What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2024-02-27 compared with 2023-02-27 · 7 added, 1241 removed, 17 unchanged (99% of the section changed)

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Certain Information Regarding the Trading of Our Common Stock

Our common stock trades under the symbol “TMDX”

on the Nasdaq Global Market and has been publicly traded since May 2, 2019.

Our common stock trades under the symbol “TMDX” on the Nasdaq Global Market and has been publicly traded since May 2, 2019.

Prior to this time, there was no public market for our common stock.

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Data for the NASDAQ Composite Index and the NASDAQ Healthcare Index assumed reinvestment of dividends.

COMPARISON OF 56 MONTH CUMULATIVE TOTAL RETURN

Among TransMedics Group, Inc., the NASDAQ Composite Index and the NASDAQ Healthcare Index

(1) This performance graph shall not be deemed to be "soliciting material" or to be "filed" with the SEC for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, or otherwise subject to the liabilities under that Section, and shall not be deemed incorporated by reference into any filings of TransMedics Group, Inc.

1 unchanged sentence

Holders of Our Common Stock

As of February 15, 2023, there were approximately 27 holders of record of shares of our common stock.

These amounts do not include stockholders for whom shares are held in “nominee”

or “street”

As of January 31, 2024, there were approximately 26 holders of record of shares of our common stock.

These amounts do not include stockholders for whom shares are held in “nominee” or “street” name.

Securities authorized for issuance under equity compensation plans

6 unchanged sentences

Any future determination to declare and pay cash dividends, if any, will be made at the discretion of our board of directors and will depend on a variety of factors, including applicable laws, our financial condition, results of operations, contractual restrictions, capital requirements, business prospects, general business or financial market conditions and other factors our board of directors may deem relevant.

In addition, our Credit Agreement contains covenants that restrict our ability to pay cash dividends.

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 Annual Report on Form 10-K.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, 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 in the “Item 1A.

Risk Factors”

section of this Annual Report on 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 analysis.

We are a commercial-stage medical technology company transforming organ transplant therapy for end-stage organ failure patients across multiple disease states.

We developed the OCS to replace a decades-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 National OCS Program, or NOP, an innovative turnkey solution to provide outsourced organ retrieval and OCS organ management, to provide transplant programs in the United States with a more efficient process to procure donor organs with the OCS.

We believe the use of the OCS combined with the NOP has the potential to significantly increase the number of organ transplants and improve post-transplant outcomes.

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 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 Food and Drug Administration, or FDA.

Also, all three of our products, OCS Heart, OCS Lung and OCS Liver are approved 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 expanding our National OCS Program;

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 borrowings under loan agreements, proceeds from the sale of common stock in our public offerings and revenue from clinical trials and commercial sales of our OCS products.

Since our inception, we have incurred significant operating losses.

Our ability to generate revenue sufficient to achieve profitability will depend on the successful further development and commercialization of our products.

We generated total revenue of $93.5 million and incurred a net loss of $36.2 million for the year ended December 31, 2022.

As of December 31, 2022, we had an accumulated deficit of $478.7 million.

We expect to continue to incur net losses for the foreseeable future as we focus on growing commercial sales of our products in both the United States and select non-U.S.

markets, including growing our commercial team, which will pursue increasing commercial sales of our OCS products;

expanding our NOP;

scaling our manufacturing and sterilization operations;

developing the next generation OCS;

continuing research, development and clinical trial efforts;

seeking regulatory clearance for new products and product enhancements, including additional indications or other organs, in both the United States and select non-U.S.

and 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.

Because of the numerous risks and uncertainties associated with product development and commercialization, 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.

Until such time, if ever, as we can generate substantial revenue sufficient to achieve profitability, we expect to 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 when, needed, we may 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.

As of December 31, 2022, we had cash of $201.2 million.

We believe that our cash will be sufficient for us to fund our operating expenses, capital expenditure requirements and debt service payments for at least 12 months following the filing of our Annual Report on Form 10-K.

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”.

Economic Impacts and COVID-19

Inflation, changes in trade 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 products as well as shipping and transportation 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 our products and pricing and availability of raw materials and components for our products, which could make it difficult to forecast our inventory needs and financial results.

The COVID-19 pandemic, including efforts to contain the spread of the coronavirus, has impacted, and may continue to impact, our business, financial condition, operating results and cash flows, including as a result of the impact of new variants or spikes in infection rates.

Continued impacts to our business as a result of COVID-19 may include disruptions to our manufacturing operations and supply chain;

labor shortages;

decreased productivity and unavailability of materials or components;

limitations on our employees’

and customers’

ability to travel, and delays in product installations, trainings or shipments to and from other affected countries and within the United States.

While we maintain an inventory of finished products and raw materials used in our OCS products, further prolonged pandemic-related disruptions could lead to shortages in the raw materials necessary to manufacture our products.

The extent to which COVID-19 impacts operations of our third-party partners will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

If we experience a prolonged disruption in our manufacturing, supply chains, or commercial operations, we would expect to experience a material adverse impact on our business, financial condition, results of operations and prospects.

Components of Our Results of Operations

We generate net product revenue primarily from sales of our single-use, organ-specific disposable sets used on our organ-specific OCS Consoles.

To a lesser extent, we also generate product revenue from the sale of OCS Consoles to customers and 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 and OCS organ management services under our NOP in the United States.

All of our 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 contracts have multiple-performance obligations that contain promises consisting of OCS Perfusion Sets and OCS Solutions and may also contain promises for organ retrieval and OCS organ management services under our NOP, and an OCS Console, whether sold or loaned to the customer.

When a customer order includes disposable sets and organ retrieval or OCS organ management services, we have determined that the disposable sets and services constitute separate performance obligations and we recognize revenue as the disposable sets and services are each delivered to the customer.

We have customer agreements under which we loan our OCS Consoles to the customer for the duration of the agreement.

In such cases, we place an organ-specific OCS Console at the customer site for its use free of charge, and the customer separately purchases from us the OCS disposable sets used in each transplant procedure.

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 selling price for the disposable set is an implied rental payment for use of the OCS Console.

Under some of our customer clinical trial agreements, we made payments to our customers for reimbursements of clinical trial materials and for specified clinical documentation related to their use of our OCS products.

Because some of these payments did not provide us with a separately identifiable benefit, we recorded such payments as a reduction of revenue from the customer, resulting in our net product revenue presentation.

Through December 31, 2022, all of our sales outside of the United States have been commercial sales (unrelated to any clinical trials).

Our sales in the EU are dependent on obtaining and maintaining the CE Mark certifications for each of our OCS products.

As required by the EU Medical Devices Regulation (Regulation 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 Liver Console and disposables.

We have applied for and expect to receive the CE Mark for the OCS Liver combined with our solution additives under the MDR within the next 12 months.

We expect that our revenue will increase over the long term as a result of receiving PMAs for the OCS Lung, OCS Heart and OCS Liver in the United States and as a result of the continued expansion of the NOP in the United States.

We also expect that our revenue will increase over the long term as a result of anticipated growth in non-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.

Cost of Revenue, Gross Profit and Gross Margin

Cost of net product revenue consists 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 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 it over its five-year estimated useful life.

Included in the cost of OCS disposable sets are the costs of our OCS Lung, OCS Heart and OCS Liver Solutions.

Cost of service revenue primarily consists of labor and overhead and transportation costs that directly support organ retrieval and OCS organ management services.

We expect that cost of revenue will increase or decrease in absolute dollars primarily as, and to the extent that, our revenue increases or decreases.

Gross profit is the amount by which our revenue exceeds our cost of revenue in each reporting period.

We calculate gross margin as gross profit divided by revenue.

Our gross margin has been and will continue to be affected by a variety of factors, primarily production volumes, the cost of components and direct materials, manufacturing overhead costs, direct labor, the cost of services provided under the NOP and the selling price of our OCS products and NOP services.

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 economies of 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 gross margin.

We also expect to see modest improvements in the future in our gross margin on services as we provide more services and the efficiency in provisioning of these services improves due to scale and experience.

While we expect our gross margins to increase over the long term, they 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:

employee-related expenses, including salaries, related benefits and stock-based compensation expense for employees engaged in research, hardware and software development, regulatory and clinical trial functions;

expenses incurred in connection with the clinical trials of our products, including under agreements with third parties, such as consultants, contractors and data management organizations;

the cost of maintaining and improving our product designs, including the testing of materials and parts used in our products;

laboratory supplies and research materials;

facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities and insurance.

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 approval efforts.

We expect to continue to perform activities related to obtaining additional regulatory approvals for expanded indications in the United States and other served geographies, as well as developing the next generation of our OCS technology platform.

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 commercial team and personnel in executive, marketing, finance and administrative functions.

Selling, general and administrative expenses also include direct and allocated facility-related costs, logistics costs, promotional activities, marketing, conferences and trade show costs as well as professional fees for legal, patent, consulting, investor and public relations, accounting and audit services.

We expect to continue to increase headcount in our commercial team and increase marketing efforts as we continue to grow commercial sales of our OCS products in both U.S.

and select non-U.S.

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 and our National OCS Program.

Other Income (Expense)

Interest Expense

Interest expense consists of interest expense associated with outstanding borrowings under our loan agreements as well as the amortization of debt discount associated with such agreements.

In July 2022, we entered into a credit agreement with Canadian Imperial Bank of Commerce, or CIBC, under which we borrowed $60.0 million.

At that time, we repaid the remaining $35.0 million of principal that had been outstanding under our prior credit agreement with OrbiMed Royalty Opportunities II, LP, or OrbiMed.

