Transmedics Group Inc

NASDAQ:TMDX

Earnings Call Transcript 2022-Q2

[Operator]

Good afternoon, and welcome to TransMedics Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's call. As a reminder, this call is being recorded for replay process.

I would now like to turn the call over to Brian Johnston from the Gilmartin Group for a few introductory comments.

[Brian Johnston, Gilmartin Group]

Thanks, operator. Earlier today, TransMedics released financial results for the quarter ended June 30, 2022. A copy of the press release is available on the company's Web site.

Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements.

All forward-looking statements, including, without limitation, are examination of operating trends, the potential commercial opportunity for our products, and our future financial expectations, which include expectations for growth in our organization, regulatory approvals, and reimbursement, and guidance and/or expectations for revenue, gross margins, and operating expenses in 2022 are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements.

Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our quarterly report on Form 10-Q filed with the Securities and Exchange Commission on May 5, 2022. TransMedics disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time-sensitive information that is accurate only as of the live broadcast today, August 1, 2022.

With that, I'll now turn the call over to Waleed Hassanein, President and Chief Executive Officer.

[Waleed Hassanein, President and CEO]

Thank you, Brian. Good afternoon everyone and welcome to TransMedics second quarter 2022 earnings call. As always, joining me today is Stephen Gordon, our Chief Financial Officer.

Before discussing 2Q results, let me first briefly highlight our $60 million debt financing agreement with CIBC Innovation Banking, which was announced earlier today. The new facility, which was fully funded upon closing, enabled us to retire our previous debt arrangement with OrbiMed and strengthen our balance sheet to provide further financial flexibility. We greatly appreciate the partnership we have with OrbiMed, and very much look forward to establishing a successful partnership with CIBC in the years to come.

Now let me shift to our exciting 2Q results. Through the second quarter, our commercial momentum accelerated with results delivering an unequivocal statement on TransMedics growth potential and our commercial execution post FDA approvals of our OCS technology for three large transplant markets. Importantly, our performance in 2Q underscores the importance of NOP, or the National OCS Program, as the main growth driver for our business in the United States.

Let me summarize the results. For the third sequential quarter, we post a record year-over-year growth in net revenue. Net revenue for 2Q was 20.5 million, representing 151% growth over the same period of Q2 2021, and approximately 29% sequential growth from Q1 2022.

Importantly, 88% or 18.1 million of Q2 revenue came from the U.S. centers. This represents 215% growth over the same period from 2021. NOP attributed revenue accounted for approximately 84% of our total U.S. revenue in Q2 '22. We fully expect that NOP will remain the main driver for our U.S. business for the foreseeable future. Stephen will cover the details and organ split in his section of the call.

Now let me discuss some other trends that make us confident in our near and long-term growth potential. First, for the second sequential quarter, liver led the way across our three organ markets. This is indicative of our ability to quickly scale operations and build momentum in the largest of our three addressable markets. We were also excited to see that liver centers have come quickly -- accustoms have become quickly accustomed to the NOP concept.

Second, heart and lung also continued to grow sequentially, despite overall U.S. lung transplant volumes remaining below pre-COVID rates and a slower than normal June in the U.S. across organs. This slowdown was reflected in the U.S. National OPTN reports and its relatively normal phenomenon in transplantation. As is, the rebound and rates in July which we also experienced.

Third, as we highlighted earlier, NOP drove a significant portion of our U.S. revenues in the second quarter, validating our expectations that it will become and will continue to do so for the foreseeable future. As I had stated earlier, 84% of our total U.S. revenue came from NOP. On the per organ basis, liver was approximately 99% NOP; lung was approximately 93% NOP and heart was approximately 57% NOP.

As we move forward, we expect to see the percentage of NOP continue to be high and grow across the board, especially for heart transplant numbers. Notably, given the high contribution of NOP, our revenue represented impressive growth in actual new cases and not just stocking orders. This is one of the most interesting and important features of NOP as it makes our business more linear in terms of revenue growth, as we further penetrate transplant programs.

