TransMedics(TMDX) - 2025 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents TransMedics Group's unaudited condensed consolidated financial statements and explanatory notes Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2025 | December 31, 2024 | | :-------------------------------- | :------------- | :---------------- | | Total Assets | $837,530 | $804,076 | | Total Liabilities | $571,222 | $575,473 | | Total Stockholders' Equity | $266,308 | $228,603 | | Cash | $310,143 | $336,650 | | Accounts receivable | $142,026 | $97,722 | | Inventory | $43,380 | $46,554 | | Property, plant and equipment, net | $311,244 | $285,970 | | Convertible senior notes, net | $450,650 | $449,939 | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations Highlights (Three Months Ended March 31, in thousands, except per share amounts) | Metric | 2025 | 2024 | Change (YoY) | % Change (YoY) | | :-------------------------------- | :----- | :----- | :----------- | :------------- | | Total revenue | $143,537 | $96,850 | $46,687 | 48.2% | | Gross profit | $88,228 | $59,962 | $28,266 | 47.1% | | Income from operations | $27,443 | $12,421 | $15,022 | 120.9% | | Net income | $25,682 | $12,197 | $13,485 | 110.5% | | Diluted Net income per share | $0.70 | $0.35 | $0.35 | 100.0% | Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Comprehensive Income Highlights (Three Months Ended March 31, in thousands) | Metric | 2025 | 2024 | Change (YoY) | | :-------------------------------- | :----- | :----- | :----------- | | Net income | $25,682 | $12,197 | $13,485 | | Foreign currency translation adjustment | $37 | $17 | $20 | | Comprehensive income | $25,719 | $12,214 | $13,505 | Condensed Consolidated Statements of Stockholders' Equity - Total stockholders' equity increased to $266,308 thousand as of March 31, 2025, from $228,603 thousand at December 31, 2024, primarily driven by net income of $25,682 thousand and stock-based compensation expense of $8,958 thousand[21] - The number of common stock shares issued and outstanding increased to 33,827,880 shares as of March 31, 2025, from 33,617,972 shares as of December 31, 2024[16][21] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31, in thousands) | Metric | 2025 | 2024 | Change (YoY) | | :-------------------------------- | :----- | :----- | :----------- | | Net cash used in operating activities | $(2,855) | $(3,435) | $580 | | Net cash used in investing activities | $(27,038) | $(44,172) | $17,134 | | Net cash provided by financing activities | $3,028 | $3,185 | $(157) | | Net decrease in cash and restricted cash | $(26,507) | $(44,595) | $18,088 | | Cash and restricted cash, end of period | $310,643 | $350,717 | $(40,074) | - The decrease in net cash used in investing activities was primarily due to lower purchases of property, plant and equipment, specifically transplant aircraft[127] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed notes on the company's business, accounting policies, and specific financial line items Note 1. Nature of the Business and Basis of Presentation This note describes TransMedics' medical technology business, OCS platform, NOP services, and liquidity outlook - TransMedics Group, Inc. is a medical technology company focused on transforming organ transplant therapy for end-stage organ failure patients using its Organ Care System (OCS) and National OCS Program (NOP)[26] - The OCS technology replicates the organ's natural living environment outside the body, enabling organ optimization and assessment[26] - The NOP provides outsourced organ procurement, OCS perfusion management, and transplant logistics services, including aviation and ground transportation[26] - The Company believes its existing cash of $310.1 million as of March 31, 2025, will be sufficient to fund operations, capital expenditures, and debt service for at least the next 12 months[27] Note 2. Summary of Significant Accounting Policies This note outlines the accounting principles, management estimates, supplier dependencies, and impact of new accounting pronouncements - The unaudited interim financial statements are prepared in conformity with GAAP, with certain information condensed or omitted per SEC rules for interim reporting[30] - Management makes significant estimates and assumptions, including for revenue recognition, inventory valuation, business combinations, and stock-based awards, which are evaluated on an ongoing basis[31] - The Company relies on sole, single, or limited sources for certain product components, subassemblies, and sterilization services, posing a risk of adverse impact if these sources are lost[33] - The Company is assessing the impact of recently issued accounting pronouncements: ASU 2023-09 (Income Tax Disclosures, effective FY2025) and ASU 2024-03 (Expense Disaggregation Disclosures, effective FY2026/2027)[40][41] Note 3. Inventory This note details the composition of inventory, including raw materials, work-in-process, and finished goods Inventory Composition (in thousands) | Category | March 31, 2025 | December 31, 2024 | | :--------------- | :------------- | :---------------- | | Raw materials | $24,949 | $28,027 | | Work-in-process | $3,791 | $3,274 | | Finished goods | $14,640 | $15,253 | | Total Inventory | $43,380 | $46,554 | - Spare parts inventory of $4.0 million is included within prepaid