong: When we kind of look at the breakdown of the quarter by organ, you know,
Alan Gong: It definitely looks as though liver, you know, held in a bit steadier, definitely kind of helped perform the market while heart after, you know, really strong second quarter has taken a step back. You know, is that really just the market? Is there anything else you would call out there? You know, I'm sure you've heard it, we've heard it, there's, there is some more noise around NRP going around. But you're saying there's no impact from competition. So I guess what really happened in heart there.
Speaker Change: categorically no impact
Speaker Change: of any technologies.
Speaker Change: on the decline in Q3, specifically on heart.
Speaker Change: and as you I'm sure are aware, there is a significant negative inertia or headwind in the face of thoracic-abdominal NRP in the United States.
Speaker Change: led by HRSA and OPTN is looking into it, as has been publicly stated.
Speaker Change: is responsible for approximately 70% of DCD heart donations in the United States. That number is actually up from last year. So we don't see that dynamic at all playing any role in the decline in the quarter.
Speaker Change: Literally, the national volume went down and because we play a major role and we take the lion's share of the national volume, we got impacted by it.
Speaker Change: John Gould, Suraj Kalia, Bill Plovanic
Operator: Next question, Operator. Our next question comes from Bill Plavinek with Canaccord. Please go ahead.
Speaker Change: You know, I just want to go back to the comments of, I think people are just going to try to get a handle on and I know the statements, Waleed, that you're making, but as we think of October and we go in, I think the word you used was we're stabilized.
Speaker Change: I mean, are we tracking to the fourth quarter, or are you expecting a significant pickup to get to the fourth quarter? Just any kind of help we could get on that, I think, would be a very
Stephen Gordon: Unknown Attendee, Stephen Gordon
Speaker Change: Unknown Attendee Same word. And then just for Stephen on the service, so I understand the invest ahead, it sounds like $2 million in one-time expenses.
Speaker Change: If we subtract that two million out, is that roughly the kind of going quarter run rate on these?
Speaker Change: Unknown Attendee, Stephen Gordon, Waleed Hassanein, Unknown Attendee, Stephen Gordon, Waleed Hassanein,
Speaker Change: Unknown Speaker 00.00.00.00
Speaker Change: Bill, thank you for your question. To address the first part of your question, again, we are in the middle of the quarter, or I should say middle, you know, we're at the end of the first month of the quarter and I cannot really discuss
Speaker Change: Any forward-looking statement on the quarter, but from all indication, if we believe that this was a national volume decline.
Speaker Change: Bill, on the on the margin question, so as you mentioned there was about about two million dollars of non-recurring expense so those
Speaker Change: will not recur again next quarter. But there were also some other exacerbating.
Speaker Change: Unknown Attendee, Stephen Gordon, Waleed Hassanein, Unknown Attendee, Stephen Gordon, Unknown
Speaker Change: you know, partners. So the less we use those third parties, the more we use our own planes, our margin will increase. And so I think both of those things will help improve as we go forward. And then as we do more volume, that will make it even better.
Speaker Change: and Waleed Hassanein. Thank you.
Speaker Change: Thanks Stephen. Is there like a maintenance schedule you can help us understand like as we go into the fourth quarter and then into next year how to just how to think about that like
Speaker Change: is it something that you'll see these non-recurring every quarter because it's a maintenance thing or those were just investments?
Speaker Change: Thanks. Those were truly one-time investments, but now, you know, I think it'll kind of normalize out over the year. You know, we'll manage the maintenance, we've managed, you know, the hub in Dallas, and so I think it will normalize throughout the year.
Speaker Change: Next question, operator. Our next question comes from Josh Jennings with TD Cohen. Please go ahead.
Speaker Change: Thank you for the question, Josh. We were expecting some of that headwind.
Speaker Change: for sure, and that's what we are in habit of doing, of forecasting what we see coming from not just opportunities, but challenges. We made our case, we thought we were clear, but maybe people didn't believe us.