Other Income (Expense), Net

Other income (expense), net includes interest income, realized and unrealized foreign currency transaction gains and losses and other non-operating income and expense items unrelated to our core operations.

Interest income consists of interest earned on our invested cash balances.

Foreign currency transaction gains and losses result from intercompany transactions 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.

We record provisions for foreign income taxes of an insignificant amount related to the operations of one of our foreign subsidiaries.

As of December 31, 2022, we had federal net operating loss carryforwards of $378.5 million, which may be available to offset future taxable income, of which $209.5 million of the total net operating loss carryforwards expire at various dates beginning in 2023, while the remaining $169.0 million do not expire but are limited in their usage to an annual deduction equal to 80% of annual taxable income.

As of December 31, 2022, we had state net operating loss carryforwards of $321.2 million, which may be available to offset future taxable income and expire at various dates beginning in 2030.

As of December 31, 2022, we also had U.S.

federal and state research and development tax credit carryforwards of $9.0 million and $5.5 million, respectively, which may be available to offset future tax liabilities and begin to expire in 2023 and 2024, respectively.

As of December 31, 2022, 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 the Years Ended December 31, 2022, 2021 and 2020

The following table summarizes our results of operations for the years ended December 31, 2022, 2021 and 2020:

Year Ended December 31,

(in thousands)

Net product revenue

Service revenue

Total revenue

Cost of revenue:

Cost of net product revenue

Cost of service revenue

Total cost of revenue

Operating expenses:

Research, development and clinical trials

Selling, general and administrative

Total operating expenses

Loss from operations

Other income (expense):

Interest expense

Other income (expense), net

Total other expense, net

Loss before income taxes

Provision for income taxes

Comparison of the Years Ended December 31, 2022 and 2021

Year Ended December 31,

Revenue by country by organ:

United States

Lung total revenue

Heart total revenue

Liver total revenue

Total United States revenue

All other countries

Heart revenue

Liver revenue

Total all other countries revenue

Total revenue

Revenue from customers in the United States was $84.0 million in the year ended December 31, 2022 and increased by $62.2 million compared to the year ended December 31, 2021, primarily due to higher sales volumes of our OCS Liver and OCS Heart disposable sets, partially offset by lower sales volumes of our 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 from organ retrieval and OCS organ management services under the NOP in the United States.

Revenue from customers who participated in our NOP accounted for approximately 89% of total revenue from customers in the United States for the year ended December 31, 2022.

Revenue from sales of OCS Liver disposable sets and organ retrieval and OCS organ management services in the United States increased by $44.3 million due primarily to higher sales volumes of OCS Liver disposable sets resulting from the recent FDA approval of the OCS Liver product and the expansion of our National OCS Program during the year ended December 31, 2022.

Revenue from sales of OCS Heart disposable sets and organ retrieval and OCS organ management services in the United States increased by $19.8 million also primarily as a result of the FDA approval of the OCS Heart in the third quarter of 2021 and the additional DCD Heart PMA supplement indication approved by the FDA in April 2022, as well as the expansion of the National OCS Program during the year ended December 31, 2022.

Revenue from sales of OCS Lung disposable sets and organ retrieval and OCS organ management services in the United States decreased by $1.9 million due to a decrease in sales volumes of OCS Lung disposable sets.

Revenue from customers outside the United States was $9.4 million in the year ended December 31, 2022 and increased by $1.0 million compared to the year ended December 31, 2021.

Revenue outside of the United States increased for the year ended December 31, 2022 compared to the year ended December 31, 2021 due to increased pricing and increased sales volumes of OCS Lung, OCS Heart and OCS Liver disposable sets.

This increase was partially offset by an unfavorable impact of foreign exchange rates of $0.8 million.

Cost of Revenue, Gross Profit and Gross Margin

Cost of net product revenue increased by $7.9 million from $9.0 million in the year ended December 31, 2021 to $17.0 million in the year ended December 31, 2022.

Cost of service revenue increased by $11.1 million from $0.1 million in the year ended December 31, 2021 to $11.2 million in the year ended December 31, 2022, as the National OCS Program launched in late 2021.

Gross profit increased by $44.1 million in the year ended December 31, 2022 compared to the year ended December 31, 2021.

Gross profit in the year ended December 31, 2022 included a favorable impact of $1.4 million as a result of changes in estimates of certain clinical trial accruals.

Gross margin from net product revenue was 79% and 70% for the years ended December 31, 2022 and 2021, respectively.

Gross margin from net product revenue increased primarily as a result of economies of scale from higher sales volumes and increased sales of higher priced OCS disposable sets in the United States.

Gross margin from service revenue was 21% for the year ended December 31, 2022 and consisted primarily of organ retrieval and OCS organ management services under our NOP.

Service revenue for the year ended December 31, 2021 consisted primarily of a small amount of organ management services provided prior to the expansion of our NOP and training services provided to direct acquisition customers.

Operating Expenses

Research, Development and Clinical Trials Expenses

Year Ended December 31,

(in thousands)

Personnel related (including stock-based compensation

Clinical trials costs

Consulting and third-party testing

Laboratory supplies and research materials

Total research, development and clinical trials

Total research, development and clinical trials expenses increased by $4.5 million from $22.3 million in the year ended December 31, 2021 to $26.8 million in the year ended December 31, 2022.

Personnel related costs increased by $1.3 million primarily due to an increase in stock-based compensation expense of $0.4 million related to additional grants to new and existing employees as well as an increase in headcount.

Consulting and third-party testing, laboratory supplies and research materials, and other costs increased by $0.9 million, $2.6 million and $1.2 million, respectively, due to increased activity in our next generation program and ongoing existing research activities.

Clinical trial costs decreased by $1.4 million due to the completion of pre-market approval clinical trial enrollment activity following the approval of the OCS Heart and OCS Liver by the FDA in September 2021.

Selling, General and Administrative Expenses

Year Ended December 31,

(in thousands)

Personnel related (including stock-based compensation

Professional and consultant fees

Tradeshows and conferences

Logistics and other

Total selling, general and administrative expenses

Total selling, general and administrative expenses increased by $31.6 million from $38.3 million in the year ended December 31, 2021 to $69.9 million in the year ended December 31, 2022 due to increases in personnel related costs, professional and consultant fees, tradeshows and conferences and logistics and other costs.

Personnel related costs increased by $18.1 million primarily due to the continued expansion of our team to support the National OCS Program and commercial growth of our OCS Heart and OCS Liver products in the United States, as well as an increase in stock-based compensation

expense of $3.0 million due primarily to additional grants to new and existing employees.

Professional and consultant fees increased by $1.0 million due to additional sales and administration costs related to the expansion of our National OCS Program.

Tradeshows and conferences costs increased by $2.9 million as a result of increased in-person activities as restrictions implemented in response to the COVID-19 pandemic were eased.

Logistics and other costs increased by $9.6 million due to increased start-up and logistics costs related to the expansion of our National OCS Program.

Other Income (Expense)

Interest Expense

Interest expense was $3.7 million and $3.9 million for the years ending December 31, 2022 and 2021, respectively.

The decrease was due to a lower interest rate for our indebtedness under the CIBC Credit Agreement, partially offset by an increase in the principal amount of the loan outstanding compared to the principal that had been outstanding under our prior credit agreement with OrbiMed.

Other Expense, Net

Other expense, net for the years ended December 31, 2022 and 2021 included interest income of $0.9 million and $0.1 million, respectively, resulting from higher interest earned on our invested cash balances.

Other expense, net also included $1.3 million and $1.0 million of realized and unrealized foreign currency transaction losses, respectively.

Other expense, net for the year ended December 31, 2022 also included a loss on extinguishment of debt of $0.6 million.

Comparison of the Years Ended December 31, 2021 and 2020

For a discussion of our results of operations for the year ended December 31, 2021 as compared to the year ended December 31, 2020, see Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Components of Our Results of Operations—Comparison of the Years Ended December 31, 2021 and 2020 included in our Annual Report on Form 10-K for the year ended December 31, 2021.

Liquidity and Capital Resources

At December 31, 2022, our principal source of liquidity was cash of $201.2 million.

Since our inception, we have incurred significant operating losses.

The following table summarizes our sources and uses of cash for each of the periods presented:

Year Ended December 31,

(in thousands)

Cash used in operating activities

Cash provided by (used in) investing activities

Cash provided by financing activities

Effect of exchange rate changes on cash, cash equivalents and

restricted cash

Net increase in cash, cash equivalents and restricted cash

Operating Activities

During the year ended December 31, 2022, operating activities used $45.8 million of cash, primarily resulting from our net loss of $36.2 million and net cash used by changes in our operating assets and liabilities of $26.8 million, partially offset by net non-cash charges of $17.2 million.

Net cash used by changes in our operating assets and liabilities for the year ended December 31, 2022 consisted primarily of an increase in accounts receivable of $21.7 million and an increase in inventory of $8.0 million, partially offset by a decrease in prepaid expenses of $2.5 million.

During the year ended December 31, 2021, operating activities used $28.9 million of cash, primarily resulting from our net loss of $44.2 million, partially offset by net non-cash charges of $12.3 million and net cash provided by changes in our operating assets and liabilities of $3.0 million.

Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2021 consisted primarily of an increase in accounts payable and accrued expenses and other current liabilities of $10.0 million and a decrease in accounts receivable of $0.8 million, partially offset by an increase in inventory of $4.9 million and an increase in prepaid expenses and other current assets of $3.2 million.

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 and timing of invoices and payments.

Investing Activities

During the year ended December 31, 2022, net cash provided by investing activities of $54.5 million consisted of proceeds from sales and maturities of marketable securities of $76.9 million, partially offset by $10.5 million in purchases of marketable securities and $11.9 million in purchases of property and equipment.