Further, it is important to note that 2Q results came from a fairly modest number of transplant centers, between 6 to 12 in each organ category. This is important for two reasons. It shows that we have a significant greenfield opportunity for commercial growth from adding more U.S. transplant programs or centers to use our NOP program. This is a critical area of our growth strategy that I will be touching upon later.

Second, it shows that the continued deeper penetration of OCS within these initial number of centers who are relying on us to operate their transplant programs. This is huge from a competitive positioning standpoint. TransMedics NOP is becoming an integral part of many U.S. transplant programs workflow.

Lastly, we had a very successful 2022 ISHLT conference in Boston in April. This was the first live meeting since COVID, and we were very encouraged to see TransMedics OCS and NOP as the clear focus of this meeting. There were several feature presentation on OCS Heart, DCD and EXPAND results, long-term outcomes of OCS Lung EXPAND results and the first public presentation of the NOP program's concept.

Importantly, we took this opportunity to publicly launch an aspirational U.S. initiative to doubling lung and heart transplant numbers over the next five years using the TransMedics NOP program. In all, we were very encouraged by several trends through Q2 and believe we have positioned TransMedics to achieve 100% year-over-year revenue growth in '22.

Now let me discuss our strategies to deliver on this expectation and to extend our momentum into '23 and beyond. First, by expanding our NOP infrastructure. This is critical and will include increasing the number of surgical staff especially on the liver side, expanding the number of launch points to gain broader geographical coverage in the U.S. and growing our clinical support staff. Importantly, we need to grow our transportation and logistical network to drive efficiency and execution and financial performance.

Second, by expanding our manufacturing and production capacity. We are well underway to tripling our production cleanroom infrastructure by year end, enabling us to meet the significant demand of OCS use across all three organ platforms. We are also expanding our production headcount and instituting a second shift. In addition, we're continuing to buttress our raw material inventory to meet the growing demand and to mitigate against supply chain risks.

Third, by expanding the number of active NOP transplant program in all three organ markets. We have seen the significant impact from a modest number of active transplant programs in the U.S. on U.S. revenue over the past three quarters. We are planning to methodically grow our number of active NOP programs in the U.S. throughout '22 and into '23 and beyond.

Finally, by continuing to invest in our next generation OCS technology and our next organ programs. This is critical to our long-term growth and further distancing ourselves from any potential competition. In our view, the roadmap forward is clear and we believe strongly that we are operationally well prepared to take these critical next steps. However, while we believe we are in the early stages of rapid growth trajectory, we also see the current macro environment and rapid increase in demand for our OCS technology could present some challenges that may create some level of bumpiness in our business.

For clarity, let me provide some perspectives on what we view as potential uncertainties that may negatively impact us in the second half of '22. These are the main reasons for us being prudent and cautious in our expectations throughout '22. First is the global supply chain issues during the scalability of our production capacity to meet the growing demand for our OCS technology. 2Q results continued to outpace our forecasted demand plans and challenged our finished goods inventory.

Our operations and supply chain team has been doing a phenomenal job to mitigate the risks of any back order situation. We remain cautious, however, because we are concerned that our continued investment to rapidly increase our raw material may be negatively impacted by some unforeseen supply chain issue from one of our vendors or suppliers.

The second is the scaling up in NOP infrastructure. The time to recruit, train and certify clinical staff to be able to be fully functional in the field presents a potential time lag, while we are rapidly growing our case volume. We are instituting several initiatives to standardize our clinical training programs for our field team, as well as continuing the recruitment efforts throughout the United States.

Third is the access to charter air transport to maximize coverage and availability. This is an important area as we are seeing the global conditions limit the availability of chartered flights used for organ transplant support in the U.S. We are actively expanding our network and will aggressively pursue new strategies to minimize this risk on our long-term growth potential.

Fourth is the impact of summer vacations and end of year holidays on second half '22 revenue. It is the norm that August is a fairly slow month for our international transplant activities given the impact of summer vacations in Europe. Q4 will also have the impact of Thanksgiving and Christmas holidays, which may negatively impact transplant volumes in the United States.