Speaker Change: If I want to provide any, you know,
Speaker Change: Anecdote on it, I think maybe the headwinds in Q3
Speaker Change: Waleed Hassanein, Unknown Attendee, Stephen Gordon
Speaker Change: Understood, thanks for that. And I'm sorry to make you go back to this the share action in BCD, but I mean is there any way you could do what you did for heart, for liver, just in terms of kind of reassuring investors? Yeah, that's that's an excellent question, Josh. Our share volume both at the center level and at the national level has remained unchanged.
Speaker Change: at the national level remain unchanged. Great. So, the 3Q share was stable in liver and heart in the DCD segment. Great. Thanks for taking the questions. Appreciate it.
Speaker Change: Waleed Hassanein, Unknown Attendee, Stephen Gordon
Speaker Change: Our next question comes from Brian Daniels with William Blair. Please go ahead.
Speaker Change: David Rescott, George Sellers, Jack Senft, John
Brian Daniels: Yeah guys, thanks for taking the questions. Maybe a little bit of a follow-up there, given that the focus remains on the sales weakness in the quarter. Waleed, should we really be thinking about things like your penetration now in DCD being so high versus where you were in past years that you will be a little bit more susceptible going forward to market fluctuations? Again, just given that you don't have the opportunity to drive that up, given that it's already so strong?
Waleed Hassanein: And that's why when we looked at this, we think this is a one-time thing. It's one of the transplant variabilities. This is why TransMedics has never and always have forecasted that we do not talk about our annual volume and annual penetration until the end of the year because we are used to seeing some fluctuation inter-year or sometimes inter-quarter. This one happened to be
Speaker Change: Unknown Attendee, Stephen Gordon, Waleed Hassanein, Unknown Attendee, Stephen Gordon, Waleed Hassanein,
Speaker Change: but we are going to continue to grow the overall market and we're going to continue to take market share and we are, our clinical programs that are designed for next year is to expand our reach even further in lung and heart and tackle areas that we have not tackled yet. So,
Speaker Change: That's the best I can address, Ryan, that we're not...
Speaker Change: That's a helpful reiteration, especially the 10,000 case metric.
Speaker Change: Unknown Attendee, Stephen Gordon, Waleed Hassanein, Unknown Attendee, Stephen Gordon, Waleed Hassanein,
Speaker Change: using our own planes more often than not, and running those planes well, which we fully expect to do in the next few quarters and years.
Speaker Change: [inaudible]
Speaker Change: Thank you.
Speaker Change: Our next question comes from Matthew O'Brien with Piper Sandler. Please go ahead.
Matthew O'brien: Great, thanks for taking the questions. Waleed, you know, thinking about Q4 here a little bit.
Matthew O'brien: You know, you guys reiterated the full year number. That's still a pretty wide range for Q4 specifically, and if it's the bottom end,
Matthew O'brien: It doesn't imply a lot of sequential growth, so should we be thinking about the midpoint of the range is most likely. And then do you really expect to outperform the OPTN data quarter over quarter here in Q4? Is that what we should be expecting?
Matthew O'brien: https://www.youtube.com or the link in the description below.
Speaker Change: I think, Matt, thank you for the question. I think
Speaker Change: Unknown Attendee .
Speaker Change: Listen, we are just coming out of a quarter where transplant volumes declined across three organs in the United States. I'm not going to stand here and say that we are going to outperform the national numbers. We need to prove that.
Speaker Change: As far as the first part of the question, the guidance is what the range is.
Speaker Change: You know, I think, you know, I can't comment beyond that. And we, we, you know,
Speaker Change: We have the range out there and then at the lower end of the range or the higher end of the range I can't comment on that given that we're in the middle of the quarter
Speaker Change: But I you know that that's all I can address that question with
Speaker Change: Okay, that's fair.
Speaker Change: And then Stephen, just, and sorry to keep, you know, circling around the gross margin in the quarter, but I just want to, if you can maybe, you know, look at Q2 versus Q3 in the
Speaker Change: I think it was 500 basis point difference down sequentially. What were the buckets that made up that 500 basis points? I don't know if your partners on the logistic side were...
Speaker Change: charging you much higher rates than expected or things like that. But can you just bucket those? And then specifically, did you see any kind of meaningful like for like price degradation because of some of the competition or NRP availability across the US? Thanks.