During the year ended December 31, 2021, net cash provided by investing activities of $29.3 million consisted of proceeds from sales and maturities of marketable securities of $104.8 million, partially offset by $72.0 million in purchases of marketable securities and $3.5 million in purchases of property and equipment.

Financing Activities

During the year ended December 31, 2022, net cash provided by financing activities of $167.9 million consisted of net proceeds from our public offering in August 2022 of $139.9 million, net proceeds from the issuance of long-term debt of $58.5 million, proceeds from the issuance of common stock upon exercise of stock options of $4.7 million, proceeds from the issuance of common stock in connection with the 2019 Employee Stock Purchase Plan of $0.5 million and proceeds from the issuance of common stock upon exercise of warrants of $0.4 million, partially offset by the repayments of long-term debt of $36.1 million.

During the year ended December 31, 2021, net cash provided by financing activities of $1.4 million consisted of proceeds from the issuance of common stock upon exercise of stock options of $1.0 million and proceeds from the issuance of common stock in connection with the employee stock purchase plan of $0.4 million.

For a discussion of our cash flows for the year ended December 31, 2020, see Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Cash Flows included in our Annual Report on Form 10-K for the year ended December 31, 2021.

Long-Term Debt

In July 2022, we entered into a credit agreement with CIBC pursuant to which we borrowed $60.0 million, referred to herein as the CIBC Credit Agreement.

We used proceeds of the CIBC Credit Agreement to repay all amounts due under our credit agreement with OrbiMed, which was entered into in June 2018.

Borrowings under the CIBC Credit Agreement bear interest at an annual rate equal to either, at our option, (i) the secured overnight financing rate for an interest period selected by us, subject to a minimum of 1.5%, plus 2.0% or (ii) 1.0% plus the higher of a) the prime rate, subject to a minimum of 4.0% or b) the Federal Funds Effective Rate, plus 0.5%.

Borrowings under the CIBC Credit Agreement are payable in monthly interest-only payments for the first 24 months, and then payable in equal monthly principal payments plus accrued interest until the maturity date of the CIBC Credit Agreement in July 2027.

If certain revenue milestones are met after the first 24 months, we may extend the interest-only repayment period by one additional year.

At our option, we may prepay borrowings outstanding under the CIBC Credit Agreement, subject to a prepayment fee of 2.0% of outstanding borrowings if paid prior to 12 months after the closing date, and 1.0% if paid after 12 months but prior to 24 months after the 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.

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, among other covenants, (x) a requirement to maintain a minimum liquidity

amount of the greater of either (i) the consolidated adjusted EBITDA loss (or gain) for the trailing four month period (only if EBITDA is negative) and (ii) $10.0 million, and (y) a requirement to maintain total net revenue of at least 75% of the level set forth in the total revenue plan presented to 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 and a material adverse change in our business, operations or financial condition.

As of December 31, 2022, we were in compliance with all covenants of the CIBC Credit Agreement.

During the continuance of an event of default, the interest rate per annum will be equal to the rate that would have otherwise been applicable at the time of the event of default plus 2.0%.

If an event of default (other than certain events of bankruptcy or insolvency) occurs and is continuing, CIBC 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.

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 commercial team, grow our National OCS Program, scale our manufacturing and sterilization operations, continue research, development and clinical trial efforts, and seek regulatory approval for new products and product enhancements, including new indications, both in the United States and in select non-U.S.

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:

the amount of net product revenue generated by sales of our OCS Consoles, OCS disposable sets and other products that may be approved in the United States and select non-U.S.

markets, revenue generated by our services, and expansion of the NOP;

the costs and expenses of expanding our U.S.

sales and marketing infrastructure and our manufacturing operations;

the extent to which our OCS products are adopted by the transplant community;

the ability of our customers to obtain adequate reimbursement from third-party payors for procedures performed using the OCS products;

the degree of success we experience in commercializing our OCS products for additional indications;

the costs, timing and outcomes of post-approval studies or any future clinical studies and regulatory reviews, including to seek and obtain approvals for new indications for our OCS products;

the emergence of competing or complementary technologies or procedures;

the number and types of future products we develop and commercialize;

the cost of development of the next generation OCS;

the costs associated with building our commercial operations;

the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims;

the level of our selling, general and administrative expenses.

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 our annual report on Form 10-K.

We may need to raise additional funding, which might not be available on favorable terms or at all.

See “Item 1A.

Risk Factors—Risks Related to Our Financial Position and Need for Additional Capital”

in this Annual Report on Form 10-K.

Material Contractual Obligations

Our contractual obligations include amounts payable as principal and interest payments under the CIBC Credit Agreement.

As of December 31, 2022, our outstanding principal balance was $60.0 million and is due in 2027.

We estimate we will pay $3.7 million in interest payments during 2023.

Our estimate of payments is based on an assumed rate of 6.1%, which was the interest rate in effect at December 31, 2022.

We lease our facilities under non-cancelable operating leases that have remaining lease terms of 5 years as of December 31, 2022.

As of December 31, 2022, we had fixed lease payment obligations of $10.5 million, of which $2.0 million is payable during 2023.

In January 2021, we 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.

As of December 31, 2022, our remaining purchase commitment is $7.0 million.

We also enter into other contracts in the normal course of business with consulting firms, material suppliers and other third parties for clinical trials and testing and manufacturing services.

These contracts do not contain minimum purchase commitments and are cancelable by us upon prior written notice.

Payments due upon cancellation consist only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation.

These payments are not included in the discussion above as the amount and timing of such payments are not known.

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.

While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

We generate net product revenue primarily from sales of our single-use, organ-specific disposable sets used on our organ-specific OCS Consoles.

To a lesser extent, we also generate revenue from the sale of OCS Consoles to customers and 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 and OCS organ management services under our NOP in the United States.

We recognize 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 contract, and (5) recognition of revenue when, or as, performance obligations are satisfied.

Substantially all of our customer contracts have multiple-performance obligations that contain deliverables consisting of OCS Perfusion Sets and OCS Solutions.

Customer contract deliverables may also include organ retrieval and OCS organ management services under our National OCS Program or an OCS Console, whether sold or loaned to the customer.

We evaluate each promise within a multiple-performance obligation arrangement to determine whether it represents a distinct performance obligation.

The primary performance obligations in our customer arrangements from which we derive revenue are the OCS Perfusion Sets, the OCS Solutions, the OCS Console, organ retrieval services and OCS organ management services.

When a customer order includes an OCS Console, we have determined that customer training and the equipment set-up of the OCS Console, each performed by us, are not distinct because they are not sold on a standalone basis and can only be performed by us in conjunction with a sale or loan of our OCS Console.

In addition, we have determined that the OCS Console itself is not distinct because the customer cannot benefit from the OCS Console without the training and equipment set-up having been completed.

As a result, when the order includes an OCS Console, we have concluded that training, OCS Console equipment set-up, and the OCS Console itself are highly interdependent and represent a single, combined performance obligation.

We recognize revenue from the single, combined performance obligation only once the OCS Console has arrived at the customer site and the training and equipment set-up have been completed by us.

Customer orders may include the loan of an OCS Console as well as OCS disposable sets used in each transplant procedure.

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.

Therefore, we allocate 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 of each distinct performance obligation.

To date, the amounts allocated to lease deliverables have been insignificant.

Revenue from sales to customers of OCS Perfusion Sets, OCS Solutions and OCS Consoles is classified as net product revenue in the our consolidated statements of operations.

Revenue from sales to customers of organ retrieval and OCS organ management services is classified as service revenue in our consolidated statements of operations.

Revenue is recognized when control is transferred to the customer in an amount that reflects the consideration we expect to be entitled to in exchange for the product or services.

Payments Made to Customers

We also make payments to customers involved in post-approval studies for information related to the transplant procedures performed.

We determine the appropriate accounting treatments for these payments depending on the nature of the payment and whether they are for distinct goods or services.

Other Revenue Considerations

Revenue is reported net of taxes.

We do not consider shipping to be a contract performance obligation, therefore shipping costs incurred and billed to customers are recorded as revenue and cost of revenue.

We only include 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.

We do not assess whether promised goods or services are performance obligations if they are deemed immaterial in the context of the contract with the customer.

Additionally, we do not assess whether a contract has a significant financing component if the expectation at contract inception is that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.

Stock-Based Compensation

We account for stock-based awards granted to employees, non-employees and directors based on the fair value of the award on the date of grant.

The fair value of option awards is measured using the Black-Scholes option-pricing model.

The fair value of restricted common stock awards is measured based on the difference between market value of our common stock on date of grant and the purchase price (if any).

Generally, we issue awards with only service-based vesting conditions and record the expense for these awards using the straight-line method.

Compensation expense for those awards is recognized over the requisite service which is generally the vesting period of the respective award.

We account for forfeitures as they occur and

record compensation cost assuming all option holders will complete the requisite service period.

If an award is forfeited, we reverse compensation expense previously recognized in the period the award is forfeited.

The Black-Scholes option-pricing model uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of our common stock options, the risk-free interest rate for a period that approximates the expected term of our common stock options, and our expected dividend yield.

Valuation of Inventory

We value inventory at the lower of cost or net realizable value, with cost computed using the first-in, first-out method.

We regularly review inventory quantities on-hand for excess and obsolete inventory and, when circumstances indicate, record charges to write down inventories to their estimated net realizable value, after evaluating historical sales, future demand, market conditions and expected product life cycles.

Such charges are classified as cost of revenue in our consolidated statements of operations.