expenses and other current assets for both periods, with no allowance for excess and obsolescence[37] Note 4. Property, Plant and Equipment, Net This note provides a breakdown of property, plant, and equipment, including transplant aircraft and OCS Consoles Property, Plant and Equipment, Net (in thousands) | Category | March 31, 2025 | December 31, 2024 | | :-------------------------------- | :------------- | :---------------- | | Transplant aircraft | $280,768 | $252,090 | | OCS Consoles | $20,478 | $19,193 | | Manufacturing equipment | $11,076 | $10,496 | | Construction-in-progress | $7,438 | $6,658 | | Less: Accumulated depreciation and amortization | $(46,891) | $(40,714) | | Total Property, Plant and Equipment, Net | $311,244 | $285,970 | - Total depreciation and amortization expense was $6.1 million for the three months ended March 31, 2025, up from $4.3 million in the prior year period[44] - The Company capitalized $1.8 million in costs associated with internal use software development in Q1 2025, included in construction-in-progress[44] Note 5. Goodwill and Intangible Assets This note details the company's goodwill and acquired intangible assets, including customer relationships and amortization expenses - Goodwill remained at $11.5 million as of March 31, 2025, with no impairments recorded to date[46] Acquired Intangible Assets, Net (in thousands) | Category | March 31, 2025 | December 31, 2024 | | :-------------------- | :------------- | :---------------- | | Customer relationship | $2,006 | $2,055 | | Other | $95 | $97 | | Total | $2,101 | $2,152 | - Amortization expense for intangible assets was $0.1 million for both the three months ended March 31, 2025, and 2024[48] - Future amortization expense is projected to be $152 thousand for the remaining nine months of 2025, and $203 thousand annually from 2026 to 2029[48] Note 6. Accrued Expenses and Other Current Liabilities This note provides a breakdown of accrued expenses and other current liabilities, including payroll and transportation costs Accrued Expenses and Other Current Liabilities (in thousands) | Category | March 31, 2025 | December 31, 2024 | | :------------------------------------ | :------------- | :---------------- | | Accrued payroll and related expenses | $13,846 | $22,523 | | Accrued transportation costs | $3,650 | $3,818 | | Accrued research, development and clinical trials expenses | $4,863 | $4,179 | | Accrued professional fees | $4,003 | $2,445 | | Accrued other | $13,777 | $12,187 | | Total | $40,139 | $45,152 | Note 7. Long-Term Debt and Financing Arrangements This note details the company's convertible senior notes, long-term debt, and associated capped call transactions - The Company has $460.0 million aggregate principal amount of 1.50% convertible senior notes due 2028, with an initial conversion price of approximately $94.00 per share[50][52][53] - The estimated fair value of the convertible senior notes was $504.9 million as of March 31, 2025[50] - The Company also has $60.0 million in long-term debt under a credit agreement with CIBC, bearing a variable interest rate (6.3% as of March 31, 2025)[59][60][63] - The Company was in compliance with all financial covenants of the CIBC Credit Agreement as of March 31, 2025[62] - In connection with the convertible notes, the Company entered into capped call transactions costing $52.1 million, intended to reduce potential dilution, with an initial cap price of $141.88 per share[57][58] Note 8. Stock-Based Compensation This note details stock-based compensation expense, available shares under incentive plans, and unrecognized compensation costs - Total stock-based compensation expense increased to $8,958 thousand for the three months ended March 31, 2025, from $6,870 thousand in the prior year period[70] - As of March 31, 2025, 436,485 shares were available under the 2019 Stock Incentive Plan and 427,410 shares under the 2021 Inducement Plan[65][66] - During Q1 2025, the Company granted options for 286,732 shares (weighted average grant-date fair value of $49.16) and 325,064 Restricted Stock Units (weighted average grant-date fair value of $75.18)[68][69] - Total unrecognized compensation cost related to unvested share-based awards was $83.4 million as of March 31, 2025, to be recognized over a weighted average period of 2.5 years[70] Note 9. Net Income (Loss) per Share This note presents basic and diluted net income per share, including weighted average shares outstanding and dilutive securities Net Income per Share (Three Months Ended March 31) | Metric | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Basic Net income per share | $0.76 | $0.37 | | Diluted Net income per share | $0.70 | $0.35 | | Weighted average basic common shares outstanding | 33,721,603 | 32,760,190 | | Weighted average dilutive common shares outstanding | 39,914,487 | 34,678,895 | - Dilutive securities for Q1 2025 included 4,893,805 shares from convertible senior notes, 1,200,858 shares from options, and 98,221 shares from restricted stock units[73] - Anti-dilutive securities excluded from diluted EPS calculation for Q1 2025 totaled 1,109,401 shares, including options, ESPP, RSUs, and restricted stock awards[73] Note 10. Commitments and Contingencies This note outlines the company's 401(k) contributions, purchase commitments, and pending class