Speaker Change: Yeah, sure, Matt. No, I mean, I think the buckets, I mean, the added investment is about half of it, that was like four to five points of it. And then it's not so much that we're getting charged more for the third party logistics, it's that
Speaker Change: Not that I'm pricing.
Speaker Change: Nothing on pricing, no.
Speaker Change: Guys, I want to be crystal clear, Matt, and I think your note a few days ago highlighted that.
Speaker Change: The NRP that is taking place in the United States is abdominal NRP. That's that's been ongoing for several years.
Speaker Change: Abdominal NRP does not impact OCS, we take liver from abdominal NRP all the time and it does not apply any pressures on our pricing.
Speaker Change: whatsoever. So that's a misconception that could be out there. The second thing is
Speaker Change: Unknown Attendee, Stephen Gordon Unknown Attendee, Stephen Gordon
Stephen Gordon: One has to take a step back and look at the actual cost of abdominal NRP as it's happening in the United States.
Stephen Gordon: On top of that, you need to add $20,000 for blood product and pharmacy product to prime the ECMO circuit.
Stephen Gordon: On top of that, you need to add a $20,000 cold storage device to move the liver from the donor to the transplant program. On top of that, you need to add $40,000 from a non-portable warm perfusion device to test the liver when it arrives to your center.
Stephen Gordon: So you add all that cost and you're already more expensive than the OCS
Speaker Change: but you forgot to add two very important and much more costly costs of NRP that nobody is paying attention to. With NRP, with DCD, we all know that we have a 50% rate of donors not progressing.
Speaker Change: If you do NRP, centers are liable for full burden of the service cost and the full burden of logistical cost.
Speaker Change: With OCS NOP, which is our program, centers are not liable for a dime on the technology cost, and they are only liable for 50% of logistics costs if it's a dry run cost. So anybody who thinks NRP is gonna take share from OCS is really...
Speaker Change: You're not understanding all these facts about abdominal NRP.
Speaker Change: And as I stated earlier during Bill's question, I'm sure all of you have seen the recent public letter from HRSA to OPOs and the OPTN in the United States, significantly underscoring the headwind that's coming towards NRP in the United States, given that it's
Speaker Change: and Unvalidated and Not Regulated or Controlled Therapy.
Speaker Change: So, again guys, this is just for anybody who is doubting, you know, if NRP has anything to do with this. These are the facts, and everything I mentioned here, these are facts of applying NRP abdominally in the United States. And despite all that,
Speaker Change: Abdominal NRP does not preclude us from taking livers and moving them and perfusing them and managing them and transporting them to the centers. It has never been a hindrance for us.
Speaker Change: Thanks Waleed.
Speaker Change: Our next question comes from Siraj Kalia with Oppenheimer. Please go ahead.
Siraj Kalia: Hi Waleed, Stephen, can you hear me all right? Yes, thanks Raj.
Siraj Kalia: So, Waleed, I'd be remiss...
Siraj Kalia: And Waleed, you know, trying to connect all your comments together, I confess I'm still struggling to understand a few moving parts.
Siraj Kalia: So the DCD volume, at least by our account, July-August was pretty strong, September was okay. Your DCD volume, if I heard you correctly say, it was 70% or more.
Siraj Kalia: So, the math is suggesting you're lost share in DBD.
Siraj Kalia: and more importantly, Waleed, I'm curious, there seems to have been a break.
Siraj Kalia: I'm curious how you how you hold up 10,000 units by 2028. I know it's a long-winded question. I'm still struggling to understand the sudden shift in gears.
Waleed Hassanein: Suraj, there is no shifting gears. It's your perception of reality. We did a thousand transplants in 22. We did 23 hundred transplants last year. We're on track to doing
Waleed Hassanein: approximately between 3,500 and 4,000 transplants this year, we see a path towards 10,000 transplants.
Waleed Hassanein: Again, the community is focusing on liver, we're focusing on heart, lung and liver, and soon we will add additional organs. So
Speaker Change: and Waleed Hassanein. Thank you. Thank you.
Speaker Change: As far as the...