Finally, COVID. We see minimal or no impact of COVID on heart and liver transplant trends. However, as we stated before, lung will always be disproportionately impacted by any new COVID waves or variants. Based on our 2Q and H1 results and balancing these great results with above potential growing headwinds, for the second sequential quarter, we are raising our annual revenue guidance for the full year '22 to between 67 million to 75 million, up from 59 million to 65 million for the same period. This represents a solid 121% to 148% growth over 2021. We take guidance very seriously, and we wanted to make sure that we are being prudent and reflecting the realities of the potential growing pains.

With that, let me turn the call to Stephen to cover the detail financial results for the quarter.

[Stephen Gordon, CFO]

Thank you, Waleed. I will now provide some additional detail on the second quarter results and other financial information for the quarter. For the second quarter of 2022, our net revenue was $20.5 million. This is an increase of 151% from the second quarter of 2021 and a sequential increase of 29% from last quarter. In the U.S., net revenue was 18.1 million or 215% growth over the second quarter of 2021.

The organ breakdown is as follows on U.S. net revenue; was 9.6 million of OCS Liver, 5.9 million of OCS Heart and 2.6 million of OCS Lung. I'll repeat those numbers again for the folks listening; 9.6 million of OCS Liver, 5.9 million of OCS Heart and 2.6 million of OCS Lung. All organ products grew sequentially from the first quarter of 2020.

Outside of the U.S., our revenue grew 9% on a constant currency basis. However, taking into consideration unfavorable currency movement, reported revenue was 2.4 million, down 1% from Q2 of 2021 and included 2.2 million of OCS Heart and 0.2 million of OCS Lung. The key driver of Q2 revenue performance was further utilization of the OCS across all organs, in particular our National OCS Program continues to be the critical commercial vehicle for further customer adoption in the U.S.

Gross margin for the second quarter of 2022 was 70%. That's up from 68% in the second quarter of 2021 and down sequentially from 76% reported in Q1 2022. The improvement in gross margin from Q2 of 2021 is the result of the higher revenue and fully commercial revenue in the U.S. The sequential reduction in gross margin is a result of the higher mix of NOP-related revenue. We expect gross margin to improve in the future as we move out of the early phase of NOP and improve its efficiency.

Total operating expenses were 24.1 million in Q2 2022, a 56% increase over Q2 2021 operating expenses. A significant increase in expenses was again driven by the growth in our commercialization effort in the U.S. and our NOP in particular. This represents our continued investment in our regional resources and the infrastructure to allow us to access more national program transplant cases across all organs and all regions.

We also saw growth in R&D primarily related to development of our next generation OCS. However, as we described last quarter, R&D spending was sequentially lower in Q2 2022 due to less next gen development activity this quarter compared to last quarter. Operating loss was 9.7 million in the first quarter of 2022 compared to 9.9 million in the second quarter of 2021. And our net loss for the quarter of 2022 was 11.5 million compared to 10.7 million in the second quarter of 2021.

Cash, cash equivalents and marketable securities were 58.1 million as of June 30, 2022, which equates to a reduction of 13.9 million from the balance at the end of Q1 2022. Weighted average common shares outstanding for the quarter were 27.98 million shares.

Finally, as Waleed mentioned earlier, we took an important step to provide additional financial flexibility in July of 2022 by refinancing our existing debt with a new $60 million term loan with CIBC Innovation Bank. A portion of the new loan was used to pay off the balance of our prior loan with OrbiMed and the new loan added approximately $23 million of new cash to our balance sheet.

And as I usually do before returning the call to Waleed, I will just reconfirm the increase in our revenue guidance for 2022 is 67 million to 75 million for the fiscal year. And this represents a range of 121% to 148% growth over 2021.

Now, I would like to turn the call back to Waleed for closing comments.

[Waleed Hassanein, President and CEO]

Thank you, Stephen. In summary, we're very pleased with our 2Q performance. The TransMedics NOP integrated approach has clearly proved its unique ability to streamline the transplant process for transplant centers and drive significant growth. Our demonstrated ability to execute on rapidly scaling the NOP to include liver and hearts over the past two quarters and launching new initiatives leaves us more confident than ever in our ability to continue to drive significant commercial growth throughout '22 and beyond.