action lawsuits - The Company's 401(k) savings plan employer matching contributions were $1.1 million for Q1 2025, up from $0.6 million in Q1 2024[76] - An unconditional purchase commitment for goods has a remaining obligation of $5.0 million as of March 31, 2025, extending through December 2029[79] - Two class action lawsuits were filed in Q1 2025 (Jewik v. TransMedics Group, Inc., et al., and Collins v. TransMedics Group, Inc., et al.) alleging misstatements, coercive business tactics, anticompetitive conduct, and fraudulent billing; motions for consolidation are pending[80][152][153] - The Company is currently unable to predict the outcome of the class action litigation or reasonably estimate a range of possible losses[81] Note 11. Revenue and Segment Information This note provides OCS transplant revenue by organ and country, and discusses the company's single operating segment OCS Transplant Revenue by Organ and Country (Three Months Ended March 31, in thousands) | Category | 2025 | 2024 | Change (YoY) | | :-------------------------------- | :----- | :----- | :----------- | | United States | | | | | Lung total revenue | $3,636 | $4,706 | $(1,070) | | Heart total revenue | $26,266 | $20,224 | $6,042 | | Liver total revenue | $108,715 | $66,926 | $41,789 | | Total United States OCS transplant revenue | $138,617 | $91,856 | $46,761 | | All other countries | | | | | Lung revenue | $375 | $960 | $(585) | | Heart revenue | $3,550 | $3,131 | $419 | | Liver revenue | $140 | $0 | $140 | | Total all other countries OCS transplant revenue | $4,065 | $4,091 | $(26) | | Total OCS transplant revenue | $142,682 | $95,947 | $46,735 | - The Company manages its operations as a single segment, with the Chief Executive Officer serving as the chief operating decision maker[85] - Operating expenses related to post-approval studies or existing standard-of-care protocols were $1.3 million for Q1 2025, down from $1.5 million in Q1 2024[84] Note 12. Related Party Transactions This note discloses compensation paid to a related party for services as Product Director for the OCS Lung program - Dr. Amira Hassanein, sister of the CEO, received $0.4 million in total compensation for her services as Product Director for the OCS Lung program in Q1 2025, up from $0.1 million in Q1 2024[88] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and results of operations for Q1 2025 versus Q1 2024 Overview This section provides an overview of TransMedics' business, OCS technology, NOP, and future expenditure expectations - TransMedics is a medical technology company focused on transforming organ transplant therapy with its FDA-approved, portable, multi-organ, warm perfusion technology platform (OCS) for heart, lung, and liver, and its National OCS Program (NOP)[91][92] - The Company recently achieved profitability, reporting net income of $25.7 million on total revenue of $143.5 million for the three months ended March 31, 2025[94] - Future operating and capital expenditures are expected to increase due to commercial sales growth, NOP expansion, manufacturing scaling, next-gen OCS development, and regulatory efforts[94] - The impact of HRSA initiatives and the U.S. Organ Procurement and Transplantation Network Act on the Company's business, including the NOP, is currently uncertain[96] Economic Impacts This section discusses potential adverse impacts from inflation, trade policies, tariffs, and global economic volatility - Inflation, changes in trade policies, and tariffs could adversely impact raw material prices, component availability, and shipping costs, with tariffs expected to moderately increase cost of revenue in 2025[97] - Global economic volatility, including in commodity, material, and labor costs, and supply chain interruptions, creates risks for demand, pricing, and inventory forecasting[97] Key Components of Our Results of Operations This section outlines the primary drivers of revenue, cost of revenue, gross profit, operating expenses, and other income/expense Revenue This section details revenue sources from OCS disposable sets and NOP services, including international sales and growth drivers - Net product revenue is primarily generated from sales of single-use OCS disposable sets, while service revenue comes from outsourced organ procurement, OCS perfusion management, and transplant logistics services under the NOP[98] - The acquisition of Summit Aviation, Inc. in August 2023 has increased service revenue from transplant logistics[98] - International sales are dependent on maintaining CE mark certifications (recertified for OCS Heart, Lung, and Liver in 2022/2023) and Health Canada licenses (OCS Liver in October 2023)[101] - Long-term revenue growth is anticipated from continued NOP expansion in the U.S. and increased non-U.S. sales driven by reimbursement, higher OCS utilization, and broader adoption by transplant centers[102] Cost of Revenue, Gross Profit and Gross Margin This section explains the components of cost of revenue for products and services, and factors influencing gross margin - Cost of net product revenue includes components of OCS Consoles, disposable sets, direct materials, labor, and manufacturing overhead[103] - Cost of service revenue primarily consists of labor and overhead for organ procurement, OCS perfusion management, and transportation/logistics