Speaker Change: Unknown Attendee, Stephen Gordon, Waleed Hassanein, Unknown Attendee, Stephen Gordon, Unknown Unknown Attendee, Stephen Gordon, Waleed Hassanein, Unknown Attendee, Stephen Gordon, Unknown
Siraj Kalia: At least that's based on all of the data that we monitor. Stephen, would you like to add anything else? Yeah, Siraj, one thing I would say might impact our...
Stephen Gordon: Oregon specific revenue a bit is the service portion was a little bit
Stephen Gordon: A higher decline in heart than the product portion because
Stephen Gordon: Some of the distances this quarter were shorter. So like our average selling price for the logistics portion in Hart.
Stephen Gordon: was lower than what it was last quarter. And so that's why the sequential decline in heart is a little bit more than the market. The opposite happened on liver. Those distances were a little longer, the revenue was a little bit higher, the share was a little bit higher. And so that had a little bit of an impact on the sequential revenue by organ.
Speaker Change: Yeah, I actually, to echo what Stephen just said, Suraj, be careful of looking at revenue.
Speaker Change: as the only surrogate for case volume, because Stephen is absolutely correct, when we report revenue per organ, it includes both the case volume and the service component. And as Stephen said,
Speaker Change: because of the safety of OCS, we can do more car transport for hearts.
Speaker Change: Unknown Attendee, Stephen Gordon, Waleed Hassanein, Unknown Attendee, Stephen Gordon, Waleed Hassanein,
Speaker Change: [inaudible]
Speaker Change: My last question, Stephen, for you, the stocking orders you mentioned in Q1 and Q2, maybe I missed it. I don't recollect that being talked about earlier, but how should we think about that going forward? And Waleed?
Speaker Change: When we look at heart and liver, you guys are 21% in heart by our count share, 27% give or take in liver. Are we getting to the zone now where incremental share gains?
Speaker Change: are more determined by price elasticity of demand. Gentlemen, thank you for taking my questions.
Speaker Change: So, Sraj, let me first answer the question about OUS.
Speaker Change: What we've said consistently is that there's not a trend in OUS. So I would say this quarter, it's probably going to be similar to next quarter. We didn't have the stocking orders this quarter, unless something changes and a new customer comes on, it's probably going to be similar to what it was this quarter. I don't see any change, really.
Speaker Change: and Suraj. Again, I thank you for asking the question. Again, I caution the street from trying to create
Speaker Change: Unknown Attendee .
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Speaker Change: August, for example, has nothing to do with pricing sensitivity. I can tell you that
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Speaker Change: These transplant programs would have done anything to get access to transplants during that time.
Speaker Change: Second, when you look at the competing dynamic out there, if you think NRP is a competing dynamic, I just outlined to you clearly that pricing is not the factor because NRP is more expensive than OCS.
Speaker Change: Unknown Attendee, Stephen Gordon, Unknown Attendee, Stephen Gordon, Unknown Attendee,
Speaker Change: So, please, that's based on what we see today and thank you for asking the question.
Speaker Change: Our next question comes from David Rescott with Baird. Please go ahead.
Speaker Change: Oh, great. Thanks for taking the questions. Two from Amas and I'll ask them both up front. Just, Waleed, on some of your comments around, you know,
Speaker Change: Unknown Speaker
Speaker Change: How you're characterizing the way Cher is today, you know, heard your views on why this should be transient and maybe some early comments on how things are looking in Q4. Should we tend to think that the way in which she exited Q3 should be the way we're thinking about Q4 from a Cher, you know, stabilization perspective? That's the first question. And then the second one from us is just more on the planes. Heard some of the comments there. Can you just give us a sense for maybe the number of planes that's impacting how long this typically, you know, takes if there's any other things in the future that we should think about from the maintenance perspective that could represent some other
Speaker Change: and Edwin at some point going forward. Thank you.
Speaker Change: Thank you for asking the question. So on on the first part of the question, I think again
Speaker Change: I think if we do nothing, we expect to maintain our share exiting Q3. For us, that's the low-hanging fruit. We hope that we could do better in Q4. And as I stated in my remarks, we are focusing on ending the year strong.
