UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM10-Q
FORM 10-Q
(Mark One)
|
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 201931, 2024
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period fromto
Commission File Number:001-38891
TransMedics Group, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts | 83-2181531 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
200 Minuteman Road Andover, Massachusetts | 01810 | |
| ||
| (Address of principal executive offices) | (Zip code) |
(978)552-0900
(978) 552-0900
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, No Par Value | TMDX | The Nasdaq Global Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐☒ No ☒☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 31, 2019,April 30, 2024, the registrant had 21,093,65432,937,296 shares of common stock, no par value per share, outstanding.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form10-Q contains forward-looking statements, which reflect our current views with respect to, among other things, our operations and financial performance. All statements other than statements of historical facts contained in this Quarterly Report on Form10-Q, including statements regarding our future results of operations and financial position, business strategy and plans and our objectives for future operations, including any acquisitions, joint ventures or strategic investments, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “should,” “could,” “target,” “predict,” “seek” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short- and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those describedreferenced in the section titled “Risk Factors.Factors,” which could cause actual results to differ materially. Moreover, we operate in a very competitive and rapidly changing environment and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in or implied by any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
Some of the key factors that could cause actual results to differ from our expectations include:
our anticipation that we will continue to incur losses in the future;
our potential need to raise additional funding;
our existing and any future indebtedness, including our ability to comply with affirmative and negative covenants under the Credit Agreement, and our ability to obtain additional financing on favorable terms or at all;
the fluctuation of our financial results from quarter to quarter;
our ability to use net operating losses and research and development credit carryforwards;
our dependence on the success of the OCS;
the rate and degree of market acceptance of the OCS;
our ability to educate patients, surgeons, transplant centers and private payors of benefits offered by the OCS;
our ability to improve the OCS platform;
our dependence on a limited number of customers for a significant portion of our net revenue;
the timing of and our ability to obtain and maintain regulatory approvals or clearances for our OCS products;
our ability to adequately respond to FDAfollow-up inquiries in a timely manner;
the performance of our third-party suppliers and manufacturers;
the timing or results of clinical trials for the OCS;
our manufacturing, sales, marketing and clinical support capabilities and strategy;
attacks against our information technology infrastructure;
the economic, political and other risks associated with our foreign operations;
our ability to attract and retain key personnel;
our ability to protect, defend, maintain and enforce our intellectual property rights relating to the OCS and avoid allegations that our products infringe, misappropriate or otherwise violate the intellectual property rights of third parties;
i
our expectations for the pricing of the OCS, as well as the reimbursement coverage for the OCS in the United States and internationally;
regulatory developments in the United States, European Union and other jurisdictions;
the extent and success of competing products that are or may become available;
the impact of any product recalls or improper use of our products; and
our estimates regarding revenues, expenses and needs for additional financing.
The forward-looking statements included in this Quarterly Report on Form10-Q are made only as of the date of this report. Youreport and should not relybe relied upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or will occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form10-Q to conform these statements to actual results or to changes in our expectations.
Some of the key factors that could cause actual results to differ include:
iii
ii
TransMedics Group, Inc.
Page | ||||||
PART I—FINANCIAL INFORMATION | ||||||
Item 1. | 1 | |||||
1 | ||||||
2 | ||||||
3 | ||||||
Consolidated Statements of | 4 | |||||
5 | ||||||
6 | ||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 | ||||
Item 3. | 27 | |||||
Item 4. | 27 | |||||
PART II—OTHER INFORMATION | ||||||
| ||||||
Item | 28 | |||||
Item 1A. | 28 | |||||
Item 2. | 28 | |||||
Item 5. | 28 | |||||
Item 6. | 29 | |||||
30 | ||||||
iii
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
TRANSMEDICS GROUP, INC.
(In thousands, except share and per share amounts)
(Unaudited)
| March 31, |
|
| December 31, |
| |||||||||||
| March 30, 2019 | December 29, 2018 |
| 2024 |
|
| 2023 |
| |||||||||
Assets |
|
|
|
|
| |||||||||||
Current assets: |
|
|
|
|
| |||||||||||
Cash and cash equivalents | $ | 12,215 | $ | 20,241 | ||||||||||||
Cash |
| $ | 350,217 |
|
| $ | 394,812 |
| ||||||||
Accounts receivable | 5,146 | 3,438 |
|
| 81,942 |
|
|
| 63,576 |
| ||||||
Inventory | 11,294 | 9,277 |
|
| 48,541 |
|
|
| 44,235 |
| ||||||
Prepaid expenses and other current assets | 1,404 | 1,838 |
|
| 7,606 |
|
|
| 8,031 |
| ||||||
|
| |||||||||||||||
Total current assets | 30,059 | 34,794 |
|
| 488,306 |
|
|
| 510,654 |
| ||||||
Property and equipment, net | 3,750 | 3,474 | ||||||||||||||
Deferred offering costs | 4,444 | 3,383 | ||||||||||||||
Property, plant and equipment, net |
|
| 214,421 |
|
|
| 173,941 |
| ||||||||
Operating lease right-of-use assets |
|
| 6,226 |
|
|
| 6,546 |
| ||||||||
Restricted cash | 500 | 500 |
|
| 500 |
|
|
| 500 |
| ||||||
Other long-term assets | 6 | 6 | ||||||||||||||
|
| |||||||||||||||
Goodwill |
|
| 11,990 |
|
|
| 11,990 |
| ||||||||
Acquired intangible assets, net |
|
| 2,303 |
|
|
| 2,354 |
| ||||||||
Other non-current assets |
|
| 85 |
|
|
| 62 |
| ||||||||
Total assets | $ | 38,759 | $ | 42,157 |
| $ | 723,831 |
|
| $ | 706,047 |
| ||||
|
| |||||||||||||||
Liabilities, Convertible Preferred Stock and Stockholders’ Deficit | ||||||||||||||||
Liabilities and Stockholders' Equity |
|
|
|
|
| |||||||||||
Current liabilities: |
|
|
|
|
| |||||||||||
Accounts payable | $ | 5,499 | $ | 4,720 |
| $ | 9,225 |
|
| $ | 12,717 |
| ||||
Accrued expenses and other current liabilities | 9,989 | 7,178 |
|
| 36,852 |
|
|
| 38,221 |
| ||||||
Deferred revenue | 359 | 306 |
|
| 2,060 |
|
|
| 1,961 |
| ||||||
Current portion of deferred rent | 354 | 349 | ||||||||||||||
|
| |||||||||||||||
Operating lease liabilities |
|
| 2,086 |
|
|
| 2,035 |
| ||||||||
Total current liabilities | 16,201 | 12,553 |
|
| 50,223 |
|
|
| 54,934 |
| ||||||
Preferred stock warrant liability | 625 | 898 | ||||||||||||||
Long-term debt, net of discount | 33,785 | 33,670 | ||||||||||||||
Deferred rent, net of current portion | 667 | 759 | ||||||||||||||
|
| |||||||||||||||
Convertible senior notes, net |
|
| 447,835 |
|
|
| 447,140 |
| ||||||||
Long-term debt, net |
|
| 59,141 |
|
|
| 59,064 |
| ||||||||
Operating lease liabilities, net of current portion |
|
| 7,161 |
|
|
| 7,707 |
| ||||||||
Total liabilities | 51,278 | 47,880 |
|
| 564,360 |
|
|
| 568,845 |
| ||||||
|
| |||||||||||||||
Commitments and contingencies (Note 9) | ||||||||||||||||
Convertible preferred stock (SeriesA-1, B,B-1, C, D, E and F), $0.0001 par value; 50,776,054 shares authorized at March 30, 2019 and December 29, 2018; 50,404,140 shares issued and outstanding at March 30, 2019 and December 29, 2018; aggregate liquidation preference of $223,681 at March 30, 2019 | 186,519 | 186,519 | ||||||||||||||
|
| |||||||||||||||
Stockholders’ deficit: | ||||||||||||||||
Common stock, $0.0001 par value; 60,000,000 shares authorized at March 30, 2019 and December 29, 2018; 1,426,980 shares issued and 1,426,673 shares outstanding at March 30, 2019; 1,397,800 shares issued and 1,397,493 shares outstanding at December 29, 2018 | 1 | 1 | ||||||||||||||
Additionalpaid-in capital | 143,859 | 143,794 | ||||||||||||||
Commitments and contingencies (Note 11) |
|
|
|
|
| |||||||||||
Stockholders' equity: |
|
|
|
|
| |||||||||||
Preferred stock, no par value; 25,000,000 shares authorized; no shares |
|
| — |
|
|
| — |
| ||||||||
Common stock, no par value; 150,000,000 shares authorized; 32,851,376 |
|
| 651,161 |
|
|
| 641,106 |
| ||||||||
Accumulated other comprehensive loss | (67 | ) | (101 | ) |
|
| (182 | ) |
|
| (199 | ) | ||||
Accumulated deficit | (342,831 | ) | (335,936 | ) |
|
| (491,508 | ) |
|
| (503,705 | ) | ||||
|
| |||||||||||||||
Total stockholders’ deficit | (199,038 | ) | (192,242 | ) | ||||||||||||
|
| |||||||||||||||
Total liabilities, convertible preferred stock and stockholders’ deficit | $ | 38,759 | $ | 42,157 | ||||||||||||
|
| |||||||||||||||
Total stockholders' equity |
|
| 159,471 |
|
|
| 137,202 |
| ||||||||
Total liabilities and stockholders' equity |
| $ | 723,831 |
|
| $ | 706,047 |
| ||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
1
TRANSMEDICS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
| Fiscal Three Months Ended |
| Three Months Ended March 31, |
| |||||||||||||
| March 30, 2019 | March 31, 2018 |
| 2024 |
|
| 2023 |
| |||||||||
Net revenue | $ | 4,676 | $ | 2,519 | ||||||||||||
Cost of revenue | 2,103 | 1,595 | ||||||||||||||
|
| |||||||||||||||
Revenue: |
|
|
|
|
|
| ||||||||||
Net product revenue |
| $ | 61,325 |
|
| $ | 33,993 |
| ||||||||
Service revenue |
|
| 35,525 |
|
|
| 7,561 |
| ||||||||
Total revenue |
|
| 96,850 |
|
|
| 41,554 |
| ||||||||
Cost of revenue: |
|
|
|
|
|
| ||||||||||
Cost of net product revenue |
|
| 14,084 |
|
|
| 7,306 |
| ||||||||
Cost of service revenue |
|
| 22,804 |
|
|
| 5,482 |
| ||||||||
Total cost of revenue |
|
| 36,888 |
|
|
| 12,788 |
| ||||||||
Gross profit | 2,573 | 924 |
|
| 59,962 |
|
|
| 28,766 |
| ||||||
|
| |||||||||||||||
Operating expenses: |
|
|
|
|
| |||||||||||
Research, development and clinical trials | 3,882 | 3,465 |
|
| 11,380 |
|
|
| 5,871 |
| ||||||
Selling, general and administrative | 4,653 | 2,240 |
|
| 36,161 |
|
|
| 24,984 |
| ||||||
|
| |||||||||||||||
Total operating expenses | 8,535 | 5,705 |
|
| 47,541 |
|
|
| 30,855 |
| ||||||
|
| |||||||||||||||
Loss from operations | (5,962 | ) | (4,781 | ) | ||||||||||||
|
| |||||||||||||||
Income (loss) from operations |
|
| 12,421 |
|
|
| (2,089 | ) | ||||||||
Other income (expense): |
|
|
|
|
|
| ||||||||||
Interest expense | (1,093 | ) | (258 | ) |
|
| (3,598 | ) |
|
| (1,091 | ) | ||||
Change in fair value of preferred stock warrant liability | 273 | (30 | ) | |||||||||||||
Other income (expense), net | (103 | ) | 175 | |||||||||||||
|
| |||||||||||||||
Interest income and other income (expense) |
|
| 3,570 |
|
|
| 555 |
| ||||||||
Total other expense, net | (923 | ) | (113 | ) |
|
| (28 | ) |
|
| (536 | ) | ||||
|
| |||||||||||||||
Loss before income taxes | (6,885 | ) | (4,894 | ) | ||||||||||||
Income (loss) before income taxes |
|
| 12,393 |
|
|
| (2,625 | ) | ||||||||
Provision for income taxes | (10 | ) | (7 | ) |
|
| (196 | ) |
|
| (11 | ) | ||||
|
| |||||||||||||||
Net loss | $ | (6,895 | ) | $ | (4,901 | ) | ||||||||||
|
| |||||||||||||||
Net loss per share attributable to common stockholders, basic and diluted | $ | (4.86 | ) | $ | (3.61 | ) | ||||||||||
|
| |||||||||||||||
Weighted average common shares outstanding, basic and diluted | 1,418,353 | 1,358,694 | ||||||||||||||
|
| |||||||||||||||
Net income (loss) |
| $ | 12,197 |
|
| $ | (2,636 | ) | ||||||||
Net income (loss) per share: |
|
|
|
|
|
| ||||||||||
Basic |
| $ | 0.37 |
|
| $ | (0.08 | ) | ||||||||
Diluted |
| $ | 0.35 |
|
| $ | (0.08 | ) | ||||||||
Weighted average common shares outstanding: |
|
|
|
|
|
| ||||||||||
Basic |
|
| 32,760,190 |
|
|
| 32,260,267 |
| ||||||||
Diluted |
|
| 34,678,895 |
|
|
| 32,260,267 |
| ||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
2
TRANSMEDICS GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME (LOSS)
(In thousands)
(Unaudited)
| Fiscal Three Months Ended | ||||||||
| March 30, 2019 | March 31, 2018 | |||||||
Net loss | $ | (6,895 | ) | $ | (4,901 | ) | ||
|
|
|
| |||||
Other comprehensive income (loss): | ||||||||
Foreign currency translation adjustment | 34 | (6 | ) | |||||
Unrealized gains on marketable securities, net of tax of $0 | — | 4 | ||||||
|
|
|
| |||||
Total other comprehensive income (loss) | 34 | (2 | ) | |||||
|
|
|
| |||||
Comprehensive loss | $ | (6,861 | ) | $ | (4,903 | ) | ||
|
|
|
| |||||
|
| Three Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Net income (loss) |
| $ | 12,197 |
|
| $ | (2,636 | ) |
Other comprehensive income: |
|
|
|
|
|
| ||
Foreign currency translation adjustment |
|
| 17 |
|
|
| 7 |
|
Total other comprehensive income |
|
| 17 |
|
|
| 7 |
|
Comprehensive income (loss) |
| $ | 12,214 |
|
| $ | (2,629 | ) |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
TRANSMEDICS GROUP, INC.
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICITEQUITY
(inIn thousands, except share amounts)
(Unaudited)
| Accumulated | ||||||||||||||||||||||||||||||||
| Common Stock | Additional | Other | Total | |||||||||||||||||||||||||||||
| Convertible Preferred Stock | Par | Paid-in | Comprehen- | Accumulated | Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Value | Capital | sive Loss | Deficit | Deficit | |||||||||||||||||||||||||
Balances at December 29, 2018 | 50,404,140 | $ | 186,519 | 1,397,493 | $ | 1 | $ | 143,794 | $ | (101 | ) | $ | (335,936 | ) | $ | (192,242 | ) | |||||||||||||||
Issuance of common stock upon the exercise of common stock options | — | — | 29,180 | — | 8 | — | — | 8 | ||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | 57 | — | — | 57 | ||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | 34 | — | 34 | ||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (6,895 | ) | (6,895 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balances at March 30, 2019 | 50,404,140 | $ | 186,519 | 1,426,673 | $ | 1 | $ | 143,859 | $ | (67 | ) | $ | (342,831 | ) | $ | (199,038 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
| Other |
|
|
|
|
| Total |
| |||||
|
| Common Stock |
|
| Comprehen- |
|
| Accumulated |
|
| Stockholders' |
| ||||||||
|
| Shares |
|
| Amount |
|
| sive Loss |
|
| Deficit |
|
| Equity |
| |||||
Balances at December 31, 2023 |
|
| 32,670,803 |
|
| $ | 641,106 |
|
| $ | (199 | ) |
| $ | (503,705 | ) |
| $ | 137,202 |
|
Issuance of common stock upon the |
|
| 113,023 |
|
|
| 2,547 |
|
|
| — |
|
|
| — |
|
|
| 2,547 |
|
Issuance of common stock in |
|
| 9,506 |
|
|
| 638 |
|
|
| — |
|
|
| — |
|
|
| 638 |
|
Vesting of restricted stock units |
|
| 58,044 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Stock-based compensation expense |
|
| — |
|
|
| 6,870 |
|
|
| — |
|
|
| — |
|
|
| 6,870 |
|
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| 17 |
|
|
| — |
|
|
| 17 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 12,197 |
|
|
| 12,197 |
|
Balances at March 31, 2024 |
|
| 32,851,376 |
|
| $ | 651,161 |
|
| $ | (182 | ) |
| $ | (491,508 | ) |
| $ | 159,471 |
|
| Accumulated | ||||||||||||||||||||||||||||||||
| Common Stock | Additional | Other | Total | |||||||||||||||||||||||||||||
| Convertible Preferred Stock | Par | Paid-in | Comprehen- | Accumulated | Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Value | Capital | sive Loss | Deficit | Deficit | |||||||||||||||||||||||||
Balances at December 30, 2017 | 50,404,140 | $ | 186,519 | 1,330,693 | $ | 1 | $ | 143,604 | $ | (149 | ) | $ | (312,180 | ) | $ | (168,724 | ) | |||||||||||||||
Issuance of common stock upon the exercise of common stock options | — | — | 5,357 | — | 12 | — | — | 12 | ||||||||||||||||||||||||
Abandonment of shares of common stock by stockholders | — | — | (307 | ) | — | — | — | — | — | |||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | 27 | — | — | 27 | ||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | (6 | ) | — | (6 | ) | ||||||||||||||||||||||
Unrealized gains on marketable securities | — | — | — | — | — | 4 | — | 4 | ||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (4,901 | ) | (4,901 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balances at March 31, 2018 | 50,404,140 | $ | 186,519 | 1,335,743 | $ | 1 | $ | 143,643 | $ | (151 | ) | $ | (317,081 | ) | $ | (173,588 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
| Other |
|
|
|
|
| Total |
| |||||
|
| Common Stock |
|
| Comprehen- |
|
| Accumulated |
|
| Stockholders' |
| ||||||||
|
| Shares |
|
| Amount |
|
| sive Loss |
|
| Deficit |
|
| Equity |
| |||||
Balances at December 31, 2022 |
|
| 32,141,368 |
|
| $ | 666,277 |
|
| $ | (225 | ) |
| $ | (478,677 | ) |
| $ | 187,375 |
|
Issuance of common stock upon the |
|
| 378,500 |
|
|
| 3,574 |
|
|
| — |
|
|
| — |
|
|
| 3,574 |
|
Issuance of common stock in |
|
| 14,135 |
|
|
| 384 |
|
|
| — |
|
|
| — |
|
|
| 384 |
|
Stock-based compensation expense |
|
| — |
|
|
| 3,921 |
|
|
| — |
|
|
| — |
|
|
| 3,921 |
|
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| 7 |
|
|
| — |
|
|
| 7 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,636 | ) |
|
| (2,636 | ) |
Balances at March 31, 2023 |
|
| 32,534,003 |
|
| $ | 674,156 |
|
| $ | (218 | ) |
| $ | (481,313 | ) |
| $ | 192,625 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
TRANSMEDICS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(inIn thousands)
(Unaudited)
|
| Three Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net income (loss) |
| $ | 12,197 |
|
| $ | (2,636 | ) |
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization expense |
|
| 4,302 |
|
|
| 1,287 |
|
Stock-based compensation expense |
|
| 6,870 |
|
|
| 3,921 |
|
Non-cash interest expense and end of term accretion expense |
|
| 772 |
|
|
| 106 |
|
Non-cash lease expense |
|
| 321 |
|
|
| 191 |
|
Unrealized foreign currency transaction (gains) losses |
|
| 199 |
|
|
| (137 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||
Accounts receivable |
|
| (18,407 | ) |
|
| (10,962 | ) |
Inventory |
|
| (5,613 | ) |
|
| (3,623 | ) |
Prepaid expenses and other current assets |
|
| (1,576 | ) |
|
| (884 | ) |
Other non-current assets |
|
| (24 | ) |
|
| (54 | ) |
Accounts payable |
|
| (2,039 | ) |
|
| 1,028 |
|
Accrued expenses and other current liabilities |
|
| (49 | ) |
|
| 3,454 |
|
Deferred revenue |
|
| 108 |
|
|
| — |
|
Operating lease liabilities |
|
| (496 | ) |
|
| (352 | ) |
Net cash used in operating activities |
|
| (3,435 | ) |
|
| (8,661 | ) |
Cash flows from investing activities: |
|
|
|
|
|
| ||
Purchases of property, plant and equipment |
|
| (44,172 | ) |
|
| (927 | ) |
Net cash used in investing activities |
|
| (44,172 | ) |
|
| (927 | ) |
Cash flows from financing activities: |
|
|
|
|
|
| ||
Proceeds from issuance of common stock upon exercise of stock options |
|
| 2,547 |
|
|
| 3,574 |
|
Proceeds from issuance of common stock in connection with employee stock |
|
| 638 |
|
|
| 384 |
|
Net cash provided by financing activities |
|
| 3,185 |
|
|
| 3,958 |
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
| (173 | ) |
|
| 73 |
|
Net decrease in cash, cash equivalents and restricted cash |
|
| (44,595 | ) |
|
| (5,557 | ) |
Cash, cash equivalents and restricted cash, beginning of period |
|
| 395,312 |
|
|
| 201,682 |
|
Cash, cash equivalents and restricted cash, end of period |
| $ | 350,717 |
|
| $ | 196,125 |
|
Supplemental disclosure of non-cash activities: |
|
|
|
|
|
| ||
Transfers of inventory to property, plant and equipment |
| $ | 1,215 |
|
| $ | 317 |
|
Purchases of property, plant and equipment included in accounts payable and accrued |
| $ | 1,180 |
|
| $ | 30 |
|
Reconciliation of cash, cash equivalents and restricted cash: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 350,217 |
|
| $ | 195,375 |
|
Restricted cash |
|
| 500 |
|
|
| 750 |
|
Total cash, cash equivalents and restricted cash shown in the statement of cash flows |
| $ | 350,717 |
|
| $ | 196,125 |
|
| Fiscal Three Months Ended | ||||||||
| March 30, 2019 | March 31, 2018 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (6,895 | ) | $ | (4,901 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization expense | 245 | 166 | ||||||
Stock-based compensation expense | 57 | 27 | ||||||
Change in fair value of preferred stock warrant liability | (273 | ) | 30 | |||||
Non-cash interest expense | 115 | 60 | ||||||
Net amortization of premiums on marketable securities | — | 9 | ||||||
Unrealized foreign currency transaction (gains) losses | 160 | (143 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (1,746 | ) | (1,021 | ) | ||||
Inventory | (2,468 | ) | (1,178 | ) | ||||
Prepaid expenses and other current assets | 417 | (143 | ) | |||||
Accounts payable | 758 | (843 | ) | |||||
Accrued expenses and other current liabilities | 2,394 | 1,692 | ||||||
Deferred revenue | 57 | (4 | ) | |||||
Deferred rent | (87 | ) | (82 | ) | ||||
|
|
|
| |||||
Net cash used in operating activities | (7,266 | ) | (6,331 | ) | ||||
|
|
|
| |||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (3 | ) | (40 | ) | ||||
Proceeds from sales and maturities of marketable securities | — | 5,000 | ||||||
|
|
|
| |||||
Net cash provided by (used in) investing activities | (3 | ) | 4,960 | |||||
|
|
|
| |||||
Cash flows from financing activities: | ||||||||
Repayments of long-term debt | — | (892 | ) | |||||
Payments of initial public offering costs | (705 | ) | — | |||||
Proceeds from issuance of common stock upon exercise of stock options | 8 | 12 | ||||||
|
|
|
| |||||
Net cash used in financing activities | (697 | ) | (880 | ) | ||||
|
|
|
| |||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (60 | ) | 114 | |||||
|
|
|
| |||||
Net decrease in cash, cash equivalents and restricted cash | (8,026 | ) | (2,137 | ) | ||||
Cash, cash equivalents and restricted cash, beginning of period | 20,741 | 12,436 | ||||||
|
|
|
| |||||
Cash, cash equivalents and restricted cash, end of period | $ | 12,715 | $ | 10,299 | ||||
|
|
|
| |||||
Supplemental disclosure ofnon-cash investing and financing activities: | ||||||||
Transfers of inventory to property and equipment | $ | 407 | $ | 342 | ||||
Purchases of property and equipment included in accounts payable | $ | 129 | $ | 4 | ||||
Deferred offering costs included in accounts payable and accrued expenses | $ | 1,134 | $ | — | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
TRANSMEDICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of the Business and Basis of Presentation
TransMedics Group, Inc. (“TransMedics Group” and, together with its consolidated subsidiaries, the “Company”) was incorporated in the Commonwealth of Massachusetts in October 2018. TransMedics, Inc. (“TransMedics”), an operating company and wholly-ownedwholly owned subsidiary of TransMedics Group, was incorporated in the State of Delaware in August 1998. The Company is a commercial-stage medical technology company transforming organ transplant therapyfor end-stage organ failure patients across multiple disease states. The Company developed the Organ Care System (“OCS”) to replacea decades-old standard of care. The OCS represents a paradigm shift that transforms organ preservation for transplantation from a static state to a dynamic environment that enables new capabilities, including organ optimization and assessment. The Company’s OCS technology replicates many aspects of the organ’s natural living and functioning environment outside of the human body. The Company also developed its National OCS Program (“NOP”), an innovative turnkey solution to provide outsourced organ retrieval, OCS organ management and logistics services, to provide transplant programs in the United States with a more efficient process to procure donor organs with the OCS. The Company's logistics services include aviation transportation, ground transportation and other coordination activity.