costs, including aviation-related expenses[103] - Overall gross margin is influenced by the mix of product and service revenue, as they have different margin profiles[104] - The Company expects product gross margin to moderately increase over the long term due to economies of scale, product enhancements, and improved manufacturing efficiency, with modest improvements also expected in service gross margin[105] Operating Expenses This section discusses trends in research, development, clinical trials, and selling, general, and administrative expenses - Research, development, and clinical trials expenses are expensed as incurred and are expected to increase long-term due to ongoing product development, next-generation OCS efforts, and regulatory approval activities[106][107] - Selling, general, and administrative expenses are expected to increase long-term as the Company expands its headcount to support continued sales growth of OCS products and the NOP[108] Other Income (Expense) This section covers interest expense from debt, interest income from cash, and foreign currency transaction gains/losses - Interest expense includes costs associated with the $60.0 million CIBC loan and the $460.0 million convertible senior notes[109] - Interest income and other income (expense), net, comprises interest earned on cash balances and realized/unrealized foreign currency transaction gains and losses[110] Results of Operations This section provides a detailed comparison of the company's financial performance for Q1 2025 versus Q1 2024 Comparison of the Three Months Ended March 31, 2025 and 2024 - Total revenue increased by $46.7 million (48.2%) to $143.5 million in Q1 2025, primarily driven by higher sales volumes of OCS Liver and OCS Heart disposable sets and increased usage of the NOP in the United States[112][115] - Net income increased by $13.5 million (110.5%) to $25.7 million in Q1 2025[112] - Overall gross margin decreased from 62% in Q1 2024 to 61% in Q1 2025, mainly due to a relative increase in lower-margin service revenue[118] - Research, development, and clinical trials expenses increased by $5.8 million (50.8%) to $17.2 million, driven by increased headcount, laboratory supplies, and consulting for the next-generation OCS program[112][119] - Selling, general, and administrative expenses increased by $7.5 million (20.6%) to $43.6 million, primarily due to team expansion, higher stock-based compensation, and increased professional/legal fees related to an independent review[112][120] - Interest income decreased by $1.5 million to $2.3 million in Q1 2025, attributed to lower yields and cash balances[122] Liquidity and Capital Resources This section analyzes the company's cash flows, debt, funding requirements, and material contractual obligations Cash Flows Cash Flow Summary (Three Months Ended March 31, in thousands) | Activity | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Net cash used in operating activities | $(2,855) | $(3,435) | | Net cash used in investing activities | $(27,038) | $(44,172) | | Net cash provided by financing activities | $3,028 | $3,185 | | Net decrease in cash and restricted cash | $(26,507) | $(44,595) | - Operating activities used $2.9 million in Q1 2025, primarily due to a $44.4 million increase in operating assets and liabilities (mainly accounts receivable), partially offset by net income and non-cash charges[125] - Investing activities used $27.0 million in Q1 2025, mainly for purchases of transplant aircraft, a decrease from $44.2 million in Q1 2024[127] - Financing activities provided $3.0 million in Q1 2025, primarily from common stock issuance upon stock option exercise and the employee stock purchase plan[128] Convertible Senior Notes This section details the company's $460.0 million convertible senior notes, their conversion price, and redemption terms - The Company issued $460.0 million aggregate principal amount of 1.50% convertible senior notes in May 2023, maturing on June 1, 2028[130][131] - The initial conversion price is approximately $94.00 per share, representing a 32.5% premium over the common stock's closing price on May 8, 2023[131] - The notes are not redeemable before June 8, 2026, but may be redeemed thereafter if the common stock price meets certain thresholds[133] Long-Term Debt This section describes the $60.0 million credit agreement with CIBC, its variable interest rate, and compliance with covenants - The Company has a $60.0 million credit agreement with CIBC, entered into in July 2022, with borrowings bearing a variable interest rate[134][135] - All obligations under the CIBC Credit Agreement are secured by substantially all of the Company's and its guarantors' assets, including intellectual property[136] - The Company was in compliance with all financial covenants, including minimum liquidity and total net revenue requirements, as of March 31, 2025[136] Funding Requirements This section outlines expected increases in operating and capital expenditures and the company's liquidity outlook - Operating and capital expenditures are expected to increase due to expansion of the commercial team, NOP growth, scaling manufacturing, R&D, regulatory approvals, and greater control of air and ground transport[137] - The Company believes existing cash will fund operating expenses, capital