Speaker Change: On the second piece,
Speaker Change: I want to remind everybody that there is a reason why we said we want to be operational with anywhere between 16...
Speaker Change: to 18 or 19 or 20 aircraft and we're buying enough aircraft to enable us to do that.
Speaker Change: Let me explain what I just said.
Speaker Change: We need to assume that on any given month, there is at least one or two aircrafts that are in some form of maintenance. Some are scheduled and some are unexpected. That's the life of operating a logistics network. So for that to happen, we need to plan on making sure that we have enough operational aircraft.
Speaker Change: What happened to us in Q3, it was the first quarter where we had more aircraft down for scheduled maintenance and some for unscheduled maintenance that higher than what the average that we've been operating with up to that point. Again, it's early innings for us.
Speaker Change: running this network. So we've learned from that and our team is working very hard to minimize the impact.
Speaker Change: on these downed aircrafts, and we've seen the impact on margin erosion when we used supplemental logistics partners, so the team now understands the importance of leveraging our assets and minimizing the impact going forward. So that's, you know, at least my perspective. Stephen, would you care to add anything else?
Stephen Gordon: No, nothing else. We do have 18 planes that we own today. We will probably add a few more over the next two quarters. And then, as we've said also before, we will probably take a pause and really...
Stephen Gordon: Run those as efficiently as possible And again to try to improve the margin that we've we've just talked about
Speaker Change: Next question, operator. Again, if you have a question, please press star then 1.
Speaker Change: Our next question comes from Mike Mattson with Needham & Co. Please go ahead.
Mike Mattson: Yeah, thanks. So, I just want to ask one on the new version of OCS you're going to be, I guess, introducing next year. Can you tell us anything more about those, the timing, and then how those will kind of fit with these programs you're talking about for heart and lung?
Speaker Change: Mike, thank you for the question.
Speaker Change: Yes, we talked about this during the last call, so I'll repeat it again. Those are sort of the leading edge of our next generation technology pipeline. It involves, in the case of the lung, new perfusion solution, new circuit design, new ventilation modality.
Speaker Change: and Waleed Hassanein. Thank you. Thank you.
Speaker Change: new clinical use model up designed to optimize and lung function for an extended period of time and eliminate any or the chances of edema forming edema during that preservation period.
Speaker Change: On the heart front, it's a new preservation perfusion solution and new metabolic enhancer additives.
Speaker Change: new use model to optimize heart perfusion for up to 24 hours. Both are designed to enable morning hour organ transplant as well as significantly improve post-transplant clinical outcomes.
Speaker Change: So, we will be running multiple clinical programs at the same time, probably two for lung, two for heart, to demonstrate these clinical enhancements and superiority in outcomes.
Speaker Change: and driving further adoption and expansion of the OCS NOP and heart and lung for 2025.
Speaker Change: Okay, got it. And then just on the
Speaker Change: with your fleet of planes, I think you said it was 18. So I guess what portion of the capacity there have you been using? Or maybe another way to put it is, you know, how much more could you grow your revenue with that existing fleet of 18? I think it is planes, you know, before you have to start adding more.
Speaker Change: Matt, that's an excellent question. So when we say we own 18, we did not operate all 18 in Q3. In fact, the average available planes in Q3 was about 10.
Speaker Change: So, when you look at revenue in Q3, you know, you look at it as a 10. So, we are not planning, as Stephen said, we have 18 exiting Q3, and we are adding a handful between now and end of Q1. Say, we'll be somewhere between 20 and 22 aircrafts. We're not planning to purchase any additional aircraft.
Speaker Change: Unknown Attendee, Stephen Gordon, Waleed Hassanein, Unknown Attendee, Stephen Gordon, Waleed Hassanein,
Speaker Change: Based on that initial volume or initial size fleet, if we need to even purchase any additional aircraft going forward or not.
Speaker Change: and Waleed Hassanein.
Speaker Change: Okay, got it. That's all. Thank you.
Speaker Change: Thank you for watching. Please subscribe to my channel.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Waleed for any closing remarks.
Waleed Hassanein: Thank you all for your time this evening and we look forward to our next call. Have a wonderful rest of the evening.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.