On May 6, 2019, immediately prior to the closing of the Company’s initial public offering (the “IPO”),August 16, 2023, the Company completedacquired Summit Aviation, Inc. and Northside Property Group, LLC (together “Summit”). Summit was a corporate reorganization wherebycharter flight operator based in Bozeman, Montana. The acquisition enabled TransMedics the direct parentto add aviation transportation services to its NOP and become a comprehensive national provider of TransMedics Group prior to the corporate reorganization, became a direct, wholly-owned subsidiary of TransMedics Group pursuant to the merger of TMDX, Inc., a direct, wholly-owned subsidiary of TransMedics Group prior to the corporate reorganization, withdonor organ retrieval and into TransMedics, with TransMedics as the surviving corporation. As a result of the merger, each outstanding share of common stock of TransMedics was converted into shares of common stock of TransMedics Group on a3.5-for-one basis, each outstanding share of convertible preferred stock was converted into shares of common stock of TransMedics Group based on the conversion ratio of each individual series of preferred stock, as defineddelivery in the certificate of incorporation of TransMedics prior to the conversion, and the3.5-for-one ratio on which shares of common stock of TransMedics were converted into common stock of TransMedics Group, each outstanding option to purchase shares of common stock of TransMedics was converted into an outstanding option to purchase shares of common stock of TransMedics Group adjusted ona 3.5-for-one basis, with a corresponding adjustment to the exercise price, and each outstanding warrant to purchase shares of preferred stock of TransMedics was converted into a warrant to purchase shares of common stock of TransMedics Group adjusted ona 3.5-for-one basis, with a corresponding adjustment to the exercise price, pursuant to the terms of an agreement and plan of merger and reorganization (see Note 14). This is referred to as the “Corporate Reorganization.”United States.
All share and per share amounts for all periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the3.5-for-one conversion ratio applied to common stock in the Corporate Reorganization.
Immediately following the Corporate Reorganization, (i) TransMedics Group became a holding company with no material assets other than 100% of the equity interests in TransMedics, (ii) the holders of capital stock in TransMedics became shareholders of TransMedics Group and (iii) the historical consolidated financial statements of TransMedics became the historical consolidated financial statements of TransMedics Group because the Corporate Reorganization was accounted for as a reorganization of entities under common control. Prior to the Corporate Reorganization, TransMedics Group had not conducted any activities other than in connection with its formation and in preparation for the IPO and had no material assets other than 100% of the equity interests in TMDX, Inc.
On May 6, 2019, the Company completed its IPO, pursuant to which it issued and sold 6,543,500 shares of common stock, inclusive of 853,500 shares sold by the Company pursuant to the full exercise of the underwriters’ option to purchase additional shares. The aggregate net proceeds received by the Company from the IPO were $97.4 million, after deducting underwriting discounts and commissions but before deducting other offering costs.
The accompanying consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. The Company has incurred recurring losses since inception, including net losses attributable to the Companybelieves that its existing cash of $6.9$350.2 million for the three fiscal months ended March 30, 2019 and $23.8 million for the fiscal year ended December 29, 2018. Asas of March 30, 2019, the Company had an accumulated deficit of $342.8 million. The Company expects to continue to generate operating losses in the foreseeable future. As of June 12, 2019, the issuance date of the interim consolidated financial statements, the Company expects that the net proceeds from the IPO, together with existing cash and cash equivalents31, 2024 will be sufficient to fund its operating expenses,operations, capital expenditure requirementsexpenditures, and debt service payments for at least the next 12 months.months following the filing of this Quarterly Report on Form 10-Q. However, the Company in the future may need to seek additional funding through equity financings, debt financings or strategic alliances. The Company may not be able to obtain financing on acceptable terms, or at all, and the terms of any financing may adversely affect the holdings or the rights of the Company’s shareholders. If the Company is unable to obtain funding when needed, the Company will be required to delay, reduce or eliminate some or all of its research and development programs, product expansion or commercialization efforts, or the Company may be unable to continue operations.
The Company is subject to risks and uncertainties common to companies in the medical device industry and of similar size, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, uncertainty of market acceptance of products, and the need to obtain additional financing to fund operations. Products currently under development will require additional research and development
efforts, including additional clinical testing and regulatory approval, prior to commercialization. These efforts require additional capital, adequate personnel, infrastructure and extensive compliance-reporting capabilities. There can be no assurance that theThe Company’s research and development willmay not be successfully completed, that adequate protection for the Company’s technology willmay not be obtained, that any products willthe Company may not obtain necessary government regulatory approval on its expected timeline or that anyat all, and approved products will bemay not prove commercially viable. The Company operates in an environment of rapid change in technology and competition from other medical device companies.competition.
The Company’s fiscal year ends on the last Saturday in December, and the Company reports fiscal years usinga 52/53-week convention. Under this convention, certain fiscal years contain 53 weeks. Each fiscal year is typically composed offour 13-week fiscal quarters, but in years with 53 weeks, the fourth quarter isa 14-week period. The fiscal year ended December 29, 2018 included 52 weeks and the fiscal year ending December 28, 2019 includes 52 weeks. The fiscal year ended December 29, 2018 is referred to as “fiscal 2018” and the fiscal year ended December 28, 2019 is referred to as “fiscal 2019.”
The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). The accompanying consolidated financial statements include the accounts of the Company and its wholly-ownedwholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
6
2. Summary of Significant Accounting Policies
Unaudited Interim Financial Information
The consolidated balance sheet at December 29, 2018 was derived from audited financial statements but does not include all disclosures required by GAAP. The accompanying unaudited consolidatedinterim financial statements as of March 30, 2019 and for the fiscal three months ended March 30, 2019 and March 31, 2018related notes have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with TransMedics’the Company’s audited consolidated financial statements and the notes thereto for the fiscal year ended December 29, 201831, 2023 included in the Company’s Registration StatementAnnual Report onForm S-1, asamended, File No. 333-230736 on file10-K filed with the SEC. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s financial position as of March 30, 201931, 2024 and results of operations for the fiscal three months ended March 30, 201931, 2024 and March 31, 20182023 and cash flows for the fiscal three months ended March 30, 201931, 2024 and March 31, 20182023 have been made. The Company’s results of operations for the fiscal three months ended March 30, 201931, 2024 are not necessarily indicative of the results of operations that may be expected for the fiscal year ending December 28, 2019.31, 2024.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these unaudited consolidated financial statements include, but are not limited to, revenue recognition, the valuation of inventory, the valuation of common stock,assets acquired and liabilities assumed in business combinations, including acquired intangible assets and the resulting goodwill, and the valuation of stock-based awards and the valuation of the preferred stock warrant liability.awards. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates as there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. As of the date of issuance of these unaudited consolidated financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update estimates, judgments or revise the carrying value of any assets or liabilities.Actual results may differ from those estimates or assumptions.
Risk of Concentrations of Credit Significant Customers and Significant Suppliers
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company has not experienced any other-than-temporary losses with respect to its cash and cash equivalents and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. As of March 31, 2024 and December 31, 2023, the Company had no allowance for credit losses.
Significant customers are those that accounted for 10% or more of the Company’s total revenue or accounts receivable (see Note 12).
Certain of the components and subassemblies included in the Company’s products are obtained from a sole source, a single source or a limited group of suppliers.suppliers, as are sterilization services. Although the Company seeks to reduce dependence on those limited sources of suppliers, manufacturers and manufacturers,service providers, the partial or complete loss of certain of these sources could have a material adverse effect on the Company’s operating results, financial condition and cash flows and damage its customer relationships.
Deferred Offering Costs
The Company capitalizes certain legal, accounting and other third-party fees that are directly associatedwith in-process equity financings as deferred offering costs until such financings are consummated. After consummation of an equity financing, these costs are recorded in stockholders’ deficit as a reduction ofadditional paid-in capital generated as a result of the offering. Shouldan in-process equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the consolidated statements of operations. The Company recorded deferred offering costs of $4.4 million and $3.4 million as of March 30, 2019 and December 29, 2018, respectively.
Fair Value Measurements
Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
•
•
•
7
The Company’s cash equivalents, consisting of money market funds, and its preferred stock warrant liability are carried at fair value, determined according to the fair value hierarchy described above (see Note 3).
The carrying values of the Company’s accounts receivable, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities. The carrying value of the Company’s long-term debt approximates its fair value (a level 2 measurement) at each balance sheet date due to its variable interest rate, which approximates a market interest rate.
Revenue Recognition
The Company generates revenue primarily from sales of itssingle-use, organ-specific disposable sets (i.e., its organ-specific OCS Perfusion Sets sold together with its organ-specific OCS Solutions) used on its organ-specific OCS Consoles, each being a component ofCompany's 1.50% convertible senior notes due 2028 (the "Notes") are carried at the Company’s OCS products. To a lesser extent, the Company also generates revenue from the sale of OCS Consoles to customersface value less unamortized debt discount and from the implied rental of OCS Consoles loaned to customers at no charge. For each new transplant procedure, customers purchase an additional OCS disposable set for useissuance costs on the customer’s existing organ-specific OCS Console.
The Company recognizes revenue from sales to customers applying the following five steps: (1) identification of the contract, or contracts, with a customer, (2) identification of the performance obligations in the contract, (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations in the contractaccompanying consolidated balance sheets, and (5) recognition of revenue when, or as, performance obligations are satisfied. Because all performance obligations of a customer order are delivered and recognized as revenue at the same time and because revenue allocated to performance obligations other than OCS disposable sets, such as implied rental income and service revenue, is insignificant, all components of revenue from customer arrangements are classified as a single category of revenue in the Company’s consolidated statement of operations.
Substantially all of the Company’s customer arrangements are multiple-performance obligation arrangements that contain deliverables consisting of OCS Perfusion Sets and OCS Solutions. In some of those multiple-performance obligation arrangements, the deliverables also include an OCS Console, whether sold or loaned to the customer. The Company evaluates each promise within a multiple-performance obligation arrangement to determine whether it represents a distinct performance obligation. A performance obligation is distinct if (1) the product or service is separately identifiable from other promises in the contract and (2) the customer can benefit from the product or service on its own or with other resources that are readily available to the customer.
When a customer order includes an OCS Console, whether sold or loaned, the Company has determined that customer training and the equipmentset-up of the OCS Console, each performed by the Company, are not distinct because they are not sold on a standalone basis and can only be performed by the Company in conjunction with a sale or loan of its OCS Console. In addition, the Company has determined that the OCS Console itself is not distinct because the customer cannot benefit from the OCS Console without the training and equipmentset-up having been completed. As a result, when the order includes an OCS Console, the Company
has concluded that training, OCS Console equipmentset-up and the OCS Console itself are highly interdependent and represent a single, combined performance obligation. Consequently, the Company does not recognize any revenue from any component of a customer order that includes an OCS Console, whether sold or loaned, until the OCS Console has arrived at the customer site and the training and equipmentset-up have been completed by the Company. The Company has concluded that “transfer of control” of an OCS Console occurs only after the console has arrived at the customer site and the training and equipmentset-up have been completed by the Company.
Some of the Company’s revenue has been generated from products sold in conjunction with the clinical trials conducted for the Company’s OCS products, under arrangements referred to as customer clinical trial agreements. Under most of these customer clinical trial agreements, the Company places an organ-specific OCS Console at the customer site for its use free of charge for the duration of the clinical trial, and the customer separately purchases from the Company the OCS disposable sets used in each transplant procedure during the clinical trial. When the Company loans the OCS Console to the customer, it retains title to the console at all times and does not require minimum purchase commitments from the customer related to any OCS products. In such cases, the Company invoices the customer for OCS disposable sets based on customer orders received for each new transplant procedure and the prices set forth in the customer agreement. Over time, the Company typically recovers the cost of the loaned OCS Console through the customer’s continued purchasing and use of additional OCS disposable sets. For these reasons, the Company has determined that part of the arrangement consideration for the disposable set is an implied rental payment for use of the OCS Console.
When the Company’s customer arrangements are multiple-performance obligation arrangements that contain a loan of an OCS Console for the customer’s use at its customer site as well as OCS disposable sets that are delivered simultaneously, the Company allocates the arrangement consideration between the lease deliverables (i.e., the OCS Console)and non-lease deliverables (i.e., the OCS disposable sets) based on the relative estimated standalone selling price (“SSP”) of each distinct performance obligation. To date, the amounts allocated to lease deliverables have been insignificant. In determining SSP, the Company maximizes observable inputs and consider a number of data points, including: (1) the pricing of standalone sales (in instances where available), (2) the pricing established by management when setting prices for deliverables that are intended to be sold on a standalone basis, (3) contractually stated prices for deliverables that are intended to be sold on a standalone basis and (4) other pricing factors, such as the geographical region in which the products are sold and expected discounts based on the customer size and type.
Revenue is recognized when control of the OCS product or products is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for the product or products.
Performance Obligations
The primary performance obligations in the Company’s customer arrangements from which it derives revenue are as follows:
|
|
|
Payments Made to Customers
Under all of the Company’s customer arrangements that include a customer clinical trial agreement, the Company receives payments from sales to the customer of its OCS products and also makes payments to that customer for reimbursements of clinical trial materials and for specified clinical documentation related to the customer’s use of its OCS products. If the clinical trial includes a patient arm that uses existingstandard-of-care protocols for organ transplants (and does not use the Company’s OCS products), then the Company makes additional payments to that customer to obtain clinical documentation related to existingstandard-of-care protocols (i.e., unrelated to its OCS products).
In these cases, the Company has determined that the payments made to the customer for clinical trial materials and its costs incurred to execute specific clinical trial protocols related to its OCS products do not provide the Company with a distinct good or service transferred by the customer, and therefore, such payments are recorded as a reduction of revenue from the customer in the Company’s consolidated statements of operations. Reductions of revenue related to such payments made to customers for reimbursements are recognized when the Company recognizes the revenue for the sale of its OCS disposable sets. For the fiscal three months ended March 30, 2019 and March 31, 2018, the Company recorded as a reduction of revenue $0.6 million and $0.2 million, respectively, of reimbursable clinical trial costs as presented below in disaggregated revenue.
In these same cases, the Company has also determined that payments made to the customer to obtain clinical documentation related to existingstandard-of-care protocols (i.e., unrelated to its OCS products) do meet the criteria to be classified as a cost because the Company receives a distinct good or service transferred by the customer separate from the customer’s purchase of its OCS products and the consideration paid represents the fair value of the distinct goodNotes is presented at each reporting period for disclosure purposes only (see Note 8).
Spare Parts Inventory
Spare parts are used in aviation operations and are generally not for sale. Spare parts inventory is comprised of repairable and expendable spare aircraft parts, which are valued at the lower of cost or service received bynet realizable value, using the Company.specific identification method. Storage costs and miscellaneous materials and supplies costs related to inventory or to support flight equipment are expensed as incurred. As a result, payments made by the Company to customers forstandard-of-care protocols are recorded as research, development and clinical trials expenses. For the fiscal three months ended March 30, 2019 andof March 31, 2018,2024, spare parts inventory of $0.6 million is included within prepaid expenses and other current assets on the Company recorded as research, development and clinical trials expenses of $0.2 million and less than $0.1 million, respectively, related to payments made to customers at clinical trial sites for documentation related to existingstandard-of-care protocols.