expenditures, and debt service for at least 12 months following the filing of this report[138] - Additional funding may be required, which might not be available on favorable terms or at all, potentially leading to delays or discontinuation of product development and commercialization efforts[138] Material Contractual Obligations This section confirms no material changes to the company's cash requirements since the 2024 Form 10-K - There have been no material changes to the Company's cash requirements from those disclosed in its 2024 Form 10-K[139] Critical Accounting Policies and Significant Judgments and Estimates This section confirms no material changes to critical accounting policies and estimates since the 2024 Form 10-K - No material changes have occurred to the Company's critical accounting policies and estimates from those disclosed in its 2024 Form 10-K[141] Recently Issued Accounting Pronouncements This section refers to Note 2 for details on recently issued accounting pronouncements and their potential impact - A description of recently issued accounting pronouncements that may impact financial position, results of operations, or cash flows is provided in Note 2 to the condensed consolidated financial statements[142] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to interest rate and foreign currency exchange rate risks - The Company is exposed to market risks from changes in interest rates (due to variable rate debt) and foreign currency exchange rates (due to transactions in various foreign currencies)[143] - These risks are managed through normal operating and financing activities[143] - There has been no material change in the foreign currency exchange risk or interest rate risk discussed in the 2024 Form 10-K[143] Item 4. Controls and Procedures Management evaluates disclosure controls, identifies a material weakness, outlines remediation, and confirms no other changes Evaluation of Disclosure Controls and Procedures - Management concluded that the Company's disclosure controls and procedures were not effective as of March 31, 2025, due to a material weakness in internal control over financial reporting[147] - The identified material weakness relates to the lack of effective controls over inventory movement within the manufacturing network for interim financial statements[147] - Despite the material weakness, management concluded that the condensed consolidated financial statements fairly present the financial position, results of operations, and cash flows in all material respects[147] Remediation Plan - Management is assessing and finalizing a plan to remediate the material weakness by designing internal controls to ensure timely and accurate recording of inventory movements throughout the year[148] - Remediation will be considered complete only after the controls have been in place, operated for a sufficient period, and tested effectively[148] Changes in Internal Control over Financial Reporting - No changes in internal control over financial reporting occurred during the three months ended March 31, 2025, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[149] PART II—OTHER INFORMATION Item 1. Legal Proceedings Two class action lawsuits were filed in Q1 2025 alleging misstatements, anticompetitive conduct, and fraudulent billing - Two class action lawsuits, Jewik v. TransMedics Group, Inc., et al., and Collins v. TransMedics Group, Inc., et al., were filed in the United States District Court for the District of Massachusetts in Q1 2025[152][153] - The complaints allege purported misstatements and omissions in risk disclosures, coercive business and marketing tactics, anticompetitive conduct, and fraudulent billing activities[152] - Motions seeking to consolidate the actions and appoint a lead plaintiff are currently pending[153] - The Company notes that such proceedings could adversely impact its reputation, business, and financial condition, and divert management attention[154] Item 1A. Risk Factors This section refers to the 2024 Form 10-K for a comprehensive discussion of investment risks - Investing in the Company's common stock involves a high degree of risk[155] - A detailed discussion of the risks affecting the business can be found in the 'Item 1A. Risk Factors' section of the Company's 2024 Form 10-K[155] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds occurred during the reporting period - No unregistered sales of equity securities or use of proceeds occurred during the fiscal quarter ended March 31, 2025[156] Item 5. Other Information No directors or officers adopted or terminated Rule 10b5-1 trading arrangements during the quarter - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the fiscal quarter ended March 31, 2025[157] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including certifications and XBRL documents - The exhibits include certifications from the Principal Executive Officer and Principal Financial Officer (31.1, 31.2, 32.1, 32.2) and XBRL-related documents (101.INS, 101.SCH, 104)[158] Signatures This section contains official signatures of principal executive and financial officers, certifying report accuracy - The report was duly signed on May 8, 2025, by Waleed H. Hassanein, M.D., President and Chief Executive Officer, and Gerardo Hernandez, Chief Financial Officer and Treasurer[162][163]