As we stated before, we believe we are still fairly early on our growth trajectory. And we are laser focused on continuing to build on our commercial momentum for the future. We are inspired and excited for the future of TransMedics as we continue to transform the global organ transplant across geographies and cement our global leading position in transplant therapy.

With that, I will now turn the call to the operator for Q&A. Operator?

[Operator]

Thank you. [Operator Instructions]. Our first question comes from the line of Bill Plovanic with Canaccord. You may proceed.

[Bill Plovanic, Canaccord Genuity]

Great. Thanks. Good evening. A couple of questions. First, on guidance. Obligatory [ph] I have to ask this, but your 67 to 75, you did 36 million in the first half. The range would be about 30.5 to 38.5 in the second half of the year, which would contemplate down in the second half first. How many of these issues that you said are potential headwinds are you seeing or experiencing today, or is it more of a concern? So I'm just trying to understand what's embedded in that range?

[Waleed Hassanein, President and CEO]

Thank you, Bill. The guidance we're giving is the guidance we stand by. The rapid growth and acceleration in utilizing our finished goods inventory have really put a lot of challenges in our ability to continue to beef up that inventory. So that is something we're experiencing today. The other thing that we're experiencing today is our ability to cover many cases when finding enough air transport charter flights to be able to cover many cases in the same evening. The others are more cautionary. Just understanding the dynamic and understanding what would it take to scale up the NOP and the training programs, et cetera. So we want it to be prudent, we want it to be cautious, we want it to be thoughtful in our estimates. But that's as we see it today. We will continue to look at the guidance, we will continue to refine the guidance as we continue to execute throughout this year.

[Bill Plovanic, Canaccord Genuity]

Excellent. Thanks. And then what do you see is the greatest impediment for a transplant center for adopting your technology? One of the comments was regarding the kind of concentrated success you've seen. So what's been the impediment in getting to some of the other centers to adopt at this point?

[Waleed Hassanein, President and CEO]

I don't see it as an impediment, Bill. We have been engaged with fairly broad number of centers. It's just the time it takes to wrap their heads around the NOP. We all know that transplant community is a super conservative group. They've been doing it one way for the past 50 years. And here we come transforming that completely into a more streamlined process that is managed by third party. So we just want to be prudent. We want them to get to where we are on their own time. We don't want to force anything. And just the time it takes for them to wrap their head around the NOP, that's really it. As a part of that is understanding that any service cost in addition to product cost is coming from the organ acquisition cost center, seeing the outcomes that are being delivered using NOP compared to outcomes through the direct acquisition. This is really it. And we're growing and we're proud of the number of centers that have adopted NOP, but we don't see major impediments. It's just the time it will take to convert the bulk of the market to NOP. And we have to be careful not to rush things. Let things mature in the appropriate pace, because we're transforming the standard of care. And everybody knows that transforming the standard of care doesn't happen overnight. And we're laying that solid growth foundation for '23 and '24, not just '22. So this is why we're being prudent and we're being very careful to allow centers the time they need to get their head around the NOP concept.

[Bill Plovanic, Canaccord Genuity]

And last question was, there was an article in the post today. And I think the real question is how the breakup of UNOS impacts you especially given that UNOS oversees the OPTN? And then I think they had the Wednesday Senate hearing finance committee meeting.

[Waleed Hassanein, President and CEO]

Yes. Bill, as I've said publicly numerous times, we are not -- we don't have any interest in commenting on any legislative or federal mandates to break up UNOS. I don't think UNOS is going to be broken up anytime soon. And we have to continue to play within the construct of the federal structure of organ transplant. What we present into this argument is something that is very positive, something that presents a solution, not pointing to an antiquated part of the system. We're pointing that the OCS and the results achieved by OCS represent the highest rate of solid organ utilization in the history of organ transplant in the United States. Number two, that for the last 18 months, the NOP has demonstrated significant success in growing transplant programs volume in accessing new donor pools, like DCD donors and extended criteria DCD donors, and that TransMedics managing that successfully to do more cases, and the case number is growing quarter-over-quarter, month-over-month on daily basis. So that's what we present. We present a positive solution to this very complicated problem. We will operate within any federal structure, whether it's UNOS or another structure, we don't see that as something that we should be too concerned about. But we want to make sure that our voice and our data and our technology and our NOP is factored into all these national discussions around revamping the organ transplant system in the United States.