Variable Consideration
Revenue is reported net of any taxes assessed by a governmental authority that are directly imposed on a revenue-producing transaction (e.g., sales, use and value added taxes). The Company only includes estimated variable amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.
Revenue from reimbursements ofout-of-pocket expenses, including travel, lodging and meals, is accounted for as variable consideration.
The Company does not consider shipping to be a contract performance obligation. The Company records shipping costs billed to customers as revenue, and records the associated costs incurred by the Company for those items as cost of revenue.
Contract Assets and Liabilities
The Company recognizes a receivable at the point in time at which it has an unconditional right to payment. Such receivables are not contract assets. Payment terms for customer orders, including for each of the Company’s primary performance obligations, are typically 30 days for customers in the United States and 30 to 90 days for customers innon-U.S. markets, and such payments do not include payments that are variable, dependent on specified factors or events.
Contract assets arise from unbilled amounts in customer arrangements when revenue recognized exceeds the amount billed to the customer and the Company’s right to payment is not just subject to the passage of time.accompanying consolidated balance sheets. The Company had no contract assets spare parts inventory as of March 30, 2019 and December 29, 2018.
Contract liabilities represent the Company’s obligation to transfer goods or services to a customer for which it has received consideration (or the amount is due) from the customer.31, 2023. The Company has determineddetermines, based on the evidence that its only contract liabilities are deferred revenue, which consistsexists, whether or not it is appropriate to maintain a reserve for excess and obsolete spare parts inventory. The reserve is based on historical experience related to the disposal of amounts that have been invoiced but that have not been recognized as revenue.
The Company generally satisfies performance obligations within one year of the contract inception date.inventory due to damage, physical deterioration, obsolescence, or other causes. As of March 30, 201931, 2024 and December 29, 2018, the Company’s wholly- or partially-unsatisfied performance obligations totaled $0.7 million and $1.5 million, respectively.
Disaggregated Revenue
In determining total net revenue under the revenue recognition guidance applicable to both periods presented,31, 2023, the Company reduces revenue by the amount of certain payments made to customers (see “Payments Made to Customers” above). The reconciliation of gross revenue to net revenuehad no allowance for these certain payments is shown below (in thousands):
| Fiscal Three Months Ended | ||||||||
| March 30, 2019 | March 31, 2018 | |||||||
Gross revenue from sales to customers | $ | 5,290 | $ | 2,756 | ||||
Less: Clinical trial payments reducing revenue | (614 | ) | (237 | ) | ||||
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Total net revenue | $ | 4,676 | $ | 2,519 | ||||
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The Company disaggregates revenue from contracts with customers by product typespare parts excess and geographical area as it believes this presentation best depicts how the nature, amount, timing and uncertainty of the Company’s revenue and cash flows are affected by economic factors, as shown below (in thousands):obsolescence.
| Fiscal Three Months Ended | ||||||||
| March 30, 2019 | March 31, 2018 | |||||||
Net revenue by OCS product: | ||||||||
OCS Lung net revenue | $ | 1,412 | $ | 709 | ||||
OCS Heart net revenue | 1,922 | 1,633 | ||||||
OCS Liver net revenue | 1,342 | 177 | ||||||
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Total net revenue | $ | 4,676 | $ | 2,519 | ||||
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| Fiscal Three Months Ended | ||||||||
| March 30, 2019 | March 31, 2018 | |||||||
Net revenue by geography: | ||||||||
United States | $ | 2,953 | $ | 821 | ||||
Outside the U.S. | 1,723 | 1,698 | ||||||
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Total net revenue | $ | 4,676 | $ | 2,519 | ||||
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Practical Expedients Used in Application of ASC 606
The Company has elected to apply the practical expedient for immaterial goods and services in the context of the contract. Accordingly, the Company does not assess whether promised goods or services are performance obligations if they are deemed immaterial in the context of the contract with the customer.
The Company has elected to apply the practical expedient for shipping. Accordingly, the Company does not consider shipping to be a contract performance obligation.
When applicable, the Company has elected to apply the practical expedient for considering the existence of a significant financing component. Accordingly, the Company does not adjust the promised amount of arrangement consideration for the effects of a significant financing component if it expects, at contract inception, that the period of time between the Company’s transfer of a promised good or service to a customer and the customer’s payment for that good or service will be one year or less.
Distributors
The Company markets and sells its products primarily through its direct sales force, which sells its products to end customers globally. A small portion of the Company’s revenue is generated by sales to a limited number of distributors in Europe and Asia-Pacific. When the Company transacts with a distributor, its contractual arrangement is with the distributor and not with the end customer. Whether the Company transacts business with and receives the order from a distributor or directly from an end customer, its revenue recognition policy and resulting pattern of revenue recognition for the order are the same.
In its business with distributors, the Company enters into a distributor agreement under which the distributor places orders to the Company for its products in connection with the distributor’s own sales to identified end customers, and the Company confirms the identification of the end customer prior to accepting each order. The Company’s distributors do not stock OCS Consoles purchased from the Company and stock only minimal quantities of OCS disposable sets. Under these contractual arrangements, the Company invoices the distributor for the arrangement fee (which reflects a distributor discount relative to typical end customer pricing) and payment to the Company from the distributor is not contingent upon the distributor’s collection from the end customer. The Company records revenue based on the amount of the discounted arrangement fee.
When a sale to a distributor includes an OCS Console, the Company performs the training and OCS Console equipmentset-up for the end customer. The Company recognizes no revenue from a distributor order that includes an OCS Console until the OCS Console has arrived at the customer site and the training and equipmentset-up have been completed by the Company.
Stock-Based compensation
The Company measures stock-based option awards granted to employees,non-employees and directors based on their fair value on the date of grant using the Black-Scholes option-pricing model. Compensation expense for those awards is recognized over the requisite service period, which is generally the vesting period of the respective award. Generally, the Company issues awards with only service-based vesting conditions and records the expense for these awards using the straight-line method.
Prior to the adoption of Accounting Standards Update (“ASU”)2018-07 on December 30, 2018 discussed below, the Company measured the fair value of stock-based option awards grantedto non-employee consultants on the date that the related service was complete, which was generally the vesting date. Prior to the service completion date, compensation expense was recognized over the period during which services were rendered by suchnon-employee consultants. At the end of each financial reporting period prior to completion of the service, the fair value of these awards was remeasured using the then-current fair value of the Company’s common stock and updated assumption inputs in the Black-Scholes option-pricing model.
The Company classifies stock-based compensation expense in its consolidated statements of operations in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.
Segment Information
The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The Company has developed and is developing and commercializing a proprietary system to preserve and deliver human organs for transplant in a near-physiologic condition to address the limitations of cold storage organ preservation. Operating segments are defined as components of an enterprise for which separate financial information is regularly evaluated by the Company’s chief operating decision maker, or decision-making group, in deciding how to allocate resources and assess performance. The Company has determined that its chief operating decision maker is its Chief Executive Officer. The Company’s chief operating decision maker reviews the Company’s financial information on a consolidated basis for purposes of allocating resources and assessing financial performance.
Foreign Currency Translation
Net Income (Loss) per ShareThe functional currency of each of the Company’s foreign subsidiaries is the currency of the local country. Assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars using the period-end exchange rates, and income and expense items are translated into U.S. dollars using average exchange rates in effect during each period. The effects of these foreign currency translation adjustments are included in accumulated other comprehensive income (loss), a separate component of stockholders’ equity.
The Company followsalso incurs transaction gains and losses resulting from intercompany transactions as well as transactions with customers or vendors denominated in currencies other than the two-class method when computing net income (loss) per share, as TransMedics had issued shares that meet the definition of participating securities.The two-class method determines net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings.The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.
Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net income (loss) attributable to common stockholders is computed by adjusting net income (loss) attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net income (loss) per share attributable to common stockholders is computed by dividing the diluted net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period, including potential dilutive common shares assuming the dilutive effect of common stock equivalents.
The outstanding convertible preferred stock contractually entitled the holders of such shares to participate in dividends but did not contractually require the holders of such shares to participate in lossesfunctional currency of the Company. Accordingly, in periodslegal entity in which the Company reportstransaction is recorded. Realized and unrealized foreign currency transaction gains (losses) are included in the consolidated statements of operations as a net loss, such losses are not allocated to such participating securities. In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss attributable to common stockholderscomponent of other income (expense) and totaled $(0.2) million and $0.1 million, for the fiscal three months ended March 30, 2019 and March 31, 2018.
Subsequent to the closing of its IPO, at which time the Company only has one class of shares outstanding, basic net income (loss) per common share will be computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) per common share will be computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period, including potential dilutive common shares assuming the dilutive effect of outstanding stock awards. For periods in which the Company reports a net loss, diluted net loss per common share is the same as basic net loss per common share, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.
Recently Adopted Accounting Pronouncements
In May 2014, the FASBissued ASU No. 2014-09, Revenue from Contracts with Customers(Topic 606) (“ASC 606”). ASC 606 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry specific guidance. The new standards require entities to apportion consideration from contracts to performance obligations on a relative standalone selling price basis, based on a five-step model. Under ASC 606, revenue is recognized when a customer obtains control of a promised good or service and is recognized in an amount that reflects the consideration that the entity expects to receive in exchange for the good or service. In addition, ASC 606 provides guidance on accounting for certain revenue related costs, including costs associated with obtaining and fulfilling a contract. The Company adopted ASC 606 on December 30, 2018, applied using the modified retrospective method. Under this method, (i) the new guidance is applied to customer contracts that are not yet completed as of December 29, 2018, with the cumulative effect of initially applying the new guidance recorded as an adjustment to accumulated deficit on the effective date of adoption, and (ii) the Company’s historical results for all periods prior to December 30, 2018, including for the fiscal three months ended March 31, 2018, are not adjusted. The Company did not elect to apply any permitted practical expedients as part of its adoption.2024 and 2023, respectively.
Recently issued accounting pronouncements
The Company’s adoption of ASC 606 did not substantially change the revenue recognition of its OCS products as applied under the prior revenue guidance, ASC 605, and, as a result, the adoption did not have a material impact on the Company’s consolidated financial statements. Accordingly, transitional disclosures were not presented. The Company’s revenue accounting policies related to ASC 605, which were applied in its reporting of amounts presented for all periods prior to December 30, 2018, were unchanged.
In June 2018,November 2023, the FASB issued ASUNo. 2018-07, Compensation – Stock Compensation 2023-07, Segment Reporting (Topic 718),280): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 is intended to simplify aspects of share-based compensation issuedto non-employees by making the guidance consistent with the accounting for employee share-based compensation. ForReportable Segment Disclosures, which requires public entitiesASU 2018-07 was to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to be adoptedapply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis. ASU 2023-07 is effective for annual periodsfiscal years beginning after December 15, 2018, including interim periods within those fiscal years. For nonpublic entities,ASU 2018-07 is effective for annual periods beginning after December 15, 2019. Early adoption is permitted for all entities but no earlier than the Company’s adoption ofASU 2014-09. The Companyearly-adopted ASU 2018-07 on December 30, 2018 and the adoption did not have a material impact on the Company’s financial statements.
Recently Issued Accounting Pronouncements
The Company qualifies as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and has elected not to “opt out” of the extended transition related to complying with new or revised accounting standards, which means that when a standard is issued or revised and it has different application dates for public and nonpublic companies, the Company will adopt the new or revised standard at the time nonpublic companies adopt the new or revised standard and will do so until such time that the Company either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company.
In February 2016, the FASB issuedASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to recorda right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less may be accounted for similar to existing guidance for operating leases today. For public entities, the guidance is effective for annual reporting periods beginning after December 15, 2018 and for interim periods within those fiscal years. For nonpublic entities, the guidance is effective for annual reporting periods beginning after December 15, 20192023, and for interim periods within fiscal years beginning after December 15, 2020. Early2024, with early adoption is permitted for all entities.ASU 2016-02 initially required adoption using a modified retrospective approach, under which all years presented in the financial statements would be prepared under the revised guidance. In July 2018, the FASB issuedASU No. 2018-11, Leases (Topic 842), which added an optional transition method under which financial statements may be prepared under the revised guidance for the year of adoption, but not for prior years. Under the latter method, entities will recognizea cumulative catch-up adjustment to the opening balance of retained earnings in the period of adoption. The Company will adoptASU 2016-02 in its fiscal year 2020, which begins on December 29, 2019, in accordance with the nonpublic company requirements.permitted. The Company is currently evaluatingassessing the methodimpact of the adoption of this guidance andguidance.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities, on an annual basis, to provide disclosure of specific categories in their tax rate reconciliations, as well as disclosure of income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently assessing the impact thatof the adoption ofASU 2016-02 will have on this guidance.
8
3. Acquisition of Summit
On August 16, 2023, the Company acquired Summit pursuant to the terms of an equity purchase agreement. Summit was a charter flight operator based in Bozeman, Montana. The acquisition enabled TransMedics to add aviation transportation services to its consolidated financial statements.
3. Fair ValueThe acquisition was accounted for as a purchase of Financial Assets and Liabilities
The following tables presenta business under ASC Topic 805, Business Combinations. Under the Company’s fair value hierarchy for itsacquisition method of accounting, the assets and liabilities that are measuredwere recorded as of the acquisition date, at their respective fair values. The preliminary purchase consideration of $14.9 million reflected an upfront cash payment of $18.0 million, net of cash acquired and working capital adjustments. The Company’s consolidated financial statements reflect the preliminary allocation of the purchase price to the assets and liabilities assumed based on fair value on a recurring basis (in thousands):as of the date of the acquisition.
| Fair Value Measurements at March 30, 2019 Using: | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Cash equivalents: | ||||||||||||||||
Money market funds | $ | 4,655 | $ | — | $ | — | $ | 4,655 | ||||||||
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| $ | 4,655 | $ | — | $ | — | $ | 4,655 | |||||||||
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Liabilities: | ||||||||||||||||
Preferred stock warrant liability | $ | — | $ | — | $ | 625 | $ | 625 | ||||||||
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| Fair Value Measurements at December 29, 2018 Using: | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Cash equivalents: | ||||||||||||||||
Money market funds | $ | 13,586 | $ | — | $ | — | $ | 13,586 | ||||||||
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| $ | 13,586 | $ | — | $ | — | $ | 13,586 | |||||||||
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Liabilities: | ||||||||||||||||
Preferred stock warrant liability | $ | — | $ | — | $ | 898 | $ | 898 | ||||||||
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Money market funds were valued by the Company based on quoted market prices, which represent a Level 1 measurement within the fair value hierarchy. During the fiscal three months ended March 30, 2019 and March 31, 2018, there were no transfers between Level 1, Level 2 and Level 3.
The preferred stock warrant liability in the table above consistedCompany's estimate of preliminary purchase consideration is subject to change upon finalizing working capital adjustments. The Company’s preliminary estimate of the fair value of warrantsspecifically identifiable assets acquired and liabilities assumed as of the date of acquisition is subject to purchase Series D and Series F convertible preferred stock (see Note 7) and was based on significant inputs not observable inchange upon finalizing its valuation analysis. During the market, which represent a Level 3 measurement withinthree months ended December 31, 2023, the Company recorded an adjustment to goodwill of $0.3 million, representing an adjustment to its estimate of the fair value hierarchy. The Company’s valuationof accounts payable and deferred tax liabilities as of the preferred stock warrants utilized the Black-Scholes option-pricing model,acquisition date. The final determinations, which incorporates assumptions and estimatesare expected to value the preferred stock warrants. The Company assesses these assumptions and estimates on a quarterly basis asbe completed by August 2024, may result in additional information impacting the assumptions is obtained. Changeschanges in the fair value of certain assets and liabilities as compared to these preliminary estimates.
The following table summarizes the preferred stock warrants are recognized as other income (expense)preliminary allocation of the purchase price (in thousands):
Assets Acquired and Liabilities Assumed: |
|
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| |
Accounts receivable |
| $ | 2,089 |
|
Other current assets |
|
| 1,040 |
|
Property, plant and equipment |
|
| 5,922 |
|
Right-of-use asset |
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| 288 |
|
Intangible assets |
|
| 2,430 |
|
Goodwill |
|
| 11,990 |
|
Total assets acquired |
|
| 23,759 |
|
Accounts payable and other current liabilities |
|
| (6,917 | ) |
Deferred tax liabilities |
|
| (1,660 | ) |
Operating lease liabilities |
|
| (288 | ) |
Total allocation of purchase price consideration, |
| $ | 14,894 |
|
Property, plant and equipment consist primarily of flight school aircraft and construction-in-progress related to a commercial aircraft hangar that Summit is in the consolidated statementsprocess of operations.
constructing. Flight school aircraft were valued using market comparisons adjusted for aircraft-specific condition. The quantitative elements associated with the Company’s Level 3 inputs impacting the fair value measurementof construction-in-progress approximated its cost.
Intangible assets consisted primarily of a customer relationship asset of $2.3 million related to flight school revenue and was valued using the multi-period excess earnings method, a form of the preferred stock warrant liabilityincome approach. Significant assumptions and estimates utilized in this model include the fair value per sharerevenue growth rate, contract renewal probability and the discount rate. Intangible assets are being amortized on a straight-line basis to selling, general and administrative over their estimated useful lives of 12 years as of the underlying Series D and Series F convertible preferred stock,acquisition date.
Goodwill was recognized for the remaining contractual term of the warrants, risk-free interest rate, expected dividend yield and expected volatility of theexcess purchase price of the underlying preferred stock. The most significant assumption in the Black-Scholes option-pricing model impactingover the fair value of the preferred stock warrantsnet assets acquired. Goodwill is primarily attributable to the workforce of the acquired business (which is not eligible for separate recognition as an identifiable intangible asset) and anticipated synergies between Summit’s existing business processes and the NOP. Goodwill from the acquisition is included within the Company’s one reporting unit and is included in the Company’s enterprise-level annual review for impairment. Goodwill resulting from the acquisition is not deductible for tax purposes.
Deferred tax liabilities relate to the differences between the fair value recognized in purchase accounting and the tax basis of property, plant and equipment and intangible assets. The net deferred tax liability is a source of income to support the recognition of a portion of existing deferred tax assets. Therefore, the Company recorded a tax benefit of $1.7 million during the three months ended September 30, 2023 for the release of a portion of its valuation allowance related to the net deferred tax liabilities recorded in purchase accounting.
9
4. Inventory
Inventory consisted of the Company’s convertible preferred stockfollowing (in thousands):
|
| March 31, 2024 |
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| December 31, 2023 |
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Raw materials |
| $ | 25,520 |
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| $ | 25,823 |
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Work-in-process |
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| 4,525 |
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| 3,806 |
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Finished goods |
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| 18,496 |
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| 14,606 |
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| $ | 48,541 |
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| $ | 44,235 |
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5. Property, Plant and Equipment, Net
Property, plant and equipment, net consisted of the following (in thousands):
|
| March 31, 2024 |
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| December 31, 2023 |
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Transplant aircraft |
| $ | 181,236 |
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| $ | 141,855 |
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Flight school aircraft |
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| 3,484 |
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| 3,484 |
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OCS Consoles |
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| 15,369 |
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| 14,491 |
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Manufacturing equipment |
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| 7,669 |
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| 6,898 |
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Computer equipment and software |
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| 3,283 |
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| 3,021 |
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Laboratory equipment |
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| 2,344 |
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| 1,875 |
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Office, trade show and training equipment |
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| 4,200 |
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| 4,006 |
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Leasehold improvements |
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| 13,938 |
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| 13,354 |
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Construction-in-progress |
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| 8,397 |
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| 6,250 |
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| 239,920 |
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| 195,234 |
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Less: Accumulated depreciation and amortization |
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| (25,499 | ) |
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| (21,293 | ) |
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| $ | 214,421 |
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| $ | 173,941 |
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During the three months ended March 31, 2024 and 2023, total depreciation and amortization expense was $4.3 million and $1.3 million, respectively. Construction-in-progress as of each remeasurement date. The Company determines the fair value per shareMarch 31, 2024 and December 31, 2023 primarily relates to construction of a commercial aircraft hangar at Bozeman Yellowstone International Airport in Bozeman, Montana. Substantially all of the underlying preferred stock by taking into considerationCompany's property, plant and equipment are held in the most recent salesUnited States.