Any write-down of inventory to net realizable value creates a new cost basis.

The reserve for excess and obsolete inventory was $0.3 million as of December 31, 2022 and 2021.

At the end of each reporting period, we assess whether losses should be accrued on long-term manufacturing purchase commitments in accordance with ASC 330, Inventory , which requires that losses that are expected to arise from firm, noncancelable and unhedged commitments for the future purchase of inventory, measured in the same way as inventory losses, should be recognized in the current period in the statements of operations unless they are deemed recoverable through firm sales contacts or when there are other circumstances that reasonably assure continuing sales without price decline.

As of the end of each reporting period presented in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we did not identify any potential losses arising from remaining future purchase commitments as compared to estimated future customer sales through the remainder of the term of the manufacturing purchase commitment and, as a result, did not recognize in a current period any loss provision for future-period remaining purchase commitments.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Quantitative and Qualitati ve Disclosures About 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 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.

Foreign Currency Exchange Risk

Our foreign currency transaction exposure results primarily from intercompany transactions and transactions with customers or vendors denominated in currencies other than the functional currency of the legal entity in which the transaction is recorded by us.

Assets and liabilities arising from such transactions are translated into the legal entity’s functional currency using the period-end exchange rates.

Foreign currency transaction gains (losses) are included in the consolidated statements of operations as a component of other income (expense).

We recognized foreign currency transaction losses of $1.3 million during the year ended December 31, 2022.

Foreign currency translation exposure results from the translation of the financial statements of our subsidiaries whose functional currency is not the U.S.

dollar into U.S.

dollars for consolidated reporting purposes.

Assets and liabilities of these 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 loss, a separate component of stockholders’

equity on our consolidated balance sheets.

We recorded a foreign currency translation loss of $0.1 million during the year ended December 31, 2022.

For the year ended December 31, 2022, 9% of our revenue and 4% of our operating costs and expenses were generated by subsidiaries whose functional currency is not the U.S.

dollar and therefore are subject to foreign currency exposure.

Currently, our largest foreign currency exposure is that with respect to the Euro.

We believe that a 10% change in the exchange rate between the U.S.

dollar and Euro would not materially impact our operating results or financial position.

We have experienced and we will continue to experience fluctuations in our net loss as a result of revaluing our assets and liabilities that are not denominated in the functional currency of the entity that recorded the asset or liability.

At this time, we do not hedge our foreign currency risk.

Interest Rate Sensitivity

In July 2022, we entered into our CIBC Credit Agreement with CIBC.

As of December 31, 2022 borrowings outstanding under the CIBC Credit Agreement totaled $60.0 million and the interest rate applicable to such borrowings was 6.1%.

An immediate 10% change in the Federal Funds Effective Rate would not have a material impact on our debt-related obligations, financial position or results of operations.

Financial Statement s and Supplementary Data.

TRANSMEDICS GROUP, INC.

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm (PCAOB ID 238 )

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Comprehensive Loss

Consolidated Statements of Stockholders’

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of TransMedics Group, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of TransMedics Group, Inc.

and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, of comprehensive loss, of stockholders’

equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2021.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control over Financial Reporting appearing under Item 9A.

Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition

As described in Note 2 to the consolidated financial statements, the Company recorded $93.3 million in total revenues for the year ended December 31, 2022.

The Company generates product revenue, from sales of its single-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 of the Company’s Organ Care System (OCS) products, and service revenue, by providing outsourced organ retrieval and OCS organ management services under the Company’s National OCS Program.

Substantially all of the Company’s customer contracts have multiple-performance obligations.

Deliverables consist of OCS Perfusion Sets and OCS Solutions.

In some of those customer contracts, the deliverables also include an OCS Console, whether sold or loaned to the customer.

Management evaluates each promise within a multiple-performance obligation arrangement to determine whether it represents a distinct performance obligation.

Management has concluded that training, OCS Console equipment set-up, and the OCS Console itself are highly interdependent and represent a single, combined performance obligation.

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.

Control is transferred for the OCS products typically only after the product has arrived at the customer site and, in addition for OCS Consoles, the training and equipment set-up have been completed by the Company.

Additionally, under the National OCS program, service deliverables available to customers include organ retrieval and OCS organ management, which are distinct performance obligations and are recognized as service revenue when the services occur.

The principal considerations for our determination that performing procedures relating to revenue recognition is a critical audit matter are the high degree of auditor effort in performing procedures and in evaluating audit evidence related to management’s determination of the point in time when control of the OCS product or products is transferred to the customer or services are performed and revenue is recognized.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the existence and point in time when control is transferred to the customer.

These procedures also included, among others, evaluating, for a sample of transactions, the existence of transactions recognized as revenue, as well as evaluating the appropriate timing of revenue recognition by obtaining and inspecting customer purchase orders and, where applicable, invoices, customer agreements, shipping documents and cash receipts from customers.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

February 27, 2023

We have served as the Company’s auditor since 2001.

TRANSMEDICS GROUP, INC.

CONSOLIDATED BA LANCE SHEETS

(In thousands, except share amounts)

Current assets:

Cash and cash equivalents

Marketable securities

Accounts receivable

Prepaid expenses and other current assets

Total current assets

Property and equipment, net

Restricted cash

Operating lease right-of-use assets

Liabilities and Stockholders’

Current liabilities:

Accounts payable

Accrued expenses and other current liabilities

Deferred revenue

Operating lease liabilities

Total current liabilities

Long-term debt, net of discount and current portion

Operating lease liabilities, net of current portion

Total liabilities

Commitments and contingencies (Note 13)

Stockholders’

Preferred stock, no par value;

25,000,000 shares authorized;

issued or outstanding

Common stock, no par value;

150,000,000 shares authorized;

32,141,368 shares and

27,791,615 shares issued and outstanding at December 31, 2022 and 2021, respectively

Accumulated other comprehensive loss

Accumulated deficit

Total stockholders’

Total liabilities and stockholders’

The accompanying notes are an integral part of these consolidated financial statements.

TRANSMEDICS GROUP, INC.

CONSOLIDATED STATEM ENTS OF OPERATIONS

(In thousands, except share and per share amounts)

Year Ended December 31,

Net product revenue

Service revenue

Total revenue

Cost of revenue:

Cost of net product revenue

Cost of service revenue

Total cost of revenue

Operating expenses:

Research, development and clinical trials

Selling, general and administrative

Total operating expenses

Loss from operations

Other income (expense):

Interest expense

Other income (expense), net

Total other expense, net

Loss before income taxes

Provision for income taxes

Net loss per share attributable to common stockholders, basic

Weighted average common shares outstanding, basic and diluted

The accompanying notes are an integral part of these consolidated financial statements.

TRANSMEDICS GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

Year Ended December 31,

Other comprehensive loss:

Foreign currency translation adjustment

Unrealized gains (losses) on marketable securities, net of tax of $ 0

Total other comprehensive loss

Comprehensive loss

The accompanying notes are an integral part of these consolidated financial statements.

TRANSMEDICS GROUP, INC.

CONSOLIDATED STATEMENTS O F STOCKHOLDERS’

(In thousands, except share amounts)

Stockholders’

Balances at December 28, 2019

Issuance of common stock upon

the exercise of common stock

Issuance of common stock in

connection with employee stock

purchase plan

Issuance of common stock in

public offering, net of

discounts and issuance

costs of $ 585

Stock-based compensation

Foreign currency translation

Unrealized losses on

marketable securities

Balances at December 31, 2020

Issuance of common stock

upon the exercise of

common stock options

Issuance of common stock in

connection with employee

stock purchase plan

Stock-based compensation

Foreign currency

translation adjustment

Unrealized losses on

marketable securities

Balances at December 31, 2021

Issuance of common stock in public

offering, net of discounts and

issuance costs of $ 676

Issuance of common stock upon the

exercise of common stock options

Issuance of common stock in

connection with employee stock

purchase plan

Issuance of restricted common stock

Restricted common stock forfeitures

Issuance of common stock in

connection with exercise of warrants

Stock-based compensation expense

Foreign currency translation

Unrealized gains on marketable

Balances at December 31, 2022

The accompanying notes are an integral part of these consolidated financial statements.

TRANSMEDICS GROUP, INC.

CONSOLIDATED STATEME NTS OF CASH FLOWS

(In thousands)

Year Ended December 31,

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization expense

Stock-based compensation expense

Loss on extinguishment of debt

Loss on sale of marketable securities

Non-cash interest and end of term accretion expense

Non-cash lease expense

Net amortization of premiums on marketable securities

Unrealized foreign currency transaction (gains) losses

Changes in operating assets and liabilities:

Accounts receivable

Prepaid expenses and other current assets

Accounts payable

Accrued expenses and other current liabilities

Deferred revenue

Operating lease liabilities

Deferred rent

Net cash used in operating activities

Cash flows from investing activities:

Purchases of property and equipment

Purchases of marketable securities

Proceeds from sales and maturities of marketable securities

Net cash provided by (used) in investing activities

Cash flows from financing activities:

Proceeds from issuance of long-term debt, net of issuance costs

Repayments of long-term debt

Proceeds from issuance of common stock in public offering, net

of underwriting discounts and commissions and issuance costs paid

Proceeds from issuance of common stock upon exercise of stock options

Proceeds from issuance of common stock upon exercise of warrants

Proceeds from issuance of common stock in connection with employee stock

purchase plan

Proceeds from Paycheck Protection Program loan

Repayment of Paycheck Protection Program loan

Net cash provided by financing activities

Effect of exchange rate changes on cash, cash equivalents and restricted cash

Net increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

Cash, cash equivalents and restricted cash, end of period

Supplemental disclosure of cash flow information:

Cash paid for interest

Supplemental disclosure of non-cash investing and financing activities:

Transfers of inventory to property and equipment

Purchases of property and equipment included in accounts payable and

accrued expenses

Reconciliation of cash, cash equivalents and restricted cash:

Cash and cash equivalents

Restricted cash

Total cash, cash equivalents and restricted cash shown in the statement of cash

The accompanying notes are an integral part of these consolidated financial statements.

TRANSMEDICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 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 therapy for end-stage organ failure patients across multiple disease states.

The Company developed the Organ Care System (“OCS”) to replace a 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 and OCS organ management, to provide transplant programs in the United States with a more efficient process to procure donor organs with the OCS.

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 a net loss of $ 36.2 million for the year ended December 31, 2022.

As of December 31, 2022, the Company had an accumulated deficit of $ 478.7 million.

The Company expects to continue to generate operating losses in the foreseeable future.

The Company believes that its existing cash of $ 201.2 million as of December 31, 2022 will be sufficient to fund its operations, capital expenditures, and debt service payments for at least the next 12 months following the filing of this Annual Report on Form 10-K.

The Company 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, 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.

The Company’s research and development may not be successfully completed, adequate protection for the Company’s technology may not be obtained, the Company may not obtain necessary government regulatory approval on its expected timeline or at all, and approved products may not prove commercially viable.

The Company operates in an environment of rapid change in technology and competition.

The impact of the COVID-19 pandemic has been and may continue to be extensive in many aspects of society, which has resulted in and may continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world.

Continued impacts to the Company’s business as a result of COVID-19 may include disruptions to the Company’s manufacturing operations and supply chain;

labor shortages;

decreased productivity and unavailability of materials or components;

limitations on its employees’

and customers’

ability to travel, and delays in product installations, trainings or shipments to and from other affected countries and within the United States.

While the Company maintains an inventory of finished products and raw materials used in its OCS products, a further prolonged pandemic could lead to shortages in the raw materials necessary to manufacture its products.

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 owned subsidiaries.

All intercompany accounts and transactions have been eliminated in consolidation.

Summary of Significant Accounting Policies

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 consolidated financial statements include, but are not limited to, revenue recognition, the valuation of inventory and the valuation of stock-based 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 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, cash equivalents, marketable securities and accounts receivable.

The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

As of December 31, 2022 and 2021, the Company had no allowance for credit losses.

Significant customers are those that accounted for 10 % or more of the Company’s revenue or accounts receivable.

For the year ended December 31, 2022, one customer accounted for 14 % of revenue.

For the year ended December 31, 2021, one customer accounted for 11 % of revenue.

For the year ended December 31, 2020, two customers accounted for 14 % and 10 % of revenue, respectively.

As of December 31, 2022, no customer accounted for 10 % or more of accounts receivable.

As of December 31, 2021, two customers accounted for 21 % and 15 % of accounts receivable, respectively.

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, as are sterilization services.

Although the Company seeks to reduce dependence on those limited sources of suppliers, manufacturers and 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 Financing Costs

Deferred financing costs related to a recognized debt liability are recorded as a reduction of the carrying amount of the debt liability and amortized to interest expense using the effective interest method over the repayment term of the debt.

Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.

Restricted Cash

As of December 31, 2022 and 2021, the Company maintained two letters of credit totaling $ 0.5 million for the benefit of the landlord of its leased property.

The Company was required to maintain a separate cash balance of $ 0.5 million to secure the letters of credit.

Related to this separate cash balance, the Company classified $ 0.5 million as restricted cash (non-current) on its consolidated balance sheets as of December 31, 2022 and 2021.

Accounts Receivable

Accounts receivable are presented net of an allowance for credit losses, which is an estimate of amounts that may not be collectible.

The Company performs ongoing credit evaluations of its customers and monitors economic conditions to identify facts and circumstances that may indicate its receivables are at risk of collection.

The Company provides reserves against accounts receivable for estimated credit losses, if any, that may result from a customer’s inability to pay based on the

composition of its accounts receivable, current economic conditions and historical credit loss activity.

Amounts deemed uncollectible are charged or written-off against the reserve.

As of December 31, 2022 and 2021, the Company had no allowance for credit losses.

During the years ended December 31, 2022, 2021 and 2020, the Company did no t record any provisions for credit losses.

During the year ended December 31, 2022, the Company wrote off less than $ 0.1 million of accounts receivable balances.

During the years ended December 31, 2021 and 2020, the Company did no t write off any accounts receivable balances.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization.

Depreciation and amortization expense is recognized using the straight-line method over the estimated useful life of each asset as follows:

Estimated Useful Life

Manufacturing equipment

Computer equipment and software

Laboratory equipment

Office and trade show equipment

Leasehold improvements

Shorter of term of lease or 15 years

Costs incurred for OCS Consoles are recorded as inventory unless and until the Company determines that an OCS Console will either be used for the NOP or loaned to a customer for its use, at which time the Company reclassifies the cost of the OCS Console from inventory to property and equipment and begins to depreciate the OCS Console over its estimated useful life.

Such depreciation expense is classified as a cost of revenue.

The Company retains title to all OCS Consoles loaned to customers.

Costs for capital assets not yet placed into service are capitalized as construction-in-progress and depreciated once placed into service.

Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is included in loss from operations.

Expenditures for repairs and maintenance are charged to expense as incurred.

Impairment of Long-Lived Assets

Long-lived assets consist of property and equipment and right-of-use assets.

Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable.

Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets.

If an impairment review is performed to evaluate a long-lived asset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset group to its carrying value.

An impairment loss would be recognized in loss from operations when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its carrying amount.

The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value.

The Company did no t record any impairment losses on long-lived assets during the years ended December 31, 2022, 2021 and 2020.

Software Development Costs

The Company incurs costs to develop computer software that is embedded in the hardware components of the Company’s OCS Console and OCS Perfusion Sets.

Research and development costs related to this software are expensed as incurred, except for costs of internally developed or externally purchased software that qualify for capitalization.

Software development costs incurred subsequent to the establishment of technological feasibility, but prior to the general release of the product, are capitalized and, upon general release, are amortized based upon the pattern in which economic benefits related to such assets are realized.

Due to the short time period between achieving technological feasibility and product release and the insignificant

amount of costs incurred during such periods, the Company did no t capitalize any software development costs during the years ended December 31, 2022, 2021 and 2020.

Inventory is valued at the lower of cost or net realizable value.

Cost is computed using the first-in, first-out method.

The Company regularly reviews inventory quantities on-hand for excess and obsolete inventory and, when circumstances indicate, records charges to write down inventories to their estimated net realizable value, after evaluating historical sales, future demand, market conditions and expected product life cycles.

Such charges are classified as cost of revenue in the consolidated statements of operations.

Any write-down of inventory to net realizable value creates a new cost basis.

At the end of each reporting period, the Company assesses whether losses should be accrued on long-term manufacturing purchase commitments in accordance with Accounting Standards Codification (“ASC”) 330, Inventory , which requires that losses that are expected to arise from firm, noncancelable and unhedged commitments for the future purchase of inventory, measured in the same way as inventory losses, should be recognized in the current period in the statements of operations unless they are deemed recoverable through firm sales contacts or when there are other circumstances that reasonably assure continuing sales without price decline.

As of the end of each reporting period presented in the accompanying consolidated financial statements, the Company did not identify any potential losses arising from remaining future purchase commitments as compared to estimated future customer sales through the remainder of the term of the manufacturing purchase commitment and, as a result, did no t recognize any loss provision for future-period remaining purchase commitments for the year ended December 31, 2022.

Prior to January 1, 2021, the Company accounted for leases under ASC 840, Leases (“ASC 840”).

Effective January 1, 2021 , the Company adopted ASC Topic 842, Leases (“ASC 842”), using the modified retrospective approach with no restatement of prior periods or cumulative adjustment to accumulated deficit.

Therefore, for the year ended December 31, 2020, the Company’s financial statements continue to be presented in accordance with ASC 840, the accounting standard originally in effect for such period.

As of and for the years ended December 31, 2022 and 2021, the Company’s consolidated financial statements are presented in accordance with ASC 842.

In accordance with ASC 842, the Company accounts for a contract as a lease when it has the right to control the asset for a period of time while obtaining substantially all of the asset’s economic benefits.

The Company determines if an arrangement is a lease or contains an embedded lease at inception.

For arrangements that meet the definition of a lease, the Company determines the initial classification and measurement of its right-of-use asset and lease liability at the lease commencement date and thereafter if modified.

The lease term includes any renewal options that the Company is reasonably assured to exercise.

The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable;

otherwise, the Company uses its estimated secured incremental borrowing rate for that lease term.

The Company’s policy is to not record leases with an original term of twelve months or less on its consolidated balance sheets and recognizes those lease payments in the income statement on a straight-line basis over the lease term.

The Company’s existing leases are for office, laboratory and manufacturing space.

In addition to rent, the leases may require the Company to pay additional costs, such as utilities, maintenance and other operating costs, which are generally referred to as non-lease components.

The Company has elected to not separate lease and non-lease components.

Only the fixed costs for lease components and their associated non-lease components are accounted for as a single lease component and recognized as part of a right-of-use asset and lease liability.

Rent expense for operating leases is recognized on a straight-line basis over the reasonably assured lease term based on the total lease payments and is included in operating expense in the consolidated statements of operations.

Revenue from leasing arrangements is not subject to the revenue standard for contracts with customers and remains separately accounted for under ASC 842.