[Bill Plovanic, Canaccord Genuity]

Thanks for taking my questions.

[Operator]

Thank you. Our next question comes from the line of Cecilia Furlong with Morgan Stanley. Your line is now open.

[Calvin Chu, Morgan Stanley]

Thanks. This is Calvin on for Cecilia. Thanks for taking the questions. Two from me. First, I wanted to ask more on heart traction within the NOP. So it sounds like heart and op mix stepping up from 30% to about 57%, which is a very positive update to hear. So I'm just curious, where do you see that level trending exiting 2022? But also just what has worked, or what have been some of the learnings as you've been ramping up education for these cardiothoracic surgeons towards adopting OCS?

[Waleed Hassanein, President and CEO]

Thank you, Calvin. Where do we see that trend? Up. We're working very hard to make sure that the trend continues to grow up and heart -- to match the other two organs. What's the biggest learning? The biggest learning is to focus on quality of the clinical management of the organ and deliver a better organ than an organ that's managed by the institution's staff. That is the number -- this is the laser focus of our team. Without that, it's going to become very difficult to convince people to leave control to our team. And that's what I said to Bill's earlier question. We understand that very well. We know that the cardiothoracic surgical mindset is very focused on outcome. They've been trained to be the ones managing their own organs for many, many decades. And it's going to take the time it takes. But for us, we lead with data. We lead or we convince them by showing them that if we are managing these organs for them, the outcomes will be better than if their team is managing these organs for them.

[Calvin Chu, Morgan Stanley]

Got it. Great. Second question really is on kind of ramping of account. So I was wondering if you could talk a little bit more about push backs or discussions you've seen as new centers contemplate the cost for NOP, what ultimately gets them comfortable? And really, how long is this process taking currently? And also really just what's baked into your guidance around navigating this initial account acquisition process and timing associated with it? Thanks so much.

[Waleed Hassanein, President and CEO]

Thank you, Calvin. As I stated earlier, the two key things that we spend frankly all of our time on to sign up a new NOP center is to make sure they understand how it works, how easy it is to implement. So just to get their head around the workflow, the process workflow, and that it is different, but it's not really that much different and that they will always have control over the clinical decision to accept or decline this organ. Number two is to just make sure they understand that every penny that is involved in the service portion, not the technology portion, is a part of the organ acquisition cost center. That's really it. How much is baked into our guidance is -- listen, as I stated earlier, we know that we're going to double the revenue in 2022. Our focus right now is shifted to '23 and '24. We want to establish -- for the rest of this year, establish a very solid foundation for growth into '23 and '24. And for that we need to be patient, we need to give the centers the time -- the next wave of centers the time they need and convert these centers to be a long-term partner like the ones we've converted already, not just to have one case a quarter and then they disappear. So it's fully baked into our guidance. And what's baked in our guidance is our original expectation that we will end the year with somewhere between 10 to 12 center per organ. And when I say that, it is not 10 to 12 center that ordered once. It's 10 to 12 centers that use the technology a minimum of twice per month throughout the quarter. So that number is -- we're still far away from that, or in some organs compared to others. And our goal is to end the year at these numbers. And that's what's baked into the guidance.

[Calvin Chu, Morgan Stanley]

Got it, very clear. Thanks so much.

[Operator]

Thank you. Our next question comes from the line of Josh Jennings with Cowen. Your line is now open.

[Josh Jennings, Cowen]

Hi. Good evening. Thanks, gentlemen. Congratulations on another strong quarter. I wanted to just ask initially on guidance, another guidance question, I apologize, but just wanted to make sure I was clear that the top end of your guidance does not imply that you have a -- and the prudent observations you shared about some of the market conditions. But you're not implying that there's a capacity constraint where your current NOP infrastructure and also some of the supply constraints that may come as you're ramping in growth that there's not a limitation that 75 million isn't a ceiling for 2022, it's just your prudent outlook for the business for the back half of the year?