6. Goodwill and Intangible Assets
The carrying amount of its convertible preferred stock, results obtained from third-party valuationsgoodwill was $12.0 million as of March 31, 2024 and additional factorsDecember 31, 2023 and related to the Company’s acquisition of Summit. Goodwill is not amortized, but instead is reviewed for impairment at least annually or more frequently when events and circumstances occur indicating that the Company deems relevant. As of March 30, 2019, the fair value of each share of Series D and Series F convertible preferred stock was $4.79 per share. As of December 29, 2018, the fair value of each share of Series D and Series F convertible preferred stock was $6.21 per share and $5.73 per share, respectively. The Company historically has been a private company and lacks company-specific historical and implied volatility information of its stock. Therefore, it estimates its expected stock volatility based on the historical volatility of publicly traded peer companies for a term equal to the remaining contractual term of the warrants. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the warrants. The Company has estimated a 0% dividend yield based on the expected dividend yield and the fact thatrecorded goodwill may be impaired. To date, the Company has never paid or declared dividends.
The following table provides a roll-forwardAcquired intangible assets consisted of the aggregate fair valuesfollowing (in thousands):
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| March 31, 2024 |
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| Weighted Average Useful Life |
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| Gross Amount |
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| Accumulated Amortization |
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| Carrying Value |
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| (in years) |
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Customer relationship |
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| 12 |
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| $ | 2,320 |
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| $ | 121 |
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| $ | 2,199 |
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Other |
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| 12 |
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| 110 |
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| 6 |
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| 104 |
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|
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|
| $ | 2,430 |
|
| $ | 127 |
|
| $ | 2,303 |
| |
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|
| December 31, 2023 |
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| Weighted Average Useful Life |
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| Gross Amount |
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| Accumulated Amortization |
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| Carrying Value |
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| (in years) |
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Customer relationship |
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| 12 |
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| $ | 2,320 |
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| $ | 73 |
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| $ | 2,247 |
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Other |
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| 12 |
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|
| 110 |
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| 3 |
|
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| 107 |
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|
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|
| $ | 2,430 |
|
| $ | 76 |
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| $ | 2,354 |
| |
10
Amortization expense is recorded within selling, general and administrative expense. Amortization expense was $0.1 million for the three months ended March 31, 2024. Future amortization expense of the Company’s preferred stock warrants for which fair valueintangible assets as of March 31, 2024 is determined by Level 3 inputsexpected to be as follows (in thousands):
| Preferred Stock Warrant Liability | ||||
Fair value at December 29, 2018 | $ | 898 | ||
Change in fair value | (273 | ) | ||
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| |||
Fair value at March 30, 2019 | $ | 625 | ||
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Year Ending December 31, |
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| |
2024 (nine months) |
| $ | 152 |
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2025 |
|
| 203 |
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2026 |
|
| 203 |
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2027 |
|
| 203 |
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2028 |
|
| 203 |
|
Thereafter |
|
| 1,339 |
|
|
| $ | 2,303 |
|
4.
7. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
| March 30, 2019 | December 29, 2018 |
|
| March 31, 2024 |
|
| December 31, 2023 |
| |||||||||
Accrued payroll and related expenses |
|
| $ | 16,413 |
|
| $ | 20,300 |
| ||||||||
Accrued transportation costs |
|
|
| 4,902 |
|
|
| 4,381 |
| ||||||||
Accrued research, development and clinical trials expenses | $ | 2,580 | $ | 1,853 |
|
|
| 2,479 |
|
|
| 1,771 |
| ||||
Accrued payroll and related expenses | 2,491 | 1,729 | |||||||||||||||
Accrued financing fees (Note 9) | 1,466 | 1,466 | |||||||||||||||
Accrued professional fees | 1,002 | 549 | |||||||||||||||
Accrued premium for manufacturing contract | 1,067 | 1,089 | |||||||||||||||
Accrued other | 1,383 | 492 |
|
|
| 13,058 |
|
|
| 11,769 |
| ||||||
|
|
| $ | 36,852 |
|
| $ | 38,221 |
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| $ | 9,989 | $ | 7,178 | ||||||||||||||
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| ||||||||||||||||
5. Inventory
8. Long-Term Debt and Financing Arrangements
InventoryConvertible Senior Notes
The Notes consisted of the following (in thousands):
|
| March 31, 2024 |
|
| December 31, 2023 |
| ||
Principal amount of convertible senior notes |
| $ | 460,000 |
|
| $ | 460,000 |
|
Less: Current portion of convertible senior notes |
|
| — |
|
|
| — |
|
Convertible senior notes, net of current portion |
|
| 460,000 |
|
|
| 460,000 |
|
Debt discount, net of accretion |
|
| (12,165 | ) |
|
| (12,860 | ) |
Convertible senior notes, net of discount and current portion |
| $ | 447,835 |
|
| $ | 447,140 |
|
On May 11, 2023, the Company issued $460.0 million aggregate principal amount of the Notes, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act, pursuant to an indenture dated May 11, 2023, by and between the Company and U.S. Bank Trust Company, National Association (the “Indenture”).
The initial conversion price of the Notes is approximately $94.00 per share of common stock, which represents a premium of approximately 32.5% over the closing price of the Company’s common stock on May 8, 2023. The Notes will mature on June 1, 2028, unless earlier repurchased, redeemed or converted. The Company used $52.1 million of the proceeds from the sale of the Notes to fund the cost of entering into capped call transactions, described below. The proceeds from the issuance of the Notes were approximately $393.3 million, net of capped call transaction costs of $52.1 million and initial purchaser discounts and other debt issuance costs totaling $14.6 million.
| March 30, 2019 | December 29, 2018 | |||||||
Raw materials | $ | 4,179 | $ | 3,817 | ||||
Work-in-process | 1,097 | 882 | ||||||
Finished goods | 6,018 | 4,578 | ||||||
|
|
|
| |||||
| $ | 11,294 | $ | 9,277 | |||||
|
|
|
| |||||
The Notes bear interest at a rate of 1.50% per year and interest is payable semiannually in arrears on June 1 and December 1 of each year. The initial conversion rate is 10.6388 shares of common stock per $1,000 principal amount of the Notes, which represents an initial conversion price of approximately $94.00 per share of common stock. The conversion rate and conversion price are subject to customary adjustments upon the occurrence of certain events as described in the Indenture.
11
Before March 1, 2028, noteholders have the right to convert their Notes only upon the occurrence of certain events, including certain corporate events, and during the five business days immediately after any ten consecutive trading days in which the trading price per $1,000 principal amount of Notes is less than ninety eight percent (98%) of the as converted value. Additionally, the noteholder can convert their Notes during any calendar quarter (and only during such calendar quarter), commencing after the calendar quarter ending on September 30, 2023 but before March 1, 2028, provided the last reported sale price of the common stock for at least 20 trading days is greater than or equal to 130% of the conversion price during the 30 consecutive trading days ending on the last trading day of a calendar quarter. From and after March 1, 2028, noteholders may convert their Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. The Company has the right to elect to settle conversions either in cash, shares or in a combination of cash and shares of its common stock.
Prior to June 8, 2026, the Notes will not be redeemable. On or after June 8, 2026, the Company may redeem for cash all or any portion of the Notes (subject to the partial redemption limitation set forth in the Indenture), at its option, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption. In addition, calling any Note for redemption will constitute a “Make-Whole Fundamental Change” (as defined in the Indenture) with respect to that Note, in which case the conversion rate applicable to the conversion of that Note will be increased in certain circumstances if it is converted after it is called for redemption.
During the fiscal three months ended March 30, 201931, 2024, the Company recognized $2.4 million in interest expense related to the 1.50% cash coupon of the Notes and amortization of the debt issuance costs. During the three months ended March 31, 2018,2024, the Company madenon-cash transfers of OCS Consoles from inventory to property and equipment (OCS Consoles loaned to customers) of $0.4 million and $0.3 million, respectively.
6. Long-Term Debt
TransMedics has a credit agreement (the “Credit Agreement”) with OrbiMed Royalty Opportunities II, LP (“OrbiMed”), entered into in June 2018, pursuant to which TransMedics borrowed $35.0 million.effective interest rate on the outstanding Notes was approximately 2.1%. As of March 30, 201931, 2024, the estimated fair value of the Notes was $506.4 million. The fair value was determined based on the quoted price of the last trade of the Notes prior to the end of the reporting period in an inactive market, which is considered as Level 2 in the fair value hierarchy.
Capped Call Transactions
In connection with the offering of the Notes, the Company entered into privately negotiated capped call transactions (the “Capped Calls”) with certain financial institution counterparties (the “Option Counterparties”). The Capped Calls are generally intended to reduce or offset the potential dilution to the common stock upon any conversion of the Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price. For accounting purposes, the Capped Calls are separate transactions, and December 29, 2018, long-termnot part of the terms of the Notes. The Capped Calls are recorded in stockholders’ equity and are not accounted for as derivatives. The cost of $52.1 million incurred to purchase the Capped Calls was recorded as a reduction to common stock in the accompanying consolidated balance sheets.
Each of the Capped Calls has an initial strike price of approximately $94.00 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Notes. The Capped Calls have an initial cap price of $141.88 per share, subject to certain adjustments. The Capped Calls cover, subject to anti-dilution adjustments, approximately 4,893,848 shares of the Company’s common stock, which is the same number of shares of the Company’s common stock initially underlying the Notes. The Capped Calls are subject to automatic exercise over a 40 trading day period commencing on April 3, 2028, subject to earlier termination under certain circumstances.
Long-term debt
Long-term debt consisted of the following (in thousands):
| March 30, 2019 | December 29, 2018 |
| March 31, 2024 |
|
| December 31, 2023 |
| |||||||||
Principal amount of long-term debt | $ | 35,000 | $ | 35,000 |
| $ | 60,000 |
|
| $ | 60,000 |
| ||||
Less: Current portion of long-term debt |
|
| — |
|
|
| — |
| ||||||||
Long-term debt, net of current portion |
|
| 60,000 |
|
|
| 60,000 |
| ||||||||
Debt discount, net of accretion | (1,355 | ) | (1,424 | ) |
|
| (859 | ) |
|
| (936 | ) | ||||
Accruedend-of-term payment | 140 | 94 | ||||||||||||||
|
| |||||||||||||||
Long-term debt, net of discount | $ | 33,785 | $ | 33,670 | ||||||||||||
|
| |||||||||||||||
Long-term debt, net of discount and current portion |
| $ | 59,141 |
|
| $ | 59,064 |
| ||||||||
In July 2022, the Company entered into a credit agreement with Canadian Imperial Bank of Commerce (“CIBC”), as amended by the First Amendment to Credit Agreement, dated as of May 8, 2023, by and among the Company and CIBC (the “First Amendment”), the Second Amendment to Credit Agreement, dated as of June 23, 2023, by and among the Company and CIBC (the “Second Amendment”) and the Third Amendment to Credit Agreement, dated as of November 9, 2023, by and among the Company and CIBC (the “Third Amendment”) (as amended, the “CIBC Credit Agreement”), pursuant to which the Company borrowed $60.0 million.
12
Borrowings under the CIBC Credit Agreement bear interest at an annual rate equal to either, at the London Interbank Offered Rate (“LIBOR”),Company’s option, (i) the secured overnight financing rate for an interest period selected by the Company, subject to a minimum of 1.0% and a maximum of 4.0%1.50%, plus 8.5% (the “Applicable Margin”),2.0% or (ii) 1.0% plus the higher of a) the prime rate subject in the aggregate to a maximum interest rateminimum of 11.5%4.0% or b) the Federal Funds Effective Rate, plus 0.5%. In addition, borrowings underAt the Credit Agreement bearpaid-in-kind (“PIK”) interest at an annual rate equal to the amount by which LIBOR plus the Applicable Margin exceeds 11.5%, but not to exceed 12.5%. The PIK interest is added to the principal amount of the borrowings outstanding at the end of each quarter until the maturity date of the Credit Agreement in June 2023. Borrowings under the Credit Agreement are repayable in quarterly interest-only payments until the maturity date, at which time all principal and accrued interest is due and payable. At itsCompany’s option, the Company may prepay borrowings outstanding borrowings under the CIBC Credit Agreement, subject to a prepayment premiumfee of 9.0% of1.0% if paid on or after 12 months after the principal amount of any prepayment withinclosing date but prior to 24 months after the first three years, which percentage decreases annually until it reaches zero at the end of three years. The Company is also required to make a final payment in an amount equal to 3.0% of the principal amount of any prepayment or repayment. The final payment and debt discount amounts are being accreted to interest expense over the term of the Credit Agreement using the effective interest method.
All obligations under the CIBC Credit Agreement are guaranteed by the Company and each of its material subsidiaries. All obligations of the Company and each guarantor are secured by substantially all of the Company’s and each guarantor’s assets, including their intellectual property, subject to certain exceptions, including a perfected security interest in substantially all tangible and intangible assets ofexceptions. Under the Company and each guarantor. Under theCIBC Credit Agreement, the Company has agreed to customary representations and warranties, events of default and certain affirmative and negative covenants to which it will remain subject until maturity. The financial covenants include, maintainingamong other covenants, (x) a requirement to maintain a minimum liquidity amount of $3.0 million; the requirement, on an annual basis, to deliver to OrbiMed annual audited financial statements with an unqualified audit opinion fromgreater of either (i) the Company’s independent registered public accounting firm; and restrictions on the Company’s activities, including limitations on dispositions, mergers or acquisitions; encumbering its intellectual property; incurring indebtedness or liens; paying dividends; making certain investments; and engaging in certain other business transactions. With respect to its consolidated financial statementsadjusted EBITDA loss (or gain), as defined, for the fiscal year ended December 29, 2018, the Company receivedtrailing four month period (only if EBITDA is negative) and (ii) $10.0 million, and (y) a waiverrequirement to maintain total net revenue of at least 75% of the covenant requiring deliverylevel set forth in the total revenue plan presented to OrbiMed of audited financial statements with an unqualified audit opinion. As of March 30, 2019, the Company was in compliance with the minimum liquidity covenant of the Credit Agreement.
CIBC.The obligations under the CIBC Credit Agreement are subject to acceleration upon the occurrence of specified events of default, including payment default, change in control, bankruptcy, insolvency, certain defaults under other material debt, certain events with respect to governmental approvals (if such events could cause a material adverse change in the Company’s business), failure to comply with certain covenants including the minimum liquidity and unqualified audit opinion covenants, and a material adverse change in the Company’s business, operations or other financial condition.
Upon As of March 31, 2024, the occurrenceCompany was in compliance with all covenants of the CIBC Credit Agreement. During the continuance of an event of default, and until suchthe interest rate per annum will be equal to the rate that would have otherwise been applicable at the time of the event of default is no longer continuing, the Applicable Margin will increase by 4.0% per annum.plus 2.0%. If an event of default (other than certain events of bankruptcy or insolvency) occurs and is continuing, OrbiMedCIBC may declare all or any portion of the outstanding principal amount of the borrowings plus accrued and unpaid interest to be due and payable. Upon the occurrence of certain events of bankruptcy or insolvency, all of the outstanding principal amount of the borrowings plus accrued and unpaid interest will automatically become due and payable. In addition, the Company may be required to prepay outstanding borrowings, subject to certain exceptions, with portions of net cash proceeds of certain asset sales and certain casualty and condemnation events.
As of March 30, 2019, the interest rate applicable to borrowings under the Credit Agreement was 11.3%. During the fiscal three months ended March 30, 2019,31, 2024 and 2023, the Company recognized $1.2 million and $1.1 million, respectively, in interest expense related to the CIBC borrowings. During the three months ended March 31, 2024 and 2023, the weighted average effective interest rate on outstanding borrowings under the CIBC Credit Agreement was approximately 13.1%.
7. Convertible Preferred Stock7.8% and Warrants to Purchase Preferred Stock
Convertible Preferred Stock
TransMedics issuedSeries A-1 convertible preferred stock (the“Series A-1 Preferred Stock”)7.3%, Series B convertible preferred stock (the “Series B Preferred Stock”), SeriesB-1 convertible preferred stock (the “SeriesB-1 Preferred Stock”), Series C convertible preferred stock (the “Series C Preferred Stock”), Series D convertible preferred stock (the “Series D Preferred Stock”), Series E convertible preferred stock (the “Series E Preferred Stock”) and Series F convertible preferred stock (the “Series F Preferred Stock”).
respectively. As of March 30, 2019 and December 29, 2018, preferred stock consisted of31, 2024, the following (in thousands, except share amounts):stated interest rate applicable to borrowings under the CIBC Credit Agreement was 7.3%.
| Preferred Stock Authorized | Preferred Stock Issued and Outstanding | Carrying Value | Liquidation Preference | Common Stock Issuable Upon Conversion | ||||||||||||||||
SeriesA-1 Preferred Stock | 13,332 | 13,332 | $ | 3,333 | $ | 33 | 984 | |||||||||||||
Series B Preferred Stock | 3,771,020 | 3,624,650 | 10,691 | 12,382 | 286,102 | |||||||||||||||
SeriesB-1 Preferred Stock | 2,560,245 | 2,560,245 | 8,746 | 8,746 | 202,086 | |||||||||||||||
Series C Preferred Stock | 6,198,057 | 6,198,057 | 14,970 | 15,495 | 1,770,873 | |||||||||||||||
Series D Preferred Stock | 14,740,000 | 14,565,000 | 34,868 | 72,825 | 4,161,428 | |||||||||||||||
Series E Preferred Stock | 6,562,232 | 6,562,232 | 29,865 | 29,966 | 1,874,923 | |||||||||||||||
Series F Preferred Stock | 16,931,168 | 16,880,624 | 84,046 | 84,234 | 4,823,028 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| 50,776,054 | 50,404,140 | $ | 186,519 | $ | 223,681 | 13,119,424 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Immediately prior to the closing of the IPO on May 6, 2019, pursuant to the Corporate Reorganization, all of the outstanding shares of convertible preferred stock of TransMedics were converted into 13,119,424 shares of common stock of TransMedics Group (see Note 14).
Warrants to Purchase Preferred Stock
In connection with prior debt agreements and amendments to such agreements, TransMedics had outstanding warrants to purchase shares of Series D Preferred Stock and Series F Preferred Stock as of March 30, 2019 and December 28, 2018. The Company classified all of its preferred stock warrants as a liability on its consolidated balance sheets because the warrants were freestanding financial instruments that could require TransMedics to transfer assets upon exercise. The liability associated with each of these warrants was initially recorded at fair value upon the issuance date of each warrant and subsequently remeasured to fair value at each reporting date. The fair value of these warrants was determined using the Black-Scholes option-pricing model (see Note 3), and the resulting change in fair value of the warrant liability was recorded in other income (expense) in the Company’s consolidated statements of operations (see Note 3).
Immediately prior to the closing of the IPO on May 6, 2019, pursuant to the Corporate Reorganization, all of the outstanding preferred stock warrants of TransMedics were converted into warrants to purchase an aggregate of 64,440 shares of common stock of TransMedics Group at a weighted average exercise price of $10.70 per share and an expiration date of May 6, 2024 (see Note 14). Upon conversion, the fair value of the warrant liability at that time was reclassified to common stock. As a result, subsequent to the closing of the Company’s IPO, the Company will no longer remeasure the fair value of the warrant liability at each reporting date.
8.9. Stock-Based Compensation
20142019 Stock Incentive Plan
The Company’s 20142019 Stock Incentive Plan (the “2014“2019 Plan”) permittedprovides for the Company to sell or issuegrant of incentive stock options, or nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, unrestricted stock units, and other stock-based awards to employees, directors, andnon-employee consultants of the Company.Company and its subsidiaries. The 2014number of shares of common stock of TransMedics Group initially available for issuance under the 2019 Plan was administered by3,428,571 shares, plus the boardnumber of directors or, at the discretion of the board of directors, by a committee of the board of directors. The exercise prices, vesting and other restrictions were determined at the discretion of the board of directors, or its committee if so delegated.
Stock options granted under the 2014 Plan with service-based vesting conditions typically vest over three or four years and expire after ten years. As of March 30, 2019, 73,960 shares remained available for future issuance. Following the effectiveness of the Company’s 2019 Stock Incentive Plan (the “2019 Plan”) in April 2019 (see Note 14), no future awards will be made under the 2014 Plan. Additionally, shares underlying awards under the previously outstanding 2014 Stock Incentive Plan (the “2014 Plan”), not to exceed 1,595,189 shares, that expire or are terminated, surrendered, or canceledcancelled without the delivery of shares, are forfeited to or repurchased by TransMedics Group or otherwise become available again for grant. Since the effectiveness of the Company’s 2019 Plan in April 2019, no awards have been or will be made under the 2014 Plan.