In accordance with ASC 842, lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if the lease would have been classified as a sales-type lease or a direct financing lease and the lessor would have otherwise recognized a day-one loss.

The Company’s OCS Console implied rental agreements qualify as sales-type leases with certain variable payments that meet specified criteria such that a day-one loss would be recognized under ASC 842.

Therefore, in accordance with ASC 842, such leases are accounted for as operating leases and the Company does not derecognize the leased asset (the OCS Console) at the time of the sale but depreciates the leased asset over the useful life of the asset.

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:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The Company’s cash equivalents and marketable securities are carried at fair value, determined according to the fair value hierarchy described above (see Note 4).

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.

Marketable Securities

The Company’s marketable securities (non-equity instruments) are classified as available-for-sale and are carried at fair value, with the unrealized gains and losses reported as a component of accumulated other comprehensive income (loss) in stockholders’

Realized gains and losses are based on the specific identification method and are included as a component of other income (expense), net in the consolidated statements of operations.

When the fair value is below the amortized cost of a marketable security, an estimate of expected credit losses is made.

The credit-related impairment amount is recognized in the consolidated statements of operations.

Credit losses are recognized through the use of an allowance for credit losses account in the consolidated balance sheet and subsequent improvements in expected credit losses are recognized as a reversal of an amount in the allowance account.

If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security prior to recovery of its amortized cost basis, then the allowance for the credit loss is written-off and the excess of the amortized cost basis of the asset over its fair value is recorded in the consolidated statements of operations.

There were no credit losses recorded during the years ended December 31, 2022, 2021 and 2020.

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 commercializing a proprietary system to preserve 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.

Product Warranties

The Company provides a one-year warranty on its OCS Consoles and disposable sets and replaces or repairs any OCS Console or disposable set that does not function in accordance with the product specifications .

OCS Consoles returned to the Company may be refurbished and redeployed.

Estimated warranty costs are recorded at the time of shipment of the OCS Console or disposable set.

Warranty costs are estimated based on the current expected product replacement or repair cost and expected replacement or repair rates based on historical experience.

The Company evaluates its warranty accrual at the end of

each reporting period and makes adjustments as necessary.

As of December 31, 2022 and 2021, the warranty accrual was less than $ 0.1 million.

Revenue Recognition

The Company generates net product revenue primarily from sales of its single-use, organ-specific disposable sets used on its organ-specific OCS Consoles.

To a lesser extent, the Company also generates product revenue from the sale of OCS Consoles to customers and 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.

The Company also generates service revenue by providing outsourced organ retrieval and OCS organ management services under its National OCS Program in the United States.

The Company recognizes revenue from sales to customers applying the following five steps:

Substantially all of the Company’s customer contracts have multiple-performance obligations that contain deliverables consisting of OCS Perfusion Sets and OCS Solutions.

Customer contract deliverables may also include organ retrieval and OCS organ management services under the Company's National OCS Program or 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.

The primary performance obligations in the Company’s customer arrangements from which it derives revenue are the OCS Perfusion Sets, the OCS Solutions, the OCS Console, organ retrieval services and OCS organ management services.

When a customer order includes an OCS Console, the Company has determined that customer training and the equipment set-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 equipment set-up having been completed.

As a result, when the order includes an OCS Console, the Company has concluded that training, OCS Console equipment set-up, and the OCS Console itself are highly interdependent and represent a single, combined performance obligation.

The Company recognizes revenue from the single, combined performance obligation only once the OCS Console has arrived at the customer site and the training and equipment set-up have been completed by the Company.

Customer orders may include the loan of an OCS Console as well as OCS disposable sets used in each transplant procedure.

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.

Therefore, 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 of each distinct performance obligation.

To date, the amounts allocated to lease deliverables have been insignificant.

Revenue from sales to customers of OCS Perfusion Sets, OCS Solutions and OCS Consoles is classified as net product revenue in the Company's consolidated statements of operations.

Revenue from sales to customers of organ retrieval and OCS organ management services is classified as service revenue in the Company’s consolidated statements of operations.

Revenue is recognized when control 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 services.

When a customer order includes disposable sets and organ retrieval or OCS organ management services, the Company has determined that the disposable sets and services constitute separate performance obligations and recognizes revenue as the disposable sets and services are each delivered to the customer.

Payments Made to Customers

Under some of the Company’s customer clinical trial agreements, the Company makes payments to its customers for reimbursements of clinical trial materials and for specified clinical documentation related to the customer’s use of its OCS products.

The Company also makes payments to customers involved in post-approval studies for information related to the transplant procedures performed.

The Company determines the appropriate accounting treatments for these payments depending on the nature of the payment and whether they are for distinct goods or services.

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.

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.

The Company had no contract assets as of December 31, 2022 and 2021.

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.

The Company has determined that its only contract liabilities are deferred revenue, which consists of amounts that have been invoiced but that have not been recognized as revenue.

Remaining Performance Obligations

The Company generally satisfies performance obligations within one year of the contract inception date, which amounts are included in deferred revenue and are not material.

Other Revenue Considerations

Revenue is reported net of taxes.

The Company does not consider shipping to be a contract performance obligation, therefore shipping costs incurred and billed to customers are recorded as revenue and cost of revenue.

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.

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.

Additionally, the Company does not assess whether a contract has a significant financing component if the expectation at contract inception is that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.

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.

Research, Development and Clinical Trials Costs

Research, development and clinical trials expenses consist of costs incurred for research activities, product development, hardware and software engineering and clinical trial activities, including salaries and bonuses, stock-based compensation, employee benefits, facilities costs, laboratory supplies, depreciation, testing, regulatory, data management and consulting costs.

Research, development and clinical trials costs are expensed as incurred.

Advance payments for goods or services to be received in the future for use in research, development and clinical trials activities are recorded as prepaid expenses.

Such prepaid expenses are recognized as an expense when the related goods have been delivered or the related services have been performed, or when it is no longer expected that the goods will be delivered or the services rendered.

All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure.

Amounts incurred are classified as general and administrative expenses.

Foreign Currency Translation

The 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 loss, a separate component of stockholders’

The Company also incurs transaction gains and losses resulting from intercompany transactions 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.

Realized and unrealized foreign currency transaction gains (losses) are included in the consolidated statements of operations as a component of other income (expense) and totaled ($ 1.3 million), ($ 1.0 million) and $ 1.0 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Stock-Based Compensation

The Company accounts for stock-based awards granted to employees, non-employees and directors based on the fair value of the award on the date of grant.

The fair value of option awards is measured using the Black-Scholes option-pricing model.

The fair value of restricted common stock awards is measured based on the difference between market value of the Company’s common stock on date of grant and the purchase price (if any).

Generally, the Company issues awards with only service-based vesting conditions.

Compensation expense for those awards is recognized over the vesting period of the respective award using the straight-line method.

The Company accounts for forfeitures as they occur and records compensation cost assuming all option holders will complete the requisite service period.

When the unvested portion of an award is forfeited, the Company reverses compensation expense previously recognized in the period of the forfeiture.

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.

Comprehensive Loss and Accumulated Other Comprehensive Loss

Comprehensive loss includes net loss as well as other changes in stockholders’

equity that result from transactions and economic events other than those with stockholders.

The Company’s only elements of other comprehensive loss are foreign currency translation adjustments and unrealized gains (losses) on marketable securities.

Accumulated other comprehensive gains (losses) on the consolidated balance sheets consists primarily of foreign currency translation adjustments.

Accumulated other comprehensive loss attributable to unrealized gains (losses) on marketable securities has not been significant.

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.

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.

The Company reported a net loss attributable to common stockholders for each of the years ended December 31, 2022, 2021 and 2020.

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 excluded the following potential common shares, presented

based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated above because including them would have had an anti-dilutive effect:

As of December 31,

Warrants to purchase common stock

Options to purchase common stock

Employee stock purchase plan

Restricted stock awards

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or in the Company's tax returns.

Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.

Changes in deferred tax assets and liabilities are recorded in the provision for income taxes.

The Company assesses the likelihood that its deferred tax assets will be realized and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense.

Potential for recovery of deferred tax assets is evaluated by analyzing carryback capacity in periods with taxable income, reversal of existing taxable temporary differences and estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.

The Company accounts for uncertainty in income taxes recognized in the financial statements by applying a two-step process to determine the amount of tax benefit to be recognized.

First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities.

If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements.

The amount of benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement.

The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.

Marketable Securities

The Company did no t have marketable securities as of December 31, 2022.

Marketable securities by security type as of December 31, 2021 consisted of the following (in thousands):

December 31, 2021

Credit Losses

Treasury securities (due within one year)

government agency bonds (due within

Fair Value of Financial Assets

The Company did no t have assets measured at fair value on a recurring basis as of December 31, 2022.

The following table presents the Company’s fair value hierarchy for its assets that were measured at fair value on a recurring basis as of December 31, 2021 (in thousands):

Fair Value Measurements at December 31, 2021 Using:

Cash equivalents:

Money market funds

Marketable securities:

Treasury securities

government agency bonds

Money market funds were valued by the Company based on quoted market prices, which represent a Level 1 measurement within the fair value hierarchy.

Treasury securities and U.S.

government agency bonds were valued by the Company using quoted prices in active markets for similar securities, which represent a Level 2 measurement within the fair value hierarchy.

Inventory consisted of the following (in thousands):

Raw materials

Work-in-process

Finished goods

Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

Manufacturing equipment

Computer equipment and software

Laboratory equipment

Office and trade show equipment

Leasehold improvements

Construction-in-progress

Accumulated depreciation and amortization

During the years ended December 31, 2022, 2021 and 2020, total depreciation and amortization expense was $ 3.5 million, $ 1.8 million and $ 1.6 million, respectively.