[Waleed Hassanein, President and CEO]

That's exactly correct, Josh. As I said to Bill, we are not experiencing any or we're not aware of any definitive headwind or a negative situation other than that demand is ramping up and far outpacing our original forecast and updated forecast. That's all I know. Because of that, I want to be prudent, I want to be cautious and I want to be conservative, because again, we take guidance very seriously. And I want to reiterate that. 75 is not the absolute ceiling for '22. It's the prudent number that we stand by to make sure that as we are scaling up and we're growing, that we're not inadvertently causing any disruption or any issues that may negatively impact our growth ability in '23. Again, our laser focus right now is to be able to be in the same situation in '23. So that's why we're being very deliberate and very cautious and giving the centers the time they need to make sure that we have the solid foundation exiting 2022.

[Josh Jennings, Cowen]

Excellent. That's clear. Thank you. And just my follow up on just the drive by CMS, HHS to reform the U.S. transplant network but also to grow volumes. I think there was a great data point that Arizona shared in terms of their liver transplant volume growth in 1Q after adopting NOP. Are there any other anecdotal cases you can share just in terms of high volume transplant centers in any organ indication where they've seen that type of growth? It seems like that's occurring and that Arizona is not a one-off. Thanks for taking the questions.

[Waleed Hassanein, President and CEO]

Thank you, Josh. I think rather than naming individual centers, I think I will reiterate what I've discussed publicly before. Based on what we see, based on the results of the first half of the year, we are almost certain that we will see an overall increase in the number of heart and liver transplants in '22 over '21, driven primarily by extensive use of DCD livers and DCD hearts using the OCS and NOP program. So there is more than Mayo Arizona, there's several large liver transplant programs that are becoming a significant one dependent on NOP and integrating the NOP into the workflow but also they're growing the volume by accessing distance donors, whether DBD or DCD, but definitely the DCD utilization in the United States is at all-time high throughout the first half of this year just looking at the OCS data and NOP data that we have.

[Josh Jennings, Cowen]

Great. Thank you.

[Operator]

Thank you. Our next question comes from the line of Suraj Kalia with Oppenheimer. Your line is now open.

[Suraj Kalia, Oppenheimer]

Good afternoon, Waleed, Stephen. Can you hear me all right?

[Waleed Hassanein, President and CEO]

We can hear you just fine, Suraj.

[Suraj Kalia, Oppenheimer]

Perfect. Congrats gentlemen on a nice quarter. So, Waleed, two questions. The first one, a multipart question. Waleed, how many sites were doing multiple organs and utilizing NOP? What would predispose one to use NOP for one organ and not another? And maybe Stephen could jump in, just give us some guideposts on the number of sites in each organ so that we can just somehow triangulate the utilization aspect?

[Waleed Hassanein, President and CEO]

Sure. So Suraj, approximately in Q2, there were a total of 15 centers that have multiple NOP programs within them that use OCS, 15 total across all three organs. The majority of the multi-program we are at least used in two out of the three if not three out of the three programs. What precludes is sometimes inherent center logistics, for example, one center that we are working with on the heart, it's been taking them four months to recruit additional lung transplant surgeons to get their lung transplant program back again up on its feet. So that's delaying them. It's just sometimes things are out of our own control. But we're confident that by year end, we will be able to -- with the initiatives that we're working on that we'll be able to get more and more center to adopt NOP. So that's question number one. The second part, which is the macro number of centers that we're after over the next two years, is the same number we discussed previously, anywhere between 30 to 40 transplant programs in each organ category drive 80% of the volume of that transplant market. And that's what we're going after, but over the next 24 months. Right now we want to exit '22 between 10 and 12 of those 30 to 40 programs converted to NOP and regularly using OCS as a part of their routine practice throughout the quarter.

[Stephen Gordon, CFO]

Yes. And Suraj, I think we look at it by organ, what I would say is we talked about 6 to 12. The high end is on the heart, we have a lot of heart centers, because we dealt with a lot of heart centers historically. And the low end is on the lung, which is kind of the challenged market with COVID and liver is somewhere in the middle. So without being specific, that should give you a sense of where we're at.

[Suraj Kalia, Oppenheimer]

Fair enough. And Waleed, just one additional question. So Waleed, is NOP really the key driver -- obviously, when we look at OUS, I'd love to -- you compare and contrast and tell us what would it take for OUS, obviously, there's a huge TAM in the U.S., we get it, but just kind of compare and contrast OUS, if you could? And Waleed, I did not hear you mentioned the shortages in the market of dobutamine and dopamine. Presumably that's not having an impact on you, but just love any additional color there? Gentlemen, congrats again and thank you for taking my questions.

[Waleed Hassanein, President and CEO]

Thank you, Suraj. I think the biggest macro difference between OUS and U.S. as it comes to implementing NOP are two things. One, their lack of national reimbursement in OUS markets. That is a huge impediment. The second is some of the European regulations are very, very different than U.S. regulations when it comes to organ transplant. For example, in Italy, it is illegal that any member of any other medical center to be accompanying a donor organ in the charter flight back to the transplant program. Some esoteric rules like that could make NOP difficult outside of the U.S. However, we have positive experiences with replicating NOP in the Netherlands. The only difference is the NOP model in the Netherlands that we worked with them to establish, it's fully managed and funded by the National Healthcare Authorities in the Netherlands. And they've grown their heart transplant volume by nearly 40% last year using the OCS equivalent of NOP in the Netherlands where three devices with three trained team covered the entire heart transplant programs in the Netherlands and they're doing great. As I stated in my previous call, there's an interest from the UK NHSBT to try to explore replicating the NOP from our expanse in the NOP for TransMedics to implement it in the UK. Again, dealing with NHSBT takes a long time. So we're working closely with them. And we will continue to pursue this. We're also pursuing hybrid NOP models in Germany and in Italy. But these are the initiatives that we have planted to continue to drive growth OUS until national reimbursements is achieved.

[Operator]

Thank you. Our next question comes from the line of Allen Gong with JPMorgan. Your line is now open.

[Allen Gong, JPMorgan]

Thanks. Congrats on the great quarter. Sorry to again touch on guidance, but I guess just to kind of like put it a different way, you've highlighted that there's a healthy amount of conservatism being put into your guidance, which I think we can all agree is really prudent given the continuing macro challenges. But with summer representing a bit of a challenge in third quarter and then holidays are presenting a bit of a challenge in fourth quarter, how should we really think about the cadence of growth from second quarter to third quarter and then fourth quarter? Does the middle range of guidance assume essentially flattish trends, or should we think of maybe a little bit of a softer third quarter and a step up in the fourth quarter?

[Stephen Gordon, CFO]

Hi, Allen. This is Stephen. I would think of it as a flattish trend. Waleed mentioned we saw rebound in July. So we have some indication that at least July was decent, so I would think of it as flattish over Q3 and Q4.

[Waleed Hassanein, President and CEO]

Yes, I agree. Again, we just want it to be as realistic and prudent as we can. We don't -- we hope that we don't see a down trend. But we expect -- if one of these things impact us, it will be more of a flat quarter-over-quarter.

[Allen Gong, JPMorgan]

Got it. And then how should we think about operating expense growth? I think relative to our own forecasts that came in a little bit higher than we were expecting in the quarter, which makes sense given all the investments you're doing and the momentum you have commercially. But I think the last time we got a guide from you was I think on fourth quarter of last year where you pointed to 25% to 30% expense growth. Since you're getting so much momentum, investing into that probably makes sense. Should we think about that as at least being at the higher end of that, or maybe even being even higher than 25% to 30%? Thanks a lot.

[Stephen Gordon, CFO]

Thanks, Allen. That's a good question, because we did see a little bit of higher spending than plan due to really supporting the growth that we're seeing and getting ahead of it. I think at the last call, I talked about expense growth at about a third of the rate of revenue. We probably need to take that up a little bit. So like from a third to maybe 40% at least for the next few quarters.

[Operator]

Thank you. There are no additional questions waiting at this time. So I'll pass the conference over to the management team for additional remarks.

[Waleed Hassanein, President and CEO]

Thank you all very much for taking the time to be in this call. We're looking forward to the next call. Have a great evening.

[Operator]

That concludes the TransMedics second quarter 2022 earnings conference call. Thank you for your participation. You may now disconnect your line.