13
Shares withheld in payment of the exercise or purchase price of an award or in satisfaction of tax withholding requirements, and the shares covered by a stock appreciation right for which any portion is settled in stock, will reduce the number of shares available for future awardsissuance under the 2019 Plan. In addition, the number of shares available for issuance under the 2019 Plan (i) will not be increased by any shares delivered under the 2019 Plan that are subsequently repurchased using proceeds directly attributable to stock option exercises and (ii) will not be reduced by any awards that are settled in cash or that expire, become unexercisable, terminate or are forfeited to or repurchased by TransMedics Group without the issuance of stock under the 2019 Plan. On May 25, 2023, the shareholders of the Company approved the Amended and Restated TransMedics Group, Inc. 2019 Stock Incentive Plan (the “Amended Plan”) to among other things, (i) increase the number of shares of the Company’s common stock available for issuance thereunder by 1,000,000 shares, (ii) prohibit the payment of dividend or dividend equivalents on a current basis with respect to unvested awards, (iii) extend the expiration date of the Amended Plan until June 1, 2033 and (iv) increase the annual limits on non-employee director compensation. As of March 31, 2024, 929,897 shares of common stock were available for issuance under the Amended Plan.
2019 Employee Stock Purchase Plan
Pursuant to the Company’s 2019 Employee Stock Purchase Plan (the “2019 ESPP”), certain employees of the Company are eligible to purchase common stock of the Company at a reduced price during offering periods. The 2019 ESPP permits participants to purchase common stock using funds contributed through payroll deductions, subject to the limitations set forth in the Internal Revenue Code, at a purchase price of 85% of the lower of the closing price of the Company’s common stock on the first trading day of the offering period or the closing price on the applicable purchase date, which is the final trading day of the applicable offering period. A total of 371,142 shares of the Company’s common stock were initially reserved for issuance under the 2019 ESPP. During the three months ended March 31, 2024, 9,506 shares of common stock were issued under the 2019 ESPP and as of March 31, 2024, 255,053 shares of common stock remained available for issuance.
2021 Inducement Plan
In August 2021, the Company’s board of directors approved the TransMedics Group, Inc. Inducement Plan (the “Inducement Plan”). Pursuant to the terms of the Inducement Plan, the Company may grant nonqualified stock options, stock appreciation rights, restricted stock, unrestricted stock, restricted stock unit awards and performance awards to individuals who were not previously employees or directors of the Company or individuals returning to employment after a bona fide period of non-employment with the Company. A total of 1,000,000 shares of the Company’s common stock were initially available for issuance under the Inducement Plan. On November 2, 2023, the Company's Board of Directors approved an increase of 500,000 to shares available under the Inducement Plan. As of March 31, 2024, 564,538 shares of common stock remained available for issuance under the Inducement Plan.
Stock Option Activity
During the three months ended March 31, 2024, the Company granted options under the 2019 Plan and the Inducement Plan with service-based vesting for the purchase of an aggregate of 304,976 shares of common stock with a weighted average grant-date fair value of $53.48 per share.
Restricted Stock Unit Activity
During the three months ended March 31, 2024, the Company granted 198,860 restricted stock units under the 2019 Plan and the Inducement Plan with service-based vesting conditions and a weighted-average grant-date fair value of $82.77 per share.
Stock-Based Compensation
The Company recorded stock-based compensation expense in the following expense categories of its consolidated statements of operations and comprehensive loss (in thousands):
| Fiscal Three Months Ended |
| Three Months Ended March 31, |
| |||||||||||||
| March 30, 2019 | March 31, 2018 |
| 2024 |
|
| 2023 |
| |||||||||
Cost of revenue | $ | 3 | $ | 1 |
| $ | 364 |
|
| $ | 49 |
| ||||
Research, development and clinical trials expenses | 16 | 8 |
|
| 878 |
|
|
| 518 |
| ||||||
Selling, general and administrative expenses | 38 | 18 |
|
| 5,628 |
|
|
| 3,354 |
| ||||||
|
|
| $ | 6,870 |
|
| $ | 3,921 |
| |||||||
| $ | 57 | $ | 27 | |||||||||||||
|
| |||||||||||||||
9.
14
As of March 31, 2024, total unrecognized compensation cost related to unvested share-based awards was $73.4 million, which is expected to be recognized over a weighted average period of 2.6 years.
10. Net Income (Loss) per Share
Basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period, including potential dilutive common shares assuming the dilutive effect of outstanding stock awards, using the treasury stock method, and outstanding convertible notes, using the if-converted method.
A reconciliation of the numerators and the denominators of the basic and dilutive net income (loss) per common share computations are as follows (in thousands, except share and per share amounts):
|
| Three Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Numerator: |
|
|
|
|
|
| ||
Net income (loss) |
| $ | 12,197 |
|
| $ | (2,636 | ) |
|
|
|
|
|
|
| ||
Denominator: |
|
|
|
|
|
| ||
Weighted average basic common shares outstanding |
|
| 32,760,190 |
|
|
| 32,260,267 |
|
Effect of dilutive securities: |
|
|
|
|
|
| ||
Options to purchase common stock |
|
| 1,773,345 |
|
|
| — |
|
Restricted stock units |
|
| 126,797 |
|
|
| — |
|
Warrants to purchase common stock |
|
| 11,379 |
|
|
| — |
|
Restricted stock awards |
|
| 7,184 |
|
|
| — |
|
Weighted average dilutive common shares outstanding |
|
| 34,678,895 |
|
|
| 32,260,267 |
|
|
|
|
|
|
|
| ||
Net income (loss) per share: |
|
|
|
|
|
| ||
Basic |
| $ | 0.37 |
|
| $ | (0.08 | ) |
Diluted |
| $ | 0.35 |
|
| $ | (0.08 | ) |
The Company excluded the following potential common shares, presented based on weighted average shares outstanding, from the computation of diluted net income (loss) per share because including them would have had an anti-dilutive effect:
|
| Three Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Convertible senior notes |
|
| 4,893,848 |
|
|
| — |
|
Options to purchase common stock |
|
| 577,604 |
|
|
| 3,292,968 |
|
Employee stock purchase plan |
|
| 24,413 |
|
|
| 13,021 |
|
Restricted stock units |
|
| 1,356 |
|
|
| 81,293 |
|
Restricted stock awards |
|
| — |
|
|
| 24,315 |
|
Warrants to purchase common stock |
|
| — |
|
|
| 14,440 |
|
|
| 5,497,221 |
|
|
| 3,426,037 |
| |
11. Commitments and Contingencies
Operating Leases
The Company leases its office, laboratory and manufacturing space under two noncancelable non-cancelableoperating leases. There have been no material changes to the Company’s leases that expire in December 2021. The lease agreements include payment escalations, rent holidays and other lease incentives, which are accrued or deferred as appropriate such that rent expense for each lease is recognized on a straight-line basis overduring the respective lease terms, recording deferred rent for rent expense incurred but not yet paid. Rent expense for the fiscal three months ended March 30, 2019 and March 31, 2018 was $0.3 million and $0.3 million, respectively.
Future minimum lease payments under operating leases as of March 30, 2019 are as follows (in thousands):
Fiscal Year Ending: | ||||
December 28, 2019 (remaining 9 months) | $ | 1,162 | ||
December 26, 2020 | 1,570 | |||
December 25, 2021 | 1,589 | |||
|
| |||
| $ | 4,321 | |||
|
| |||
License Agreement with2024. For additional information, please read Note 12 Leases,to the Department of Veterans Affairs
The Company has a license agreement with the Department of Veterans Affairs (the “VA”), entered into in 2002, under which the Company was granted an exclusive, worldwide license under specified patents to make, use, sell and import certain technology usedconsolidated financial statements in the Company’s products and anon-exclusive, worldwide license to make, use, sell and import solutions for use in or with those products. The rights under the license agreement continue until the expiration of the last to expire of the licensed patents. The majority of the licensed U.S. patents expired in 2017, and the foreign patents expired in September 2018. However, the Company has requested a patent term extension for one U.S. patent covered by the VA license agreement, U.S. Patent No. 6,100,082. The Company has been granted an interim patent term extension for this patent. As of March 30, 2019, the Company had not received final approval of the patent extension beyond the interim patent term extension already granted. The maximum extension granted would be through May 2022; however, the length of the patent term extension will be determined by the United States Patent and Trademark Office. The license includes the right to grant sublicenses, subject to approval by the VA and other restrictions, and is subject to the U.S. government’s right to practice the licensed patents on its own behalf without payment of a royalty and obligation to grant certain sublicenses as necessary to fulfill public health, welfare and safety needs. The license agreement also requires the Company to make its products covered by the licensed patents available to the public on reasonable terms and to provide the U.S. government such products at the lowest price.
As consideration Form 10-Kfor the licenses granted by the VA, the Company is obligated to pay tiered royalties ranging from a low single-digit to a mid single-digit percentage on net sales of each product covered by a licensed patent (subject to a minimum aggregate royalty payment of less than $0.1 million per year during each of the first five years after the first commercial sale, after which no minimum is required). Royalties will be paid by the Company on a licensedproduct-by-licensed product andcountry-by-country basis, beginning on the first commercial sale of such licensed product in such country until expiration of the last valid patent claim covering such licensed product in such country. The Company is also responsible for all costs related to the amendment, prosecution and maintenance of the licensed patent rights.
The VA license agreement can be terminated by the Company or the VA only if the other party fails to cure its material breach within a specified period after receiving notice of such breach.
Accrued Financing Fees
In periods prior to 2016, the Company incurred financing fees of $1.5 million for amounts due to its former financial advisors related to the issuance of its Series B Preferred Stock and Series D Preferred Stock. These financing fees are contingently payable in cash only upon an IPO or certain alternative transactions, including a sale of the Company. The Company recorded an accrual of $1.5 million as of March 30, 2019 andended December 29, 2018 related to such contingently payable fees (see Note 4).31, 2023.
15
401(k) Savings Plan
The Company has a defined-contribution savings plan under Section 401(k) of the Internal Revenue Code. This plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on apre-tax basis. Company contributions to the plan may be made at the discretion of the board of directors. As of March 30, 2019 and December 29, 2018,Effective January 1, 2023, the Company had not made any contributionsinstituted an employer matching program for the plan pursuant to which the Company will match 100% of the first 3% of each participating employee’s eligible compensation contributed to the plan and 50% of up to an additional 2% each participating employee’s eligible compensation contributed to the plan. For the three months ended March 31, 2024 and 2023, the Company recorded expense of $0.6 million and $0.3 million, respectively, related to these matching contributions.
Indemnification Agreements
In the ordinary course of business, the Company has agreed to defend and indemnify its customers against third-party claims asserting infringement of certain intellectual property rights, which may include patents, copyrights, trademarks, or trade secrets. The Company’s exposure under these indemnification provisions is generally limited to the total amount paid by theend-customer under the agreement. However, certain agreements include indemnification provisions that could potentially expose the Company to losses in excess of the amount received under the agreement. In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners, and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or services as directors or officers.
The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company is not currently aware of any indemnification claims and had not accrued any liabilities related to such obligations in its consolidated financial statements as of March 30, 2019 or31, 2024 and December 29, 2018.31, 2023.
Unconditional Purchase Commitment
In January 2021, the Company entered into an unconditional $9.5 million purchase commitment, in the ordinary course of business, for goods with specified annual minimum quantities to be purchased through December 2029. The contract is not cancellable without penalty. The remaining purchase commitment as of March 31, 2024 was $6.0 million.
Legal Proceedings
The Company is not currently party to any material legal proceedings. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenseexpenses as incurred the costs related to such legal proceedings.
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12. Revenue
10. Net Loss Per ShareDisaggregated Revenue
Basic and diluted net loss per share attributable to common stockholders was calculated as follows (in thousands, except share and per share amounts):
| Fiscal Three Months Ended | ||||||||
| March 30, 2019 | March 31, 2018 | |||||||
Numerator: | ||||||||
Net loss attributable to common stockholders | $ | (6,895 | ) | $ | (4,901 | ) | ||
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Denominator: | ||||||||
Weighted average common shares outstanding, basic and diluted | 1,418,353 | 1,358,694 | ||||||
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Net loss per share attributable to common stockholders, basic and diluted | $ | (4.86 | ) | $ | (3.61 | ) | ||
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The Company’s potential dilutive securities have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. The Company excludeddisaggregates revenue from contracts with customers related to OCS transplant by organ type and geographical area as it believes this presentation best depicts how the following potential common shares, presentednature, amount, timing and uncertainty of the Company’s revenue and cash flows are affected by economic factors, as shown below (in thousands):
|
| Three Months Ended March 31, |
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| 2024 |
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| 2023 |
| ||
OCS transplant revenue by country by organ(1)(2): |
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United States |
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Lung total revenue |
| $ | 4,706 |
|
| $ | 1,431 |
|
Heart total revenue |
|
| 20,224 |
|
|
| 12,956 |
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Liver total revenue |
|
| 66,926 |
|
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| 23,114 |
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Total United States OCS transplant revenue |
|
| 91,856 |
|
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| 37,501 |
|
All other countries |
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|
|
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| ||
Lung revenue |
|
| 960 |
|
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| 251 |
|
Heart revenue |
|
| 3,131 |
|
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| 3,802 |
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Total all other countries OCS transplant revenue |
|
| 4,091 |
|
|
| 4,053 |
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Total OCS transplant revenue |
| $ | 95,947 |
|
| $ | 41,554 |
|
| March 30, 2019 | March 31, 2018 | |||||||
Convertible preferred stock (as converted to common stock) | 13,119,424 | 13,119,424 | ||||||
Warrants to purchase convertible preferred stock (as converted to common stock) | 64,440 | 106,260 | ||||||
Options to purchase common stock | 1,595,150 | 1,509,564 | ||||||
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| 14,779,014 | 14,735,248 | |||||||
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11. Segment Reporting and Geographic DataSignificant Customers
The Company has determined that it operates in one segment (see Note 2). Financial data by geographical area is summarized as follows (in thousands):
| Fiscal Three Months Ended | ||||||||
| March 30, 2019 | March 31, 2018 | |||||||
Net revenue(1): | ||||||||
United States | $ | 2,953 | $ | 821 | ||||
United Kingdom | 569 | 664 | ||||||
Germany | * | 258 | ||||||
Australia | * | 516 | ||||||
Italy | * | 258 | ||||||
All other countries | 1,154 | 2 | ||||||
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Total net revenue | $ | 4,676 | $ | 2,519 | ||||
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| March 30, 2019 | December 29, 2018 | |||||||
Long-lived assets(2): | ||||||||
United States | $ | 2,837 | $ | 2,567 | ||||
Netherlands | 913 | 907 | ||||||
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Total long-lived assets | $ | 3,750 | $ | 3,474 | ||||
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12. Significant Customer Concentrations
Significant customers are those that accounted for 10%10% or more of the Company’s net revenue or accounts receivable, as set forth inreceivable. For the following tables for the periods presented:
Net revenue:
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Net revenue derived from Company Hthree months ended March 31, 2024 and 2023, no customer accounted for lessmore than 10%10% of revenue. As of March 31, 2024 and December 31, 2023, no customer accounted for more than 10% of accounts receivable.
Payments to Customers
In connection with its clinical trials, the Company makes payments to customers for reimbursement of clinical trial materials and customer’s costs incurred to execute specific clinical trial protocols related to the Company’s netOCS products (reduction of revenue), and payments made to customers to obtain information related to post-approval studies or existing standard-of-care protocols unrelated to the Company's OCS products (operating expenses). For the three months ended March 31, 2024 and 2023, the Company did not record any adjustments to revenue in each ofrelated to such payments. For the periods presented.three months ended March 31, 2024 and 2023, the Company recorded $0.3 million and $0.1 million, respectively, to research and development expense related to these costs.
Accounts receivable:
| March 30, 2019 | December 29, 2018 | |||||||
Company A | * | * | ||||||
Company B | 10 | % | * | |||||
Company C | * | * | ||||||
Company D | * | * | ||||||
Company E | * | * | ||||||
Company F | * | * | ||||||
Company G | 12 | % | 15 | % | ||||
Company H | * | 13 | % | |||||
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13. Related Party Transactions
Employment of Dr. Amira Hassanein
Dr. Amira Hassanein, who serves as Product Director for the Company’s OCS Lung program, is the sister of Dr. Waleed Hassanein, the Company’s President and Chief Executive Officer and a member of the Company’s board of directors. The Company paid Dr. Amira Hassanein less than $0.1approximately $0.1 million in total compensation infor each of the fiscal three months ended March 30, 201931, 2024 and March 31, 20182023, for her services as an employee.
14. Subsequent Events17
Entry into Agreement and Plan of Merger and Reorganization
On April 15, 2019, TransMedics, TransMedics Group and TMDX, Inc. entered into an agreement and plan of merger and reorganization pursuant to which the Corporate Reorganization was effected immediately prior to the closing of the IPO of the common stock of TransMedics Group on May 6, 2019 (see Note 1). As a result of the Corporate Reorganization pursuant to the terms of the agreement and plan of merger and reorganization:
each outstanding share of SeriesA-1 Preferred Stock was converted into shares of common stock of TransMedics Group based on (i) the ratio on which such shares of preferred stock of TransMedics were convertible into shares of common stock of TransMedics according to their terms, determined by dividing the original issue price of $2.50 per share by the conversion price of $9.68, and (ii) the3.5-for-one ratio on which shares of common stock of TransMedics converted into shares of common stock of TransMedics Group in the Corporate Reorganization;
each outstanding share of Series B and SeriesB-1 Preferred Stock was converted into shares of common stock of TransMedics Group based on (i) the ratio on which such shares of preferred stock of TransMedics were convertible into shares of common stock of TransMedics according to their terms, determined by dividing the original issue price of $3.416 per share by the conversion price of $12.365, and (ii) the3.5-for-one ratio on which shares of common stock of TransMedics converted into shares of common stock of TransMedics Group in the Corporate Reorganization;
each outstanding share of Series C, Series D, Series E and Series F Preferred Stock was converted into shares of common stock of TransMedics Group based on (i) theone-for-one ratio on which such shares of preferred stock of TransMedics were convertible into shares of common stock of TransMedics according to their terms and (ii) the3.5-for-one ratio on which shares of common stock of TransMedics converted into shares of common stock of TransMedics Group in the Corporate Reorganization;
each outstanding share of common stock of TransMedics was converted into shares of common stock of TransMedics Group on a3.5-for-one basis;
each outstanding option to purchase shares of common stock of TransMedics was converted into an outstanding option to purchase shares of common stock of TransMedics Group adjusted on a3.5-for-one basis, with a corresponding adjustment to the exercise price; and
each outstanding warrant to purchase shares of Series D and Series F Preferred Stock was converted into a warrant to purchase shares of common stock of TransMedics Group adjusted on a3.5-for-one basis, with a corresponding adjustment to the exercise price.
TransMedics Group 2019 Stock Incentive Plan and Option Grant
On April 15, 2019, TransMedics Group’s board of directors adopted and its sole stockholder approved the 2019 Stock Plan, which became effective on that same date. The 2019 Stock Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, unrestricted stock units and other stock-based awards to employees, directors and consultants of the Company. The number of shares of common stock of TransMedics Group available for issuance under the 2019 Stock Plan is 3,428,571 shares, plus the number of shares underlying awards under the 2014 Plan (not to exceed 1,595,189 shares) that expire or are terminated, surrendered or cancelled without the delivery of shares, are forfeited to or repurchased by TransMedics Group or otherwise become available again for grant under the 2014 Plan. Shares withheld in payment of the exercise or purchase price of an award or in satisfaction of tax withholding requirements, and the shares covered by a stock appreciation right for which any portion is settled in stock, will reduce the number of shares available for issuance under the 2019 Stock Plan. In addition, the number of shares available for issuance under the 2019 Stock Plan (i) will not be increased by any shares delivered under the 2019 Stock Plan that are subsequently repurchased using proceeds directly attributable to stock option exercises and (ii) will not be reduced by any awards that are settled in cash or that expire, become unexercisable, terminate or are forfeited to or repurchased by TransMedics Group without the issuance of stock under the 2019 Stock Plan.
In connection with the IPO, the Company’s compensation committee granted options to purchase an aggregate of 480,214 shares of common stock at an exercise price equal to the IPO price of $16.00 per share under the 2019 Plan. The aggregate grant-date fair value of the option awards was $3.4 million, which is expected to be recognized as stock-based compensation expense over a weighted average period of approximately four years.
TransMedics Group 2019 Employee Stock Purchase Plan
On April 15, 2019, TransMedics Group’s board of directors adopted and its sole stockholder approved the 2019 Employee Stock Purchase Plan (the “2019 ESPP”), which became effective that same date. A total of 371,142 shares of common stock of TransMedics Group are reserved for issuance under the 2019 ESPP.
TransMedics Group 2019 Cash Incentive Plan
On April 15, 2019, TransMedics Group’s board of directors adopted and its sole stockholder approved the 2019 Cash Incentive Plan (the “2019 Cash Plan”), which became effective on that same date. The 2019 Cash Plan provides for the grant of cash-based awards to employees of TransMedics Group and its subsidiaries. The maximum amount that may be paid to any participant in any calendar year pursuant to awards granted under the 2019 Cash Plan is $2.0 million.
Initial Public Offering
On May 6, 2019, the Company completed its IPO, pursuant to which it issued and sold 6,543,500 shares of common stock, inclusive of 853,500 shares sold by the Company pursuant to the full exercise of the underwriters’ option to purchase additional shares. The aggregate net proceeds received by the Company from the IPO were $97.4 million, after deducting underwriting discounts and commissions but before deducting other offering costs.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report onForm 10-Q and our final prospectusAnnual Report on Form 10-K for our IPOthe year ended December 31, 2023, as filed pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended ( the “Securities Act”), with the SEC on May 2, 2019February 27, 2024 (the “Final Prospectus”“2023 Form 10-K”). Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth under “Risk Factors” in the Final Prospectus,“Item 1A. Risk Factors” section of this Quarterly Report on Form 10-Q and the “Item 1A. Risk Factors” section of our 2023 Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysisanalysis.
Overview
We are a commercial-stage medical technology company transforming organ transplant therapy forend-stage organ failure patients across multiple disease states. We developed the OCS to replace adecades-old standard of care that we believe is significantly limiting access to life-saving transplant therapy for hundreds of thousands of patients worldwide. Our innovative OCS technology replicates many aspects of the organ’s natural living and functioning environment outside of the human body. As such, the OCS represents a paradigm shift that transforms organ preservation for transplantation from a static state to a dynamic environment that enables new capabilities, including organ optimization and assessment. We have also developed our NOP, an innovative turnkey solution to provide outsourced organ retrieval, OCS organ management and logistics services, to provide transplant programs in the United States with a more efficient process to procure donor organs with the OCS. In 2023, we enhanced our NOP offering with the addition of a logistics team to expand our transportation logistics capabilities. Our logistics services include aviation transportation, ground transportation, and other coordination activity. We believe our substantial bodythe use of clinical evidencethe OCS combined with the NOP has demonstrated the potential for the OCS to significantly increase the number of organ transplants and improve post-transplant outcomes.
We developed the OCS to comprehensively address the major limitations of cold storage. The OCS is a portable organ perfusion, optimization and monitoring system that utilizes our proprietary and customized technology to replicate near-physiologic conditions for donor organs outside of the human body. We designed the OCS technology platform to perfuse donor organs with warm, oxygenated, nutrient-enriched blood, while maintaining the organs in a living, functioning state; the lung is breathing, the heart is beating and the liver is producing bile. Because the OCS significantly reduces injurious ischemic time on donor organs as compared to cold storage and enables the optimization and assessment of donor organs, it has demonstrated improved clinical outcomes relative to cold storage and offers the potential to significantly improve donor organ utilization.
We designed the OCS to be a platform that allows us to leverage core technologies across products for multiple organs. To date, we have developed three OCS products, one for each of heart, lung heart and liver transplantations, making the OCS the only FDA approved, portable, multi-organ, warm perfusion technology platform. All three of our products, OCS Heart, OCS Lung and OCS Liver, have received Pre-Market Approval, or PMA, from the FDA for both organs donated after brain death, or DBD organs, and organs donated after circulatory death, or DCD organs.
Since our inception, we have focused substantially all of our resources on designing, developing and building our proprietary OCS technology platform and organ-specific OCS products; obtaining clinical evidence for the safety and effectiveness of our OCS products through clinical trials; securing regulatory approval; organizing and staffing our company; planning our business; raising capital; commercializing our products; developing and growing our NOP; developing and expanding our market and distribution chain and providing general and administrative support for these operations. To date, we have funded our operations primarily with proceeds from sales of preferred stock and borrowings under loan agreements.agreements, proceeds from the issuance of our 1.50% convertible senior notes due 2028, or the Notes, proceeds from the sale of common stock in our public offerings, and revenue from commercial sales of our OCS products and NOP services and clinical trials.
Since our inception, we have incurred significant operating losses. Our ability to generate net revenue sufficient to achieve sustained profitability will depend on the successful further development and commercializationcontinued growth in customer utilization of our products.products and services. We generated nettotal revenue of $4.7$96.9 million and net income of $12.2 million for the three months ended March 31, 2024. We generated total revenue of $241.6 million and incurred a net loss of $6.9$25.0 million for the fiscal three months ended March 30, 2019. We generated net revenue of $13.0 million and incurred a net loss of $23.8 million for the fiscal year ended December 29, 2018.31, 2023. As of March 30, 2019,31, 2024, we had an accumulated deficit of $342.8$491.5 million. We expect toour operating and capital expenditures will continue to incur net losses for the foreseeable futureincrease as we focus on growing commercial sales of our products in both the U.S.United States and selectnon-U.S. markets, including growing our sales and clinical adoptioncommercial team, which will pursue increasing commercial sales and clinical adoption of our OCS products; growing our NOP, including by maintaining and growing our logistics capabilities, including aviation transportation, to support our NOP and reduce dependence on third party transportation, including by means of the acquisition of fixed-wing aircraft or other acquisitions, joint ventures or strategic investments; scaling our manufacturing and sterilization operations; developing the next generation OCS; continuing research, development and clinical trial efforts; and seeking regulatory clearance for new products and product enhancements, including newadditional indications or other organs, in both the U.S.United States andselect non-U.S. markets. Further, following the closing of our IPO we have incurredmarkets; and expect to continue to incur additional costs associated with operating as a public company. As a result, we will need substantial additional funding for expenses related to our operating activities, including selling, general and administrative expenses and research, development and clinical trials expenses.
On May 6, 2019, we completed our IPO, pursuant to which we issued and sold 6,543,500 shares of common stock, inclusive of 853,500 shares we sold pursuant to the full exercise of the underwriters’ option to purchase additional shares. The aggregate net proceeds received by us from the IPO were $97.4 million, after deducting underwriting discounts and commissions but before deducting other offering costs.
On May 6, 2019, immediately prior to the completion of our IPO, we completed a corporate reorganization whereby TransMedics, Inc., the direct parent of TransMedics Group prior to the corporate reorganization, became a direct, wholly-owned subsidiary of TransMedics Group pursuant to the merger of TMDX, Inc., a direct, wholly-owned subsidiary of TransMedics Group prior to the corporate reorganization, merged with and into TransMedics, Inc., with TransMedics, Inc. as the surviving corporation. As
part of the transactions, each outstanding share of capital stock of TransMedics, Inc. was converted into shares of common stock of TransMedics Group, each outstanding option to purchase shares of common stock of TransMedics, Inc. was converted into an outstanding option to purchase shares of common stock of TransMedics Group and each outstanding warrant to purchase shares of preferred stock of TransMedics, Inc. was converted into a warrant to purchase shares of common stock of TransMedics Group.
Because of the numerous risks and uncertainties associated with product development, commercialization and commercialization,regulations of our industry, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability.profitability on an annual basis. Until such time, if ever, as we can generate substantial net revenue sufficient to achieve sustained profitability, we expect tomay finance our operations through a combination of equity offerings, debt financings and strategic alliances. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms or at all. If we are unable to raise capital or enter into such agreements as, and
18
when, needed, we maywill have to significantly delay, scale back or discontinue the further development and commercialization efforts of one or more of our products, or may be forced to reduce or terminate our operations.
We believeIn March 2023, the U.S. Department of Health and Human Services’ Health Resources and Services Administration, or HRSA, announced initiatives designed to improve the Organ Procurement and Transplantation network, or OPTN, including its intent to solicit contract proposals to manage the OPTN, which is currently operated by the United Network for Organ Sharing, or UNOS, under a contract that expired in March 2024. Additionally, in September 2023, the Securing the U.S. Organ Procurement and Transplantation Network Act was signed into law and expressly authorizes HRSA to award multiple grants, contracts or cooperative agreements to support the operation of the OPTN and specifies that the net proceedsOPTN shall be operated through awards that are distinct from awards made to support the organization tasked with supporting the networks’ board of directors. The impact that the HRSA initiatives and the U.S. Organ Procurement and Transplantation Network Act may have on our IPO completedbusiness, including on our NOP, is uncertain at this time.
Economic Impacts
Inflation, changes in May 2019, together withtrade policies, and the imposition of duties and tariffs have and could continue to adversely impact the price or availability of raw materials, the components of our existing cashproducts as well as shipping and cash equivalents, will be sufficienttransportation costs. For example, the global economy has experienced extreme volatility and disruptions, including significant volatility in commodity, other material and labor costs, declines in consumer confidence, declines in economic growth, supply chain interruptions, uncertainty about economic stability and record inflation globally. Unfavorable economic conditions have and could continue to result in a variety of risks to our business, including impacts on demand and pricing for usour products and pricing and availability of raw materials and components for our products, which could make it difficult to fundforecast our operating expenses, capital expenditure requirementsinventory needs and debt service payments for at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “—Liquidity and Capital Resources.”financial results.
Components of Our Results of Operations
Net Revenue
We generate net product revenue primarily from sales of oursingle-use, organ-specific disposable sets (i.e., our organ-specific OCS Perfusion Sets sold together with our organ-specific OCS Solutions) used on our organ-specific OCS Consoles, each being a component of our OCS products.Consoles. To a lesser extent, we also generate product revenue from the sale of OCS Consoles to customers and from the implied rental of OCS Consoles loaned to customers at no charge. For each new transplant procedure, customers purchase an additional OCS disposable set for use on the customer’s existing organ-specific OCS Console. We also generate service revenue by providing outsourced organ retrieval, OCS organ management and logistics services under our NOP in the United States. With the acquisition of Summit, the purchase of fixed-wing transplant aircraft and the addition of a logistics team, we anticipate increased service revenue from our logistics services.
Prior to the acquisition, Summit derived its revenue primarily from charter flight services. To a lesser extent, Summit also derived revenue from providing flight school training, managing aircraft and other related services. As part of the Summit integration, we have transitioned Summit's charter flight and aircraft management customers to third parties. We do not anticipate generating revenue from charter flights or aircraft management and related services. We are continuing to offer flight school training services. During the three months ended March 31, 2024, service revenue of $0.9 million of flight school training revenue is from Summit's legacy operations and is unrelated to the NOP and organ transplant.
All of our OCS transplant-related revenue has been generated by sales to transplant centers and Organ Procurement Organizations, not-for-profit organizations responsible for recovering organs from deceased donors for transplantation, in the United States, Europe and Asia-Pacific, or, in some cases, to distributors selling to transplant centers in select countries. Substantially all of our customer arrangements are multiple-element arrangementscontracts have multiple-performance obligations that contain deliverablespromises consisting of OCS Perfusion Sets and OCS Solutions. In some of those multiple-element arrangements, the deliverablesSolutions and may also includecontain promises for organ retrieval, OCS organ management or logistics services under our NOP, and an OCS Console, whether sold or loaned to the customer.
Some of our revenue has been generated from products sold in conjunction with the clinical trials conducted for our OCS products, under arrangements referred to as customer clinical trial agreements. Under most of these customer clinical trial agreements, we place an organ-specific OCS Console at the customer site for its use free of charge for the duration of the clinical trial, and the customer separately purchases from us the OCS disposable sets used in each transplant procedure during the clinical trial. When we loan the OCS Console to the customer, we retain title to the console at all times and do not require minimum purchase commitments from the customer related to any OCS products. In such cases, we invoice the customer for OCS disposable sets based on customer orders received for each new transplant procedure and the prices set forth in the customer agreement. Over time, we typically recover the cost of the loaned OCS Console through the customer’s continued purchasing and use of additional OCS disposable sets. For these reasons, we have determined that part of the arrangement consideration for the disposable set is an implied rental payment for use of the OCS Console. We intend to continue to loan OCS Consoles to some of our customers during commercialization of our OCS products.
Because all elements of a customer order are delivered and recognized as revenue at the same time and because revenue allocated to elements other than OCS disposable sets, such as implied rental income and service revenue, is insignificant, all elements of revenue from customer arrangements are classified as a single category of revenue in our consolidated statement of operations.
For customer clinical trial agreements, we make payments to our customers for reimbursements of clinical trial materials and for specified clinical documentation related to their use of our OCS products. Because these payments do not provide us with a separately identifiable benefit, we record such payments as a reduction of revenue from the customer, resulting in our net revenue presentation.
Prior to the fourth quarter of 2018, all of our net revenue in the United States had been generated from sales of OCS disposable sets sold in conjunction with clinical trials conducted for our OCS products. In March 2018, we received our first FDA PMA approval for the OCS Lung, and we began commercial sales of this product in the United States during the fourth quarter of 2018. Therefore, commencing in fourth quarter of 2018, our net revenue in the United States is derived from both clinical trial sales and commercial sales and consists primarily of sales of OCS disposable sets and, to a much lesser extent, sales of OCS Consoles. In May 2019, we received our second FDA PMA for the OCS Lung for additional clinical indications. We expect to continue to have U.S. clinical trial sales for our OCS Heart and OCS Liver products until we receive similar FDA PMAs for those products.
Historically, our net revenue in the United States fluctuated from period to period as a result of the timing of patient enrollment in our clinical trials. Our net revenue during periods of patient enrollment has been higher due to the sale of OCS disposable sets for use during these clinical trials, as compared to periods during which our clinical trials were not actively enrolled. Our OCS Lung EXPAND Trial began patient enrollment in January 2014 and completed patient enrollment in October 2016. Our OCS Heart EXPAND Trial began patient enrollment in September 2015 and completed patient enrollment in March 2018. Our Liver PROTECT Trial began enrollment in January 2016 and is currently enrolling patients. Our OCS Lung EXPAND II Trial began patient enrollment in March 2018 and is currently enrolling patients. Our net revenue may continue to fluctuate from period to period as a result of the timing of ongoing clinical trials in which our OCS products are used.
Through March 30, 2019, allAll of our sales outside of the United States have been commercial sales (unrelated to any clinical trials) and our net revenue has been generated primarily from. Our sales of OCS disposable sets and, to a much lesser extent, sales of OCS Consoles. Commercial sales of OCS disposable sets generally have a higher average selling price than clinical trial sales of OCS disposable sets.
We expect that our net revenue will increase in the future as a resultEU are dependent on obtaining and maintaining the Conformité Européene mark, or CE Mark, certifications for each of receiving our first two FDA PMA approvalsOCS products. As required by Regulation (EU) 2017/745, or the MDR, we received recertification of the CE Mark in September 2022 for each of the OCS Heart and OCS Lung systems, which includes the OCS Console, the OCS disposables, and the OCS solution additives. We also received the recertification of the CE Mark in September 2022 for the OCS LungLiver Console and disposables. We received the CE Mark for the OCS Liver combined with our solution additives under the MDR in the United StatesMay 2023, with an effective date of April 2023. In addition, we received a Class II Medical Device License from Health Canada for our OCS Liver combined with our solution additives in March 2018 and May 2019 and any potential future FDA approvals in the United StatesOctober 2023 to complement our existing Health Canada licenses for OCS Heart and OCS Liver.Lung.
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We expect that our revenue will increase over the long term as a result of the continued growth of the NOP in the United States. We also expect that our net revenue will increase over the long term as a result of anticipated growth innon-U.S. sales if national healthcare systems begin to reimburse transplant centers for the use of the OCS, if transplant centers utilize the OCS in more transplant cases and if more transplant centers adopt the OCS in their programs.
Our consolidated financial results for the fiscal three months ended March 30, 2019 reflect our adoption of ASC 606, as of December 30, 2018, applied using the modified retrospective method. Under this method, (i) the new guidance is applied to customer contracts that are not yet completed as of December 29, 2018, with the cumulative effect of initially applying the new guidance recorded as an adjustment to accumulated deficit on the effective date of adoption, and (ii) our historical results for all periods prior to December 30, 2018, including for the fiscal three months ended March 31, 2018, are not adjusted. The impact of the adoption of ASC 606 on our consolidated financial statements is described in Note 2 to our consolidated financial statements included elsewhere in this Quarterly Report on Form10-Q. Revenue recognition of our OCS products remained substantially unchanged and the adoption of ASC 606 did not have a material impact on our consolidated financial statements.
Cost of Revenue, Gross Profit and Gross Margin
Cost of net product revenue consists primarily of costs of components of our OCS Consoles and disposable sets, costs of direct materials, labor and the manufacturing overhead that directly supports production and costs related to the depreciation of OCS Consoles loaned to customers. When we loan an OCS Console to a customer for its use free of charge, we capitalize as property and equipment the cost of our OCS Console and depreciate these assets over the five-year estimated useful life of the console.
Consoles. Included in the cost of OCS disposable sets are the costs of our OCS Lung, OCS Heart and OCS Liver Solutions. In each reported period through December 29, 2018, we did not meet our obligation to purchase minimum quantities annuallyCost of service revenue primarily consists of labor and overhead that directly support organ retrieval and OCS organ management services and transportation and logistics costs, including labor costs for pilots, aircraft depreciation, aircraft costs, fuel, crew travel, maintenance and third-party flight costs and ground transportation that support organ delivery. Cost of service revenue also includes $0.8 million of costs from our supplier of OCS Lung Solution, we were obligated to pay a premium equalSummit's legacy operations unrelated to the order shortfall multiplied by a specified price. We capitalized any estimated premium we expected to pay at the end of each year as an adjustment to the inventory cost of OCS Lung Solution ordered during that year. The capitalized inventory adjustment is recognized as a component of cost of revenue when related OCS disposable sets are sold.NOP and organ transplant.
We expect that cost of revenue will increase in absolute dollars primarily as, and to the extent that, our net revenue increases.
Gross profit is the amount by which our net revenue exceeds our cost of revenue in each reporting period. We calculateperiod and gross margin asis gross profit divided by net revenue. Our overall gross margin has beenwill be impacted by the relative mix of product and service revenue, as product and service revenue have different margin profiles, and we expect our overall gross margin will continue to bedecrease as service revenue increases as a proportion of overall revenue. Product and service gross margins are also affected by a variety of factors, primarily production volumes, the cost of components and direct materials, manufacturing overhead costs, headcount,direct labor, the cost of services provided under the NOP and the selling price of our OCS products and fluctuations in amounts paid by us to customers related to reimbursements of their clinical trial expenses, where such payments are not distinct within the context of the contract.NOP services.
We expect that overall cost of revenue will increase or decrease in absolute dollars primarily as, and to the extent that, our revenue increases or decreases. We expect that the cost of net product revenue as a percentage of net product revenue will moderately decrease and gross margin and gross profit will moderately increase over the long term as our sales and production volumes increase and our cost per unit of our OCS disposable sets decreases due to efficiencieseconomies of scale.scale, our product enhancements and improved manufacturing efficiency. We intend to use our design, engineering and manufacturing capabilities to further advance and improve the efficiency of our manufacturing processes, which we believe will reduce costs and increase our product gross margin. As utilization by customers ofWe also expect to see modest improvements in the future in our OCS products increases, we expect that a greater number of OCS disposable sets will be used per year on the same OCS Console, thereby driving overallservices gross margin improvement. Becauseas we expect thatprovide more services and the numberefficiency in provisioning of OCS disposable sets sold over time will be significantly greater than the number of OCS Consoles sold or loanedthese services improves due to customers over that same period, we expect that our gross margin improvement will not be significantly affected by the number of OCS Consoles that we sell or loan to customers.scale and experience. While we expect our gross marginmargins to increase over the long term, itthey will likely fluctuate from quarter to quarter.
Operating Expenses
Research, Development and Clinical Trials Expenses
Research, development and clinical trials expenses consist primarily of costs incurred for our research activities, product development, hardware and software engineering, clinical trials to continue to develop clinical evidence of our products’ safety and effectiveness, regulatory expenses, testing, consultant services and other costs associated with our OCS technology platform and OCS products, which include:
•
•
•
•
•
We expense research, development and clinical trials costs as incurred. In the future, we expect that research, development and clinical trials expenses will increase over the long term due to ongoing product development and regulatory approval efforts. We expect to continue to perform activities related to obtaining additional regulatory approvals for all of our OCS Productsexpanded indications in the United States and toother served geographies, as well as developing the next generation of our OCS technology platform.
20
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in our sales and clinical adoptioncommercial team and personnel in executive, marketing, finance and administrative functions.functions, and recruiting and temporary service fees for such personnel. Selling, general and administrative expenses also include direct and allocated facility-related costs, costs to support the NOP, promotional activities, marketing, conferences and trade showsshow costs as well as professional fees for legal, patent, consulting, investor and public relations, accounting and audit services.services and amortization of sales and marketing-related intangible assets. We expect to continue to increase headcount in our sales and clinical adoptioncommercial team and increase marketing efforts as we continue to grow commercial sales of our OCS products in both U.S. and selectnon-U.S. markets.
We expect that our selling, general and administrative expenses will increase over the long term as we increase our headcount to support the expected continued sales growth of our OCS products. We also anticipate that we will incur increased accounting, audit, legal, regulatory, complianceproducts and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company.our NOP.
Other Income (Expense)
Interest Expense
Interest expense consists of interest expense associated with outstanding borrowings under our existing Credit Agreement with Orbimedloan agreement and our prior loan and security agreement, as amended, with Hercules Technology Growth Capital (“Hercules”)Notes as well as the amortization of debt discountdiscounts associated with such agreements. We expect that our interest expense will increase in fiscal 2019 compared to fiscal 2018 asIn July 2022, we entered into a resultcredit agreement with Canadian Imperial Bank of having increased our total debt by $28.3Commerce, or CIBC, under which we borrowed $60.0 million. In May 2023, we issued and sold $460.0 million in June 2018.aggregate principal amount of our Notes.
Change in Fair Value of Preferred Stock Warrant LiabilityInterest Income and Other Income (Expense)
In connection with our prior loanInterest income and security agreement, as amended, with Hercules, we issued warrants to purchase preferred stock. We classified these warrants as a liability on our consolidated balance sheet that we remeasured to fair value at each reporting date, and we recognized changes in the fair value of the warrant liability as a component of other income (expense) in our consolidated statements of operations.
On May 6, 2019, immediately prior to the closing of our IPO, the warrants to purchase preferred stock were converted into warrants to purchase common stock, and the fair value of the warrant liability at that time was reclassified to common stock. As a result, subsequent to the closing of our IPO, we will no longer remeasure the fair value of the warrant liability at each reporting date.
Other Income (Expense), Net
Other income (expense), net includes interest income, realized and unrealized foreign currency transaction gains and losses and othernon-operating income and expense items unrelated to our core operations.
Interest income consists of interest earned on our invested cash balances. We expect our interest income to increase as we invest the net proceeds from our IPO. Foreign currency transaction gains and losses result from intercompany transactions of a short-term nature as well as transactions with customers or vendors denominated in currencies other than the functional currency of the legal entity in which the transaction is recorded.
Provision for Income Taxes
Since our inception, we have not recorded any U.S. federal or state income tax benefits for the net operating losses we have incurred in each year or for the research and development tax credits we generated in the United States, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credits will not be realized. In reporting periods subsequent to 2016, we have recorded provisions for foreign income taxes of an insignificant amount related to the operations of one of our foreign subsidiaries.
As of December 29, 2018, we had U.S. federal and state net operating loss carryforwards of $246.6 million and $179.1 million, respectively, which may be available to offset future taxable income, of which $215.2 million and $179.1 million begin to expire in 2019 and 2030, respectively, and of which $31.4 million related to U.S. federal income taxes do not expire. As of December 29, 2018, we also had U.S. federal and state research and development tax credit carryforwards of $6.4 million and $4.3 million, respectively, which may be available to offset future tax liabilities and begin to expire in 2020 and 2024, respectively. As of December 29, 2018, we had no foreign net operating loss carryforwards. We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.
Results of Operations
Our fiscal year ends on the last Saturday in December, and we report fiscal years using a52/53-week convention. Under this convention, certain fiscal years contain 53 weeks. Each fiscal year is typically composed of four13-week fiscal quarters, but in years with 53 weeks, the fourth quarter is a14-week period. Our fiscal year ended December 29, 2018 included 52 weeks and our fiscal year ending December 28, 2019 includes 52 weeks.
Comparison of the Fiscal Three Months Ended March 30, 201931, 2024 and March 31, 20182023
The following table summarizes our results of operations for the fiscal three months ended March 30, 2019 and March 31, 2018:
| Fiscal Three Months Ended | ||||||||||||
| March 30, 2019 | March 31, 2018 | Change | ||||||||||
| (in thousands) | ||||||||||||
Net revenue | $ | 4,676 | $ | 2,519 | $ | 2,157 | ||||||
Cost of revenue | 2,103 | 1,595 | 508 | |||||||||
|
|
|
|
|
| |||||||
Gross profit | 2,573 | 924 | 1,649 | |||||||||
|
|
|
|
|
| |||||||
Operating expenses: | ||||||||||||
Research, development and clinical trials | 3,882 | 3,465 | 417 | |||||||||
Selling, general and administrative | 4,653 | 2,240 | 2,413 | |||||||||
|
|
|
|
|
| |||||||
Total operating expenses | 8,535 | 5,705 | 2,830 | |||||||||
|
|
|
|
|
| |||||||
Loss from operations | (5,962 | ) | (4,781 | ) | (1,181 | ) | ||||||
|
|
|
|
|
| |||||||
Other income (expense): | ||||||||||||
Interest expense | (1,093 | ) | (258 | ) | (835 | ) | ||||||
Change in fair value of preferred stock warrant liability | 273 | (30 | ) | 303 | ||||||||
Other income (expense), net | (103 | ) | 175 | (278 | ) | |||||||
|
|
|
|
|
| |||||||
Total other expense, net | (923 | ) | (113 | ) | (810 | ) | ||||||
|
|
|
|
|
| |||||||
Loss before income taxes | (6,885 | ) | (4,894 | ) | (1,991 | ) | ||||||
Provision for income taxes | (10 | ) | (7 | ) | (3 | ) | ||||||
|
|
|
|
|
| |||||||
Net loss | $ | (6,895 | ) | $ | (4,901 | ) | $ | (1,994 | ) | |||
|
|
|
|
|
| |||||||
Net Revenue, Cost of Revenue and Gross Profit
| Fiscal Three Months Ended | ||||||||||||
| March 30, 2019 | March 31, 2018 | Change | ||||||||||
| (in thousands) | ||||||||||||
Net revenue | $ | 4,676 | $ | 2,519 | $ | 2,157 | ||||||
Cost of revenue | 2,103 | 1,595 | 508 | |||||||||
|
|
|
|
|
| |||||||
Gross profit | $ | 2,573 | $ | 924 | $ | 1,649 | ||||||
|
|
|
|
|
| |||||||
Net Revenue
| Fiscal Three Months Ended | ||||||||||||
| March 30, 2019 | March 31, 2018 | Change | ||||||||||
| (in thousands) | ||||||||||||
Net revenue by geography: | ||||||||||||
United States | $ | 2,953 | $ | 821 | $ | 2,132 | ||||||
Outside the U.S. | 1,723 | 1,698 | 25 | |||||||||
|
|
|
|
|
| |||||||
Total net revenue | $ | 4,676 | $ | 2,519 | $ | 2,157 | ||||||
|
|
|
|
|
| |||||||
Net revenue by OCS product: | ||||||||||||
OCS Lung net revenue | $ | 1,412 | $ | 709 | $ | 703 | ||||||
OCS Heart net revenue | 1,922 | 1,633 | 289 | |||||||||
OCS Liver net revenue | 1,342 | 177 | 1,165 | |||||||||
|
|
|
|
|
| |||||||
Total net revenue | $ | 4,676 | $ | 2,519 | $ | 2,157 | ||||||
|
|
|
|
|
| |||||||
Net revenue increased by $2.2 million in the fiscal three months ended March 30, 2019 compared to the fiscal three months ended March 31, 2018 primarily as a result2024 and 2023:
|
| Three Months Ended March 31, |
|
|
|
| ||||||
|
| 2024 |
|
| 2023 |
|
| Change |
| |||
|
| (in thousands) |
| |||||||||
Revenue: |
|
|
|
|
|
|
|
|
| |||
Net product revenue |
| $ | 61,325 |
|
| $ | 33,993 |
|
| $ | 27,332 |
|
Service revenue |
|
| 35,525 |
|
|
| 7,561 |
|
|
| 27,964 |
|
Total revenue |
|
| 96,850 |
|
|
| 41,554 |
|
|
| 55,296 |
|
Cost of revenue: |
|
|
|
|
|
|
|
|
| |||
Cost of net product revenue |
|
| 14,084 |
|
|
| 7,306 |
|
|
| 6,778 |
|
Cost of service revenue |
|
| 22,804 |
|
|
| 5,482 |
|
|
| 17,322 |
|
Total cost of revenue |
|
| 36,888 |
|
|
| 12,788 |
|
|
| 24,100 |
|
Gross profit |
|
| 59,962 |
|
|
| 28,766 |
|
|
| 31,196 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
| |||
Research, development and clinical trials |
|
| 11,380 |
|
|
| 5,871 |
|
|
| 5,509 |
|
Selling, general and administrative |
|
| 36,161 |
|
|
| 24,984 |
|
|
| 11,177 |
|
Total operating expenses |
|
| 47,541 |
|
|
| 30,855 |
|
|
| 16,686 |
|
Income (loss) from operations |
|
| 12,421 |
|
|
| (2,089 | ) |
|
| 14,510 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
| |||
Interest expense |
|
| (3,598 | ) |
|
| (1,091 | ) |
|
| (2,507 | ) |
Interest income and other income (expense) |
|
| 3,570 |
|
|
| 555 |
|
|
| 3,015 |
|
Total other expense, net |
|
| (28 | ) |
|
| (536 | ) |
|
| 508 |
|
Income (loss) before income taxes |
|
| 12,393 |
|
|
| (2,625 | ) |
|
| 15,018 |
|
Provision for income taxes |
|
| (196 | ) |
|
| (11 | ) |
|
| (185 | ) |
Net income (loss) |
| $ | 12,197 |
|
| $ | (2,636 | ) |
| $ | 14,833 |
|
21
Revenue
OCS transplant-related revenue consisted of:
|
| Three Months Ended March 31, |
|
|
|
| ||||||
|
| 2024 |
|
| 2023 |
|
| Change |
| |||
|
| (in thousands) |
| |||||||||
OCS transplant revenue by country by organ: |
|
|
|
|
|
|
|
|
| |||
United States |
|
|
|
|
|
|
|
|
| |||
Lung total revenue |
| $ | 4,706 |
|
| $ | 1,431 |
|
| $ | 3,275 |
|
Heart total revenue |
|
| 20,224 |
|
|
| 12,956 |
|
|
| 7,268 |
|
Liver total revenue |
|
| 66,926 |
|
|
| 23,114 |
|
|
| 43,812 |
|
Total United States OCS transplant revenue |
|
| 91,856 |
|
|
| 37,501 |
|
|
| 54,355 |
|
All other countries |
|
|
|
|
|
|
|
|
| |||
Lung total revenue |
|
| 960 |
|
|
| 251 |
|
|
| 709 |
|
Heart total revenue |
|
| 3,131 |
|
|
| 3,802 |
|
|
| (671 | ) |
Total all other countries OCS transplant revenue |
|
| 4,091 |
|
|
| 4,053 |
|
|
| 38 |
|
Total OCS transplant revenue |
| $ | 95,947 |
|
| $ | 41,554 |
|
| $ | 54,393 |
|
We also had service revenue unrelated to OCS transplant of an increase in$0.9 million for the numberthree months ended March 31, 2024, which consisted of OCS disposable sets sold to customers in the United States and outside the U.S.flight school training revenue from Summit's legacy operations.
Net revenueRevenue from customers in the United States related to OCS transplant was $3.0$91.9 million in the fiscal three months ended March 30, 2019 and increased by $2.1 million in the fiscal three months ended March 30, 2019 compared to the fiscal three months ended March 31, 2018. The2024 and increased by $54.4 million compared to the three months ended March 31, 2023, due to higher sales volumes of our OCS Liver, OCS Heart and OCS Lung disposable sets. Revenue for each organ in the table above includes net product revenue from sales of disposable sets as well as service revenue for organ retrieval, OCS organ management and logistics services under the NOP in the United States. Establishing the NOP, which launched in late 2021, has allowed us to broaden our customer base and increase utilization of the OCS in net revenue fromorgan transplantation. Substantially all of our customers in the United States was primarily duenow participate in the NOP. By adding logistics to commercial sales of OCS Lung productsour NOP offering in late 2023, we have been able to further increase product and sales of OCS disposable sets toservice revenue.
Revenue from customers for use in our OCS Liver PROTECT Trial. Net revenue from sales of OCS Lung products inoutside the United States increased from $0.5was $4.1 million in each of the fiscal three months ended March 31, 2018 to $1.3 million in the fiscal three months ended March 30, 2019. Net revenue from OCS Liver disposable sets sold to customers for use in our OCS Liver PROTECT Trial increased from $0.2 million in the fiscal three months ended March 31, 2018 to $1.3 million in the fiscal three months ended March 30, 2019. In addition, the U.S. selling price of OCS disposable sets sold in the first quarter of fiscal 2019 was approximately 11% higher than the U.S. selling prices of OCS disposable sets sold in the same period in fiscal 2018, which accounted for $0.4 million of the overall $2.1 million increase in net revenue in the United States from the first quarter of fiscal 2018 to the same period in fiscal 2019.2024 and 2023.
Net revenue from customers outside the U.S. was $1.7 million in each of the fiscal three months ended March 30, 2019 and March 31, 2018 and was primarily generated from OCS Heart disposable sets in both periods.
Cost of Revenue, Gross Profit and Gross Margin
Cost of net product revenue increased by $0.5$6.8 million in the fiscal three months ended March 30, 2019 compared to the fiscal three months ended March 31, 2018. Gross profit increased by $1.6 million in the fiscal three months ended March 30, 20192024 compared to the fiscal three months ended March 31, 2018. Gross margin was 55% and 37% for2023. Cost of service revenue increased by $17.3 million in the fiscal three months ended March 30, 2019 and31, 2024 compared to the three months ended March 31, 2018, respectively.2023 as we increased utilization of the NOP. Gross profit andincreased by $31.2 million in the three months ended March 31, 2024 compared to the three months ended March 31, 2023.
Overall gross margin was 62% and 69% for the three months ended March 31, 2024 and 2023, respectively. The decrease in gross margin from 2023 to 2024 was driven primarily by an increase in service revenue, which has a lower gross margin than product revenue. Gross margin from net product revenue was 77% and 79% for the three months ended March 31, 2024 and 2023, respectively. The decrease in gross margin was primarily a result of increased costs of certain parts. Gross margin from service revenue was 36% and 27% for the three months ended March 31, 2024 and 2023, respectively, and consisted primarily of organ retrieval, OCS organ management and logistics services under our NOP. The increase in gross margin from services was due primarily to improved efficiency in our NOP service model as a result of a higher average selling pricethe addition of OCS Lung disposable sets sold in the United States in the first quarter of fiscal 2019 relative to the average selling price of OCS disposable sets in the comparable period of fiscal 2018our logistics offering and overall higher sales, which improved efficiency in production and reduced the impact of fixed costs in our manufacturing operation.increased scale.
22
Operating Expenses
Research, Development and Clinical Trials Expenses
| Fiscal Three Months Ended |
| Three Months Ended March 31, |
|
|
|
| ||||||||||||||||||
| March 30, 2019 | March 31, 2018 | Change |
| 2024 |
|
| 2023 |
|
| Change |
| |||||||||||||
| (in thousands) |
| (in thousands) |
| |||||||||||||||||||||
Personnel related (including stock-based compensation expense) | $ | 1,412 | $ | 1,664 | $ | (252 | ) |
| $ | 5,264 |
|
| $ | 2,626 |
|
| $ | 2,638 |
| |||||
Laboratory supplies and research materials |
|
| 2,314 |
|
|
| 1,151 |
|
|
| 1,163 |
| ||||||||||||
Consulting and third-party services |
|
| 2,007 |
|
|
| 881 |
|
|
| 1,126 |
| ||||||||||||
Clinical trials costs | 1,003 | 465 | 538 |
|
| 82 |
|
|
| 144 |
|
|
| (62 | ) | |||||||||
Consulting and third-party testing | 324 | 576 | (252 | ) | ||||||||||||||||||||
Laboratory supplies and research materials | 524 | 220 | 304 | |||||||||||||||||||||
Facility related and other | 619 | 540 | 79 |
|
| 1,713 |
|
|
| 1,069 |
|
|
| 644 |
| |||||||||
|
|
| ||||||||||||||||||||||
Total research, development and clinical trials Expenses | $ | 3,882 | $ | 3,465 | $ | 417 | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
Total research, development and clinical trials |
| $ | 11,380 |
|
| $ | 5,871 |
|
| $ | 5,509 |
| ||||||||||||
Total research, development and clinical trials expenses increased by $0.4$5.5 million from $3.5$5.9 million in the fiscal three months ended March 31, 20182023 to $3.9$11.4 million in the fiscal three months ended March 30, 2019. Clinical trials31, 2024. Personnel related costs increased by $0.5$2.6 million primarily due to clinical trial activity inincreased headcount to support development efforts for our active clinical trials;next generation OCS program and overall compensation increases. Personnel related costs included stock-based compensation expense of $0.9 million and $0.5 million for the OCS Liver PROTECT Trialthree months ended March 31, 2024 and the OCS Lung EXPAND II Trial. These increases were partially offset by decreased costs in our clinical trials that have completed enrollment.2023, respectively. Laboratory supplies and research materials costs increased by $0.3$1.2 million from the three months ended March 31, 2023 to the three months ended March 31, 2024 primarily due to our increased need for supplies and materials used for development of our next generation OCS and other product development. Consulting and third-party services costs increased by $1.1 million due to development efforts for our next generation OCS program, other product development and digital tools by our external development consultants. Facility related and other costs increased by $0.6 million from the three months ended March 31, 2023 to the three months ended March 31, 2024 due primarily to the increased laboratory usagecosts of OCS disposable sets. Personnel-related costssupporting a larger group of research and consulting costs each decreased by $0.3 million primarily as we transitioned from consultants to employeesdevelopment personnel and shifted clinical resources to support the commercialization of our OCS Lung product in the United States.their development efforts.
Selling, General and Administrative Expenses
| Fiscal Three Months Ended |
| Three Months Ended March 31, |
|
|
|
| ||||||||||||||||||
| March 30, 2019 | March 31, 2018 | Change |
| 2024 |
|
| 2023 |
|
| Change |
| |||||||||||||
| (in thousands) |
| (in thousands) |
| |||||||||||||||||||||
Personnel related (including stock-based compensation expense) | $ | 1,842 | $ | 890 | $ | 952 |
| $ | 24,387 |
|
| $ | 14,744 |
|
| $ | 9,643 |
| ||||||
Professional and consultant fees | 1,256 | 515 | 741 |
|
| 3,765 |
|
|
| 3,199 |
|
|
| 566 |
| |||||||||
NOP support |
|
| 1,962 |
|
|
| 3,061 |
|
|
| (1,099 | ) | ||||||||||||
Tradeshows and conferences | 507 | 311 | 196 |
|
| 983 |
|
|
| 1,355 |
|
|
| (372 | ) | |||||||||
Facility related and other | 1,048 | 524 | 524 |
|
| 5,064 |
|
|
| 2,625 |
|
|
| 2,439 |
| |||||||||
|
|
| ||||||||||||||||||||||
Total selling, general and administrative expenses | $ | 4,653 | $ | 2,240 | $ | 2,413 |
| $ | 36,161 |
|
| $ | 24,984 |
|
| $ | 11,177 |
| ||||||
|
|
| ||||||||||||||||||||||
Total selling, general and administrative expenses increased by $2.4$11.2 million from $2.2$25.0 million in the fiscal three months ended March 31, 20182023 to $4.7$36.2 million in the fiscal three months ended March 30, 201931, 2024 due primarily to increases in personnel related costs and facility related and other costs. Personnel related costs increased by $9.6 million primarily due to increases in personnel-related costs and professional and consultant fees as we hired additional resources and engaged consultantsthe continued expansion of our team to support commercial salesthe growth in our business, as well as an increase in stock-based compensation expense of $2.3 million, due primarily to additional grants to new and existing employees. NOP support costs decreased due to improved efficiency in our NOP service model as a result of the addition of our OCS Lung product in the United States after receipt of our PMA approval in March 2018logistics offering and to support our preparation to operate as a public company.increased scale. Facility related and other costs also increased by $0.5$2.4 million due primarily as a result ofto increased travelfacilities costs and recruiting costs.depreciation and amortization expense due to the growth in our business.
Other Income (Expense)
Interest Expense
Interest expense increased by $0.8was $3.6 million inand $1.1 million for the fiscal three months ended March 30, 2019 compared to the fiscal three months ended March 31, 20182024 and 2023, respectively. The increase was due primarily as a resultto interest expense on the $460.0 million principal amount of a $28.3 million increasethe Notes, which were issued in our total outstanding borrowings in June 2018.May 2023.
23
Interest Income and Other Income (Expense)
Change in Fair Value of Preferred Stock Warrant Liability
The change inInterest income and other income (expense) for the fair value of our preferred stock warrant liability in the fiscal three months ended March 30, 201931, 2024 and March 31, 2018 was due primarily to the changes in the fair value2023 included interest income of our preferred stock during those periods.
Other Income (Expense), Net
$3.8 million and $0.5 million, respectively, from interest earned on invested cash balances. Other income (expense), net for the fiscal three months ended March 30, 2019 and March 31, 2018 included $0.2 million of realized and unrealized foreign currency transactiontransactions losses and $0.1 million of realized and unrealized foreign currency transactiontransactions gains during the three months ended March 31, 2024 and 2023, respectively.
Liquidity and Capital Resources
Since our inception, we have incurred significant operating losses. Prior to our IPO,To date, we hadhave funded our operations primarily with proceeds from sales of preferred stock and borrowings under loan agreements. Asagreements, proceeds from the issuance of March 30, 2019, we had cash and cash equivalents of $12.2 million.
On May 6, 2019, we completed our IPO, pursuant to which we issued and sold 6,543,500 sharesNotes, proceeds from the sale of common stock inclusivein our public offerings and revenue from commercial sales of 853,500 sharesour OCS products and NOP services and clinical trials. On May 11, 2023, we soldissued $460.0 million aggregate principal amount of the Notes in a private placement to qualified institutional buyers pursuant to Rule 144A under the full exerciseSecurities Act. The total net proceeds from the sale of the underwriters’ option to purchase additional shares. The aggregate net proceeds received by us from the IPO were $97.4 million,Notes, after deducting underwriting discountsdebt issuance costs of $14.6 million, and commissions but before deducting other offering costs.purchases of Capped Calls of $52.1 million, were $393.3 million. At March 31, 2024, our principal source of liquidity was cash of $350.2 million.
Cash Flows
The following table summarizes our sources and uses of cash for each of the fiscal periods presented:
| Fiscal Three Months Ended | ||||||||
| March 30, 2019 | March 31, 2018 | |||||||
| (in thousands) | ||||||||
Cash used in operating activities | $ | (7,266 | ) | $ | (6,331 | ) | ||
Cash provided by (used in) investing activities | (3 | ) | 4,960 | |||||
Cash used in financing activities | (697 | ) | (880 | ) | ||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (60 | ) | 114 | |||||
|
|
|
| |||||
Net decrease in cash, cash equivalents and restricted cash | $ | (8,026 | ) | $ | (2,137 | ) | ||
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|
| |||||
|
| Three Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
| (in thousands) |
| |||||
Net cash used in operating activities |
| $ | (3,435 | ) |
| $ | (8,661 | ) |
Net cash used in investing activities |
|
| (44,172 | ) |
|
| (927 | ) |
Net cash provided by financing activities |
|
| 3,185 |
|
|
| 3,958 |
|
Effect of exchange rate changes on cash, cash equivalents and |
|
| (173 | ) |
|
| 73 |
|
Net decrease in cash, cash equivalents and restricted cash |
| $ | (44,595 | ) |
| $ | (5,557 | ) |
Operating Activities
During the fiscal three months ended March 30, 2019,31, 2024, operating activities used $7.3$3.4 million of cash, primarily resulting from net cash used by changes in our operating assets and liabilities of $28.1 million, partially offset by our net income of $12.2 million and net non-cash charges of $12.5 million. Net cash used by changes in our operating assets and liabilities for the three months ended March 31, 2024 consisted primarily of an increase in accounts receivable of $18.4 million, an increase in inventory of $5.6 million, a decrease in accounts payable and accrued expenses and other current liabilities of $2.1 million and an increase in prepaid expenses and other current assets of $1.6 million.
During the three months ended March 31, 2023, operating activities used $8.7 million of cash, primarily resulting from our net loss of $6.9$2.6 million and net cash used by changes in our operating assets and liabilities of $0.7$11.4 million, partially offset by netnon-cash charges of $0.3$5.4 million. Net cash used by changes in our operating assets and liabilities for the fiscal three months ended March 30, 201931, 2023 consisted primarily of a $2.5 million increase in inventory and a $1.7 millionan increase in accounts receivable bothof $11.0 million and an increase in inventory of $3.6 million, partially offset by a $3.2 millionan increase in accounts payable and accrued expenses and other current liabilities.liabilities of $4.5 million.
Investing Activities
During the fiscal three months ended March 31, 2018, operating activities used $6.3 million of cash, primarily resulting from our net loss of $4.9 million and2024, net cash used by changes in our operating assetsinvesting activities of $44.2 million consisted of purchases of property, plant and liabilitiesequipment, including an increase of $1.6 million. Net cash used by changes$39.4 million in our operating assets and liabilities fortransplant-related aircraft.
During the fiscal three months ended March 31, 2018 consisted primarily of a $1.2 million increase in inventory and a $1.0 million increase in accounts receivable, both partially offset by a $0.8 million increase in accounts payable and accrued expenses and other current liabilities.
Changes in accounts receivable, inventory, accounts payable, and accrued expenses and other current liabilities in each reporting period are generally due to growth in our business, including the growth in sales, expenses and employee headcount.
Investing Activities
During the fiscal three months ended March 31, 2018, net cash provided by investing activities of $5.0 million consisted of maturities and sales of marketable securities.
Financing Activities
During the fiscal three months ended March 30, 2019,2023, net cash used in financing activities of $0.7 million consisted of the payment of offering costs related to our IPO that closed in May 2019. During the fiscal three months ended March 31, 2018, net cash used in financingby investing activities of $0.9 million consisted of purchases of property and equipment.
Financing Activities
During the three months ended March 31, 2024, net cash provided by financing activities of $3.2 million consisted of proceeds from the issuance of common stock upon exercise of stock options of $2.5 million and proceeds from the issuance of common stock in connection with the 2019 Employee Stock Purchase Plan of $0.6 million.
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During the three months ended March 31, 2023, net cash provided by financing activities of $4.0 million consisted of proceeds from the issuance of common stock upon exercise of stock options of $3.6 million and proceeds from the issuance of common stock in connection with the 2019 Employee Stock Purchase Plan of $0.4 million.
Convertible Senior Notes
On May 11, 2023, we issued $460.0 million aggregate principal repaymentsamount of the Notes, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act, pursuant to an indenture dated May 11, 2023, by and between us and U.S. Bank Trust Company, National Association, or the Indenture.
The initial conversion price of the Notes is approximately $94.00 per share of common stock, which represents a premium of approximately 32.5% over the closing price of our previously outstanding borrowings undercommon stock on May 8, 2023. The Notes will mature on June 1, 2028, unless earlier repurchased, redeemed or converted. We used $52.1 million of the proceeds from the sale of the Notes to fund the cost of entering into capped call transactions, described below. The proceeds from the issuance of the Notes were approximately $393.3 million, net of capped call transaction costs of $52.1 million and initial purchaser discounts and other debt issuance costs totaling $14.6 million. The Notes bear interest at a rate of 1.50% per year and interest is payable semiannually in arrears on June 1 and December 1 of each year. The initial conversion rate is 10.6388 shares of common stock per $1,000 principal amount of the Notes, which represents an initial conversion price of approximately $94.00 per share of common stock. The conversion rate and conversion price are subject to customary adjustments upon the occurrence of certain events as described in the Indenture.
Before March 1, 2028, noteholders have the right to convert their Notes only upon the occurrence of certain events, including certain corporate events, and during the five business days immediately after any ten consecutive trading days in which the trading price per $1,000 principal amount of Notes is less than ninety eight percent (98%) of the as converted value. Additionally, the noteholder can convert their Notes during any calendar quarter (and only during such calendar quarter), commencing after the calendar quarter ending on September 30, 2023 but before March 1, 2028, provided the last reported sale price of the common stock for at least 20 trading days is greater than or equal to 130% of the conversion price during the 30 consecutive trading days ending on the last trading day of a calendar quarter. From and after March 1, 2028, noteholders may convert their Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. We have the right to elect to settle conversions either in cash, shares or in a combination of cash and shares of our loancommon stock.
Prior to June 8, 2026, the Notes will not be redeemable. On or after June 8, 2026, we may redeem for cash all or any portion of the Notes (subject to the partial redemption limitation set forth in the Indenture), at our option, if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and securityincluding, the trading day immediately preceding the date on which we provide notice of redemption. In addition, calling any Note for redemption will constitute a “Make-Whole Fundamental Change” (as defined in the Indenture) with respect to that Note, in which case the conversion rate applicable to the conversion of that Note will be increased in certain circumstances if it is converted after it is called for redemption.
Long-Term Debt
In July 2022, we entered into a credit agreement with Hercules.
Long-Term Debt
In June 2018, TransMedics entered intoCIBC as amended by the First Amendment to Credit Agreement, with OrbiMed,dated as of May 8, 2023, by and among the Company and CIBC, or the First Amendment, the Second Amendment to Credit Agreement, dated as of June 23, 2023, by and among the Company and CIBC, or the Second Amendment, and the Third Amendment to Credit Agreement, dated as of November 9, 2023, by and among the Company and CIBC, or the Third Amendment, pursuant to which itwe borrowed $35.0 million.$60.0 million, referred to herein as the CIBC Credit Agreement.
Borrowings under the CIBC Credit Agreement bear interest at an annual rate equal to LIBOR,either, at our option, (i) the secured overnight financing rate for an interest period selected by us, subject to a minimum of 1.50%, plus 2.0% or (ii) 1.0% andplus the higher of a) the prime rate, subject to a maximumminimum of 4.0%, or b) the Federal Funds Effective Rate, plus 8.5%, which is the Applicable Margin, subject in the aggregate to a maximum interest rate of 11.5%0.5%. In addition, borrowings under the Credit Agreement bear PIK interest, at an annual rate equal to the amount by which LIBOR plus the Applicable Margin exceeds 11.5%, but not to exceed 12.5%. The PIK interest is added to the principal amount of the borrowings outstanding at the end of each quarter until the maturity date of the Credit Agreement in June 2023. Borrowings under the Credit Agreement are repayable in quarterly interest-only payments until the maturity date, at which time all principal and accrued interest is due and payable. At our
option, we may prepay borrowings outstanding borrowings under the CIBC Credit Agreement, subject to a prepayment premiumfee of 9.0% of1.0% if paid after 12 months but prior to 24 months after the principal amount of any prepayment within the first three years, which percentage decreases annually until it reaches zero at the end of three years. We are also required to make a final payment in an amount equal to 3.0% of the principal amount of any prepayment or repayment, which we are accreting to interest expense over the term of the Credit Agreement using the effective interest method.
closing date. All obligations under the CIBC Credit Agreement are guaranteed by us and each of our material subsidiaries.
All obligations of us and each guarantor are secured by substantially all of our and each guarantor’s assets, including their intellectual property, subject to certain exceptions, including a perfected security interest in substantially all tangible and intangible assets of us and each guarantor.exceptions. Under the CIBC Credit Agreement, we have agreed to customary representations and warranties, events of default and certain affirmative and negative covenants to which we will remain subject until maturity. The financial covenants include, maintainingamong other covenants, (x) a requirement to maintain a minimum liquidity amount of $3.0 million; the greater of either (i) the consolidated adjusted EBITDA loss (or gain), as defined, for the trailing four month period (only if EBITDA is negative) and (ii) $10.0 million, and (y) a requirement on an annual basis, to delivermaintain total net revenue of at
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least 75% of the level set forth in the total revenue plan presented to OrbiMed annual audited financial statements with an unqualified audit opinion from our independent registered public accounting firm; and restrictions on our activities, including limitations on dispositions, mergers or acquisitions; encumbering our intellectual property; incurring indebtedness or liens; paying dividends; making certain investments; and engaging in certain other business transactions.CIBC. The obligations under the CIBC Credit Agreement are subject to acceleration upon the occurrence of specified events of default, including payment default, change in control, bankruptcy, insolvency, certain defaults under other material debt, certain events with respect to governmental approvals (if such events could cause a material adverse change in our business), failure to comply with certain covenants including the minimum liquidity and unqualified audit opinion covenants, and a material adverse change in our business, operations or other financial condition. With respect to our consolidated financial statements for the fiscal year ended December 29, 2018, we received a waiver of the covenant requiring delivery to OrbiMed of audited financial statements with an unqualified audit opinion. As of March 30, 2019, 2018,31, 2024, we were in compliance with all covenants of the other covenants underCIBC Credit Agreement. During the Credit Agreement.
Upon the occurrencecontinuance of an event of default, and until suchthe interest rate per annum will be equal to the rate that would have otherwise been applicable at the time of the event of default is no longer continuing, the Applicable Margin will increase by 4.0% per annum.plus 2.0%. If an event of default (other than certain events of bankruptcy or insolvency) occurs and is continuing, OrbiMedCIBC may declare all or any portion of the outstanding principal amount of the borrowings plus accrued and unpaid interest to be due and payable. Upon the occurrence of certain events of bankruptcy or insolvency, all of the outstanding principal amount of the borrowings plus accrued and unpaid interest will automatically become due and payable. In addition, we may be required to prepay outstanding borrowings, subject to certain exceptions, with portions of net cash proceeds of certain asset sales and certain casualty and condemnation events.
In June 2018, we repaid all amounts due under our 2015 loan and security agreement with Hercules and the loan and security agreement was terminated.
Funding Requirements
As we continue to pursue and increase commercial sales of our OCS products, we expect our costs and expenses to increase in the future, particularly as we expand our sales and clinical adoptioncommercial team, grow our NOP, scale our manufacturing operation,and sterilization operations, continue research, development and clinical trial efforts, and seek regulatory clearanceapproval for new products and product enhancements, including new indications, both in the United States and inselect non-U.S. markets.markets, and seek greater control of air and ground transport for our NOP. For example, if the demand for our products exceeds our existing manufacturing and sterilization capacity, our ability to fulfill orders would be limited until we have sufficiently expanded such operations. In addition, following the closing of our IPO, we have incurred and expect to continue to incur additional costs associated with operating as a public company. The timing and amount of our operating and capital expenditures will depend on many factors, including:
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We believe that our existing cash will enable us to fund our operating expenses, capital expenditure requirements, and debt service payments for at least 12 months following the filing of this Quarterly Report on Form 10-Q.
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See “Risk Factors—Risks Related to Our Financial Position and Need for Additional Capital—
We may need to raise additional funding, which might not be available on favorable terms or at all. Raising additional capital may cause dilutionSee “Item 1A. Risk Factors—Risks Related to Our Financial Position and Need for Additional Capital” in our shareholders” in the Final Prospectus.2023 Form 10-K.
Material Contractual Obligations and Commitments
During the fiscal three months ended March 30, 2019, there wereThere have been no material changes to our contractual obligations and commitmentscash requirements from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations and Commitments”disclosed in the Final Prospectus.our 2023 Form 10-K.
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition or results of operations.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We evaluate our estimates on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. We believe that of
There have been no material changes to our critical accounting policies described underand estimates from those disclosed in our consolidated financial statements and the heading “Management’s Discussionrelated notes and Analysisother financial information included in our 2023 Form 10-K.
Recently Issued Accounting Pronouncements
A description of Financial Condition and Results of Operations—Critical Accounting Policies and Significant Judgments and Estimates” in the Final Prospectus, the following involve the most judgment and complexity:
revenue recognition;
stock-based compensation;
valuation of warrants to purchase preferred stock; and
valuation of inventory.
Accordingly, we believe the policies set forth above are critical to fully understanding and evaluatingrecently issued accounting pronouncements that may potentially impact our financial condition and results of operations. If actual results or events differ materially from the estimates, judgments and assumptions used by us in applying these policies, our reported financial condition andposition, results of operations could be materially affected. Other than the adoption of ASC 606 on December 30, 2018 as described in more detailor cash flows is disclosed in Note 2 to our consolidated financial statements included elsewhere in this Quarterly Report on Form10-Q, there have been no significant changes to our critical accounting policies from those described in the Final Prospectus. 10-Q.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, anyoff-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Quarterly Report.
Emerging Growth Company Status
The Jumpstart Our Business Startups Act of 2012 permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company.
Item 3. Quantitative and Qualitative Disclosures aboutAbout Market Risk.
We are exposed to changes in interest rates and foreign currency exchange rates because we finance certain operations through variable rate debt instruments hold investments and denominate our transactions in a variety of foreign currencies. Changes in these rates may have an impact on future cash flow and earnings. We manage these risks through normal operating and financing activities. There has been no material change in the foreign currency exchange risk or interest rate risk discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Final Prospectus.our 2023 Form 10-K.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our President and Chief Executive Officer and our Chief Financial Officer (our principal executive officer and principal financial and accounting officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of March 30, 2019.31, 2024. The term “disclosure controls and procedures,” as defined in Rules13a-15(e) and15d-15(e) under the Securities Exchange Act, of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 30, 2019,31, 2024, our President and Chief Executive Officer and our Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules13a-15(f) and15d-15(f) under the Exchange Act) occurred during the fiscal three months ended March 30, 201931, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
We are not currently subject to any material legal proceedings.
Investing in our common stock involves a high degree of risk. For a detailed discussion of the risks that affect our business, please refer to the section titled “Risk“Item 1A. Risk Factors” in the Final Prospectus. There have been no material changes to our risk factors as previously disclosed in the Final Prospectus.2023 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sales of Unregistered Equity SecuritiesNone.
From December 30, 2018 throughItem 5. Other Information.
During our fiscal quarter ended March 30, 2019, we issued and sold to one employee an aggregate of 29,180 shares of common stock upon the exercise of stock options under our 2004 Stock Incentive Plan at a per share exercise price of $0.28.
The common stock issued upon the exercise of options described above were issued under our 2004 Stock Incentive Plan31, 2024, no director or “officer” (as defined in reliance on the exemption provided by Rule 701 promulgated16a-1(f) under the Securities Act. The recipient of securities in these transactions had adequate access, through employment, business or other relationships, to information about us. The foregoing transactions did not involve any underwriters, underwriting discounts or commissions, or any public offering.
Use of Proceeds
On May 6, 2019, we completed the IPO of our common stock pursuant to which we issued and sold 6,543,500 shares of our common stock, inclusive of 853,500 shares we sold pursuant to the full exerciseExchange Act) of the underwriters’ option to purchase additional shares, atCompany adopted or terminated a price to the public“Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of $16.00 per share. The aggregate offering price of the IPO was $104.7 million.Regulation S-K.
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The offer and sale of all of the shares of our common stock in our IPO were registered under the Securities Act pursuant to a registration statement onForm S-1, asamended (File No. 333-230736), which was declared effective by the SEC on May 1, 2019 and a registration statement onForm S-1MEF (File No. 333-231166), which was automatically effective upon filing with the SEC on May 1, 2019. Following the sale of all of the shares offered in connection with the closing of our IPO, the offering terminated. Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC acted as joint lead book-running managers and Cowen and Company, LLC and Canaccord Genuity LLC acted asco-managers for the offering.
We received aggregate gross proceeds from our IPO of $104.7 million, or aggregate net proceeds of $97.4 million after deducting underwriting discounts and commissions but before deducting other offering costs payable by us, which we estimate to be $5.9 million. None of the underwriting discounts and commissions or offering expenses were incurred or paid, directly or indirectly, to directors or officers of ours or their associates or to persons owning 10% or more of our common stock or to any of our affiliates.
We had not used any of the net proceeds from the IPO as of March 30, 2019 because the IPO closed on May 6, 2019. There has been no material change in our planned use of the net proceeds from the IPO as described in the Final Prospectus.
Exhibit Number | Description | |
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31.1* | ||
31.2* | ||
32.1† | ||
32.2† | ||
101.INS | XBRL Instance | |
101.SCH | Inline XBRL Taxonomy Extension Schema | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL | |
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† This certification will not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent specifically incorporated by reference into such filing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 2, 2024 | TRANSMEDICS GROUP, INC. | ||||||
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| ||||||
By: | /s/ Waleed H. Hassanein, M.D. | ||||||
Waleed H. Hassanein, M.D. | |||||||
President and Chief Executive Officer | |||||||
(Principal Executive Officer) | |||||||
Date: | May 2, 2024 | By: | /s/ Stephen Gordon | ||||
Stephen Gordon | |||||||
Chief Financial Officer | |||||||
(Principal Financial and Accounting Officer) | |||||||
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