Of those amounts, $ 1.7 million, $ 1.4 million and $ 1.3 million, respectively, was recorded as expense in cost of revenue related to the depreciation of OCS Consoles.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

Accrued payroll and related expenses

Accrued logistics costs

Accrued professional fees

Accrued research, development and clinical trial expenses

Accrued other

Long-Term Debt

Long-term debt consisted of the following (in thousands):

Principal amount of long-term debt

Current portion of long-term debt

Long-term debt, net of current portion

Debt discount, net of accretion

Accrued end-of-term payments

Long-term debt, net of discount and current portion

OrbiMed Credit Agreement

The Company entered into a credit agreement with OrbiMed Royalty Opportunities II, LP (the “OrbiMed Credit Agreement”) in June 2018, pursuant to which TransMedics borrowed $ 35.0 million.

Borrowings under the OrbiMed Credit Agreement bore interest at an annual rate equal to the London Interbank Offered Rate (“LIBOR”), subject to a minimum of 1.0 % and a maximum of 4.0 % , plus 8.5 % (the “Applicable Margin”), subject in the aggregate to a maximum interest rate of 11.5 %.

In addition, borrowings under the OrbiMed Credit Agreement bore paid-in-kind (“PIK”) interest at an annual rate equal to the amount by which LIBOR plus the Applicable Margin exceeded 11.5 %, but not to exceed 12.5 %.

The PIK interest was added to the principal amount of the borrowings outstanding at the end of each quarter until the repayment of the borrowings in July 2022 .

Borrowings under the OrbiMed Credit Agreement were repayable in quarterly interest-only payments until the maturity date, at which time all principal and accrued interest was due and payable.

At its option, the company could prepay outstanding borrowings under the OrbiMed Credit Agreement.

The Company was 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 were being accreted to interest expense over the term of the OrbiMed Credit Agreement using the effective interest method.

In July 2022, the Company repaid amounts due under the OrbiMed Credit Agreement, including $ 35.0 million of principal repayments and a $ 1.1 million end of term payment, as well as accrued interest, and the OrbiMed Credit Agreement was terminated.

Upon repayment of the outstanding amounts, the Company recorded a loss on extinguishment of debt of $ 0.6 million, which was classified as other expense in the consolidated statements of operations.

Canadian Imperial Bank of Commerce Credit Agreement

In July 2022, the Company entered into a credit agreement with Canadian Imperial Bank of Commerce (“CIBC”), pursuant to which the Company borrowed $ 60.0 million (the “CIBC Credit Agreement”).

Borrowings under the CIBC Credit Agreement bear interest at an annual rate equal to either, at the Company’s option, (i) the secured overnight financing rate for an interest period selected by the Company, subject to a minimum of 1.5 %, plus 2.0 % or (ii) 1.0 % plus the higher of a) the prime rate subject to a minimum of 4.0 % or b) the Federal Funds Effective Rate, plus 0.5 %.

Borrowings under the CIBC Credit Agreement are payable in monthly interest-only payments for the first 24 months , and then payable in equal monthly principal payments plus accrued interest until the maturity date of the CIBC Credit Agreement in July 2027 .

If certain revenue milestones are met after the first 24 months, the Company may extend the

interest-only repayment period by one additional year.

At the Company’s option, the Company may prepay borrowings outstanding under the CIBC Credit Agreement, subject to a prepayment fee of 2.0 % of outstanding borrowings if paid prior to 12 months after the closing date, and 1.0 % if paid on or after 12 months after the closing date but prior to 24 months after the closing date.

In connection with entering into the CIBC Credit Agreement, the Company paid upfront fees and other costs of $ 1.5 million, which were recorded by the Company as a debt discount.

The debt discount is reflected as a reduction of the carrying value of long-term debt on the Company’s consolidated balance sheet and is being accreted to interest expense over the term of the CIBC 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.

Under the CIBC 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, among other covenants, (x) a requirement to maintain a minimum liquidity amount of the greater of either (i) the consolidated adjusted EBITDA loss (or gain) for the trailing four month period (only if EBITDA is negative) and (ii) $ 10.0 million, and (y) a requirement to maintain total net revenue of at least 75 % of the level set forth in the total revenue plan presented to 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 and a material adverse change in the Company’s business, operations or financial condition.

As of December 31, 2022, the Company was in compliance with all financial covenants of the CIBC Credit Agreement.

During the continuance of an event of default, the interest rate per annum will be equal to the rate that would have otherwise been applicable at the time of the event of default plus 2.0 %.

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.

The Company assessed all terms and features of the CIBC Credit Agreement in order to identify any potential embedded features that would require bifurcation.

As part of this analysis, the Company assessed the economic characteristics and risks of the debt.

The Company determined that all features of the CIBC Credit Agreement are either clearly and closely associated with a debt host or have a de minimis fair value and, as such, do not require separate accounting as a derivative liability.

As of December 31, 2022, the interest rate applicable to borrowings under the CIBC Credit Agreement was 6.1 %.

During each of the years ended December 31, 2022, 2021 and 2020, the weighted average effective interest rate on outstanding borrowings was approximately 6.6 %, 11.2 %, and 11.2 %, respectively.

Preferred Stock

As of December 31, 2022, the Company’s articles of organization authorized the Company to issue up to 25,000,000 shares of preferred stock, no par value per share, all of which is undesignated.

The preferred stock will have such rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be determined by the Company’s boards of directors upon issuance.

As of December 31, 2022, the Company’s articles of organization authorized the Company to issue up to 150,000,000 shares of common stock, no par value per share.

Each share of common stock is entitled to one vote on all matters submitted to a vote of the Company’s stockholders.

The holders of common stock are entitled to receive dividends, if any, as may be declared by the board of directors, as described above.

Through December 31, 2022, no dividends had been declared or paid.

As of December 31, 2022, the Company had outstanding warrants to purchase 14,440 shares of common stock at an exercise price of $ 17.47 per share with an expiration date of May 6, 2024 .

In November 2022, warrants were exercised to purchase 50,000 shares of common stock at an exercise price of $ 8.75 per share for total proceeds of $ 0.4 million.

Stock-Based Compensation

2019 Stock Incentive Plan

The 2019 Stock Incentive Plan (the “2019 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 and its subsidiaries.

The number of shares of common stock of TransMedics Group initially available for issuance under the 2019 Plan was 3,428,571 shares, plus the number of 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 cancelled 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 made or will be made 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 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.

As of December 31, 2022, 820,336 shares of common stock were available for issuance under the 2019 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 common stock of TransMedics Group were initially reserved for issuance under the 2019 ESPP.

During the year ended December 31, 2022, 30,143 shares were issued under the 2019 ESPP and as of December 31, 2022, 290,453 shares 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.

As of December 31, 2022, 478,938 shares of common stock remained available for issuance under the Inducement Plan.

Stock Option Valuation

The fair value of stock option grants is estimated using the Black-Scholes option-pricing model.

Because there had been no public market for the Company's common stock prior to the Company's initial public offering, there is limited Company-specific historical and implied volatility data.

Accordingly, the Company bases its estimates of expected volatility on a combination of the Company's own historical volatility and historical volatility of a group of publicly-traded companies with similar characteristics to itself.

For options with service-based vesting conditions, the expected term of the Company’s stock options has been determined utilizing the “simplified”

method for awards that qualify as “plain-vanilla”

The risk-free interest rate is determined by reference to the U.S.

Treasury yield curve in effect at the time of grant of the award for time

periods approximately equal to the expected term of the award.

Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

The following table presents, on a weighted average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted to employees and directors:

Year Ended December 31,

Risk-free interest rate

Expected term (in years)

Expected volatility

Expected dividend yield

The following table summarizes the Company’s option activity since December 31, 2021:

(in thousands)

Outstanding as of December 31, 2021

Outstanding as of December 31, 2022

Vested and expected to vest as of December 31, 2022

Options exercisable as of December 31, 2022

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock.

The aggregate intrinsic value of stock options exercised during the years ended December 31, 2022, 2021 and 2020, was $ 15.0 million, $ 16.3 million and $ 2.9 million, respectively.

The weighted average grant-date fair value of stock options granted during the years ended December 31, 2022, 2021 and 2020 was $ 11.32 per share, $ 18.63 per share and $ 7.91 per share, respectively.

The Company has no t granted any stock-based awards with performance-based vesting conditions.

Restricted Common Stock

During the year ended December 31, 2022, the Company granted shares of restricted common stock to certain non-employee service providers.

The Company did no t grant restricted common stock in either of the years ended December 31, 2021 and 2020.

Shares of unvested restricted common stock may not be sold or transferred by the holder.

If the holder’s service to the Company and its affiliates ceases for any reason, unvested shares of restricted common stock held by these individuals will immediately be forfeited for no consideration, as provided in the individual restricted stock agreements.

The following table summarizes the Company's restricted common stock activity since December 31, 2021:

Weighted Average Grant Date Fair Value

Unvested restricted common stock as of December 31, 2021

Unvested restricted common stock as of December 31, 2022

Stock-Based Compensation

The Company recorded stock-based compensation expense in the following expense categories of its consolidated statements of operations (in thousands):

Year Ended December 31,

Cost of revenue

Research, development and clinical trials expenses

Selling, general and administrative expenses

As of December 31, 2022, total unrecognized compensation cost related to unvested share-based awards was $ 22.3 million, which is expected to be recognized over a weighted-average period of 2.5 years.

Tax Provision Components

During the years ended December 31, 2022, 2021 and 202 0 , the Company recorded no income tax benefits for the net operating losses incurred or for the research and development tax credits generated in each year in the United States, due to the uncertainty regarding the realizability of these respective deferred tax assets.

The Company generated income in the Netherlands for the years ended December 31, 2022, 2021 and 2020 and, accordingly, recorded a foreign income tax provision of $ 0.1 million, less than $ 0.1 million and less than $ 0.1 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Loss Before Income Taxes

The domestic and foreign components of loss before income taxes were as follows (in thousands):

Year Ended December 31,

United States

A reconciliation of the U.S.

federal statutory income tax rate to the Company’s effective income tax rate is as follows:

Year Ended December 31,

Federal statutory income tax rate

State taxes, net of federal benefit

Federal and state research and development tax

Nondeductible items

Deferred tax effect of change in state blended rate

Return to provision

Change in deferred tax asset valuation allowance

Effective income tax rate

Net deferred tax assets consisted of the following (in thousands):

Deferred tax assets:

Net operating loss carryforwards

Capitalized research and development expense

Research and development tax credit carryforwards

Accrued expenses

Stock-based compensation expense

Lease liability

Section 163(j) interest

Total deferred tax assets

Deferred tax liabilities:

Right-of-use assets

Total deferred tax liabilities

Valuation allowance

Net deferred tax assets

As of December 31, 2022, the Company had federal net operating loss carryforwards of $ 378.5 million, which may be available to offset future taxable income, of which $ 209.5 million of the total net operating loss carryforwards expire at various dates beginning in 2023 , while the remaining $ 169.0 million do not expire but are limited in their usage to an annual deduction equal to 80 % of annual taxable income.

As of December 31, 2022, the Company had state net operating loss carryforwards of $ 321.2 million, which may be available to offset future taxable income and expire at various dates beginning in 2030 .

As of December 31, 2022, the Company also had U.S.

federal and state research and development tax credit carryforwards of $ 9.0 million and $ 5.5 million, respectively, which may be available to offset future tax liabilities and begin to expire in 2023 and 2024 , respectively.

As of December 31, 2022, the Company had no foreign net operating loss carryforwards.

Utilization of the U.S.

federal and state net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future.

These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income or tax liabilities.

In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period.

The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study.

If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required.

Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization.

Further, until a study is completed by the Company and any limitation is known, no amounts are being presented as an uncertain tax position.

As required by Accounting Standard Codification 740, management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are comprised principally of net operating loss carryforwards.

Management has determined that it is more likely than not that the Company will not recognize the benefits of federal and state deferred tax assets and, as a result, a valuation allowance has been recorded.

The Company had no unrecognized tax benefits or related interest and penalties accrued for the years ended December 31, 2022 and 2021.

The Company's policy is to record any interest or penalties related to income taxes as part of the income tax provision.

The Company generated research credits for the tax years ending after December 31, 2001 but has not conducted a study to document qualified activities.

This study may result in an adjustment to the Company's research and development carryforwards;

however, until a study is completed and any adjustment is known, no amounts are being presented as an unrecognized tax benefit for the year ended December 31, 2022.

A full valuation allowance has been provided against the Company's research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the deferred tax asset established for the research credit carryforward and the valuation allowance.

The Company files income tax returns as prescribed by the tax laws of the jurisdictions in which it operates.

In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable.

There are currently no pending federal or state tax examinations.

The Company has open tax years subject to examination from fiscal year 2019 to present.

To the extent that the Company has carryforward attributes, the tax years in which the attribute was generated may still be adjusted upon examination by federal, state or local tax authorities if they either have been or will be used in the future.

Changes in the valuation allowance for deferred tax assets during the year ended December 31, 2022 related primarily to the capitalization of research and development costs required under Section 174 and current year federal and net operating losses generated, partially offset by a decrease in deferred tax assets related to state net operating loss carryforwards due to a change in the state effective tax rate.

Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2021 and 2020 related primarily to the increase in net operating loss carryforwards in 2021 and 2020.

The changes in the valuation allowance were as follows (in thousands):

Year Ended December 31,

Valuation allowance as of beginning of year

Decreases recorded as benefit to income tax provision

Increases recorded to income tax provision

Valuation allowance as of end of year

As of December 31, 2022 and 2021, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts had been recognized in the Company’s consolidated statements of operations.

The Company leases its office, laboratory and manufacturing space under two noncancelable leases (the “Leases”) that expire in December 2027 and include a lease incentive, fixed payment escalations, and rent holidays.

The Leases include an option to renew for an additional five years .

The option to extend the lease term was not included in the right-of-use asset and the lease liability as it was not reasonably certain of being exercised.

The Company classified the Leases as operating leases under ASC 842.

Annual base rent increases at an average rate of 2.5 % each year until the end of the term.

The Company is also obligated to pay the landlord certain costs, taxes, and operating expenses, subject to certain exclusions.

As these costs are generally variable in nature, they are not included in the measurement of the right-of-use asset and related lease liability.

Under the Leases, the landlord contributed $ 3.4 million towards the Company’s leasehold improvements.

The Company determined that it owns the leasehold improvements related to the Leases and, as such, reflected the $ 3.4 million lease incentive as a reduction of rental payments used to measure the operating lease liability, and, in turn, the operating lease right-of-use asset upon adoption of ASC 842.

The components of the Company’s lease expense under ASC 842 are as follows:

Year Ended December 31,

Operating lease cost

Short-term lease cost

Variable lease cost

Supplemental disclosure of cash flow information related to the leases were as follows (in thousands):

Year Ended December 31,

Cash paid for amounts included in the measurement of operating

lease liabilities

The weighted-average remaining lease term as of December 31, 2022 was 5.0 years.

The weighted-average remaining lease term as of December 31, 2021 was 6.0 years.

The weighted-average discount rate as of December 31, 2022 and 2021 was 6.7 %.

Because the interest rate implicit in the lease was not readily determinable, the Company’s estimated incremental borrowing rate was used to calculate the present value of the Leases.

In determining its incremental borrowing rate, the Company considered its credit quality and assessed interest rates available in the market for similar borrowings, adjusted for the impact of collateral over the term of the lease.

Future annual lease payments under the Company’s Leases as of December 31, 2022 are as follows (in thousands):

Year Ending December 31,

Total future minimum lease payments

imputed interest

Total operating lease liabilities

The following table represents lease liabilities on the consolidated balance sheet (in thousands):

December 31, 2022

Current operating lease liabilities

Operating lease liabilities, net of current portion

Total operating lease liabilities

Commitments and Contingencies

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 a pre-tax basis.

Company contributions to the plan may be made at the discretion of the board of directors.

For the years ended December 31, 2022, 2021 and 2020, the Company did no t make any contributions to the plan.

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 the end-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 December 31, 2022 and 2021.

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 December 31, 2022 was $ 7.0 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 expenses as incurred the costs related to such legal proceedings.

Segment Reporting and Geographic Data

The Company has determined that it operates in one segment (see Note 2).

See Note 15 for revenue by country.

Long-lived assets by geography are summarized as follows (in thousands):

Long-lived assets by country (1) :

United States

All other countries

Total long-lived assets

(1) The Company’s only long-lived assets consist of property and equipment, net of depreciation, which are categorized based on their location of domicile.

The Company has determined that the payments made to the customer for reimbursement of clinical trial materials and customer’s costs incurred to execute specific clinical trial protocols related to the Company’s 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.

The reconciliation of gross product revenue to net product revenue for these certain payments is shown below (in thousands):

Year Ended December 31,

Gross product revenue from sales to customers

Clinical trial payments

Total net product revenue

Clinical trial payments for the year ended December 31, 2022 include adjustments for certain clinical trial accrual estimates.

As clinical trials reach the end of their follow up period, the Company updates its accrual estimates.

The Company will continue to update its clinical trial accrual estimates as all information related to clinical trial payments is received.

The Company determined that payments made to customers to obtain information related to post-approval studies or existing standard-of-care protocols (i.e., unrelated to the Company’s OCS products) 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 the Company’s OCS products and the consideration paid to the customer represents the fair value of the distinct good or service received.

As a result, such payments made to the customers are recorded as operating expenses.

The Company recorded payments made to customers related to post-approval studies and for documentation related to existing standard-of-care protocols of $ 1.0 million, $ 2.1 million and $ 1.6 million for the years ended December 31, 2022, 2021 and 2020, respectively, as operating expenses.

Disaggregated Revenue

The Company disaggregates revenue from contracts with customers by organ type 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):

Year Ended December 31,

Revenue by country by organ(1):

United States

Lung total revenue

Heart total revenue

Liver total revenue

Total United States revenue

All other countries

Heart revenue

Liver revenue

Total all other countries revenue

Total revenue

(1) Revenue by country is categorized based on the location of the end customer.

Total revenue includes product and service revenue.

Net revenue includes product revenue only.

When a customer order includes disposable sets and organ retrieval or OCS organ management services in the United States, the Company has determined that the disposable sets and services constitute separate performance obligations and recognizes revenue as the disposable sets and services are each delivered to the customer.

Related Party Transactions

Employment of Dr.

Amira Hassanein

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, Chief Executive Officer and a member of the Company’s board of directors.

The Company paid Dr.

Amira Hassanein $ 0.4 million, $ 0.4 million and $ 0.3 million in total compensation in the years ended December 31, 2022, 2021 and 2020, respectively, for her services as an employee.

Changes in and Disagreements with Accou ntants on Accounting and Financial Disclosure.

In addition, our CIBC Credit Agreement contains covenants that restrict our ability to pay cash dividends.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity