TransMedics Group, Inc. 10-K

Item 7. 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. Overview 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 NOP, an innovative turnkey solution to provide outsourced organ retrieval, OCS organ management and logistics services, to provide transplant programs in the United States with a more efficient process to procure donor organs with the OCS. In 2023, we enhanced our NOP offering with the addition of a logistics team to expand our transportation logistics capabilities. Our logistics services include aviation transportation, ground transportation, and other coordination activity. We believe 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 PMA from the FDA, for both DBD organs and DCD organs. Since our inception, we have focused substantially all of our resources on designing, developing and building our proprietary OCS technology platform and organ-specific OCS products; obtaining clinical evidence for the safety and effectiveness of our OCS products through clinical trials; securing regulatory approval; organizing and staffing our company; planning our business; raising capital; commercializing our products; developing and growing our NOP; developing and expanding our market and distribution chain and providing general and administrative support for these operations. To date, we have funded our operations primarily with proceeds from 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 and NOP services. Since our inception, we have incurred significant operating losses. Our ability to generate revenue sufficient to achieve sustained profitability will depend on the continued growth in customer utilization of our products and services. We generated total revenue of $241.6 million and incurred a net loss of $25.0 million for the year ended December 31, 2023. As of December 31, 2023, we had an accumulated deficit of $503.7 million. We expect our operating and capital expenditures will continue to increase 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; growing our NOP, including by maintaining and growing our logistics capabilities, including aviation transportation, to support our NOP to reduce dependence on third party transportation, including by means of the acquisition of fixed-wing aircraft or other acquisitions, joint ventures or strategic investments; scaling our manufacturing and sterilization operations; developing the next generation OCS; continuing research, development and clinical trial efforts; 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. markets; and operating as a public company. Because of the numerous risks and uncertainties associated with product development, commercialization and regulations of our industry, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability on an annual basis. Until such time, if ever, as we can generate substantial revenue sufficient to achieve sustained profitability, we may 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. In March 2023, the U.S. Department of Health and Human Services’ Health Resources and Services Administration, or HRSA, announced initiatives designed to improve the Organ Procurement and Transplantation network, or OPTN, including its intent to solicit contract proposals to manage the OPTN, which 67 is currently operated by the United Network for Organ Sharing, or UNOS, under a contract that expires in March 2024. Additionally, on July 25, 2023 and July 27, 2023, the U.S. House of Representatives and U.S. Senate, respectively, passed the Securing the U.S. Organ Procurement and Transplantation Network Act, which expressly authorizes HRSA to award multiple grants, contracts or cooperative agreements to support the operation of the OPTN and specifies that the OPTN shall be operated through awards that are distinct from awards made to support the organization tasked with supporting the networks’ board of directors. The impact that the HRSA initiatives and the U.S. Organ Procurement and Transplantation Network Act may have on our business, including on our NOP, is uncertain at this time. In May 2023, we issued and sold $460.0 million in aggregate principal amount of our 1.50% Convertible Senior Notes due 2028, or the Notes, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The Notes were issued pursuant to an indenture, dated May 11, 2023. The Notes bear interest at a rate of 1.50% per year, payable semi-annually in arrears on June 1 and December 1 of each year. The Notes will mature on June 1, 2028, unless earlier converted, redeemed or repurchased. As of December 31, 2023, we had cash of $394.8 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”. Strategic Transactions On August 16, 2023, we acquired Summit Aviation, Inc. and Northside Property Group, LLC, or together Summit. Summit was a charter flight operator based in Bozeman, Montana. The acquisition enabled us to add aircraft transportation services to our NOP and become a comprehensive national provider of donor organ retrieval and delivery in the United States. In separate transactions through December 31, 2023, we acquired 11 fixed-wing aircraft to transport donor organs as part of the services offered under our NOP. We have acquired two additional aircraft in 2024 and intend to acquire additional fixed-wing aircraft as we scale our fleet of aircraft to reduce our dependence on third party transportation providers. On August 2, 2023, we acquired certain assets related to lung and heart perfusion technology from Bridge to Life Ltd. and its subsidiary Tevosol, Inc., or together BTL. We intend to further develop these technologies to expand our product offerings and indications for organ transplantation. Economic Impacts 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. Components of Our Results of Operations Revenue 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, OCS organ management and logistics services under our NOP in the United States. With the acquisition of Summit, the purchase of fixed-wing transplant aircraft and the addition of a logistics team, we anticipate increased service revenue from our aviation transportation service offering. 68 Prior to the acquisition, Summit derived its revenue primarily from charter flight services. To a lesser extent, Summit also derived revenue from providing flight school training, managing aircraft and other related services. As part of the Summit integration, we have transitioned Summit's charter flight customers and are finalizing the transition of aircraft management customers to third parties. Following this transition we do not anticipate generating revenue from charter flights or aircraft management and related services. We are continuing to offer flight school training services. During the year ended December 31, 2023, service revenue of $4.9 million, including $3.0 million of charter flight and aircraft management and related services and $1.9 million of flight school training revenue, is from Summit's legacy operations and is unrelated to the NOP and organ transplant. All of our OCS transplant-related revenue has been generated by sales to transplant centers and Organ Procurement Organizations, not-for-profit organizations responsible for recovering organs from deceased donors for transplantation, in the United States, Europe and Asia-Pacific, or, in some cases, to distributors selling to transplant centers in select countries. Substantially all of our customer contracts have multiple-performance obligations that contain promises consisting of OCS Perfusion Sets and OCS Solutions and may also contain promises for organ retrieval, OCS organ management or logistics services under our NOP, and an OCS Console, whether sold or loaned to the customer. Through December 31, 2023, 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 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 received the CE Mark for the OCS Liver combined with our solution additives under the MDR in May 2023, with an effective date of April 2023. In addition, we received a Class II Medical Device License from Health Canada for our OCS Liver combined with our solution additives in October 2023 to complement our existing Health Canada licenses for OCS Heart and OCS Lung. We expect that our revenue will increase over the long term as a result of the continued growth of the NOP in the United States. We also expect that our 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. 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 that directly support organ retrieval and OCS organ management services and transportation and logistics costs, including labor costs for pilots, aircraft depreciation, aircraft costs, fuel, crew travel, maintenance and third-party flight costs and ground transportation that support organ delivery. For the year ended December 31, 2023, cost of service revenue also included approximately $4.4 million of costs related to charter flight and aircraft management and related services and flight school training revenue, from Summit's legacy operations, which is unrelated to the NOP and organ transplant. Gross profit is the amount by which revenue exceeds cost of revenue in each reporting period and gross margin is gross profit divided by revenue. Our overall gross margin will be impacted by the relative mix of product and service revenue, as product and service revenue have different margin profiles, and we expect our overall gross margin will decrease as service revenue increases as a proportion of overall revenue. Product and service gross margins are also affected by a variety of factors, primarily production volumes, the cost of components and direct materials, manufacturing overhead costs, direct labor, the cost of services provided under the NOP and the selling price of our OCS products and NOP services. We expect that overall cost of revenue will increase or decrease in absolute dollars primarily as, and to the extent that, our revenue increases or decreases. We expect that the cost of net product revenue as a percentage of net product revenue will moderately decrease and gross margin and gross profit will moderately increase over the long term as our sales and production volumes increase and our cost per unit of our OCS disposable sets decreases due to 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 product gross margin. We also expect to see modest improvements in the future in our services gross margin 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. 69 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, and recruiting and temporary service fees related to such personnel; • 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; and • 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. Acquired In-Process Research and Development Expenses Acquired in-process research and development expenses, or IPR&D, consist of the acquisition value of transactions that do not qualify as a business combination and that do not have an alternative future use. 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, and recruiting and temporary service fees for such personnel. Selling, general and administrative expenses also include direct and allocated facility-related costs, costs to facilitate the NOP, 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 and amortization of sales and marketing-related intangible assets. 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. markets. We expect that our selling, general and administrative expenses will increase over the long term as we increase our headcount to support the expected continued sales growth of our OCS products and our NOP. 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 discounts 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. In May 2023, we issued and sold $460.0 million in aggregate principal amount of our 1.50% Convertible Senior Notes due 2028. 70 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. Results of Operations Comparison of the Years Ended December 31, 2023, 2022 and 2021 The following table summarizes our results of operations for the Years Ended December 31, 2023, 2022 and 2021: Year Ended December 31, 2023 2022 2021 (in thousands) Revenue: Net product revenue $ 176,069 $ 79,234 $ 29,657 Service revenue 65,554 14,225 605 Total revenue 241,623 93,459 30,262 Cost of revenue: Cost of net product revenue 41,015 16,970 9,031 Cost of service revenue 46,515 11,217 72 Total cost of revenue 87,530 28,187 9,103 Gross profit 154,093 65,272 21,159 Operating expenses: Research, development and clinical trials 36,055 26,812 22,304 Acquired in-process research and development expenses 27,212 — — Selling, general and administrative 119,553 69,897 38,283 Total operating expenses 182,820 96,709 60,587 Loss from operations (28,727 ) (31,437 ) (39,428 ) Other income (expense): Interest expense (10,791 ) (3,726 ) (3,874 ) Other income (expense), net 12,847 (1,002 ) (877 ) Total other income (expense), net 2,056 (4,728 ) (4,751 ) Loss before income taxes (26,671 ) (36,165 ) (44,179 ) (Provision) benefit for income taxes 1,643 (66 ) (36 ) Net loss $ (25,028 ) $ (36,231 ) $ (44,215 ) 71 Revenue OCS transplant-related revenue consists of: Year Ended December 31, 2023 2022 Change (in thousands) OCS Transplant Revenue by country by organ: United States Lung total revenue $ 10,548 $ 7,967 $ 2,581 Heart total revenue 59,080 29,902 29,178 Liver total revenue 151,719 46,169 105,550 Total United States OCS transplant revenue 221,347 84,038 137,309 All other countries Lung total revenue 1,272 880 392 Heart total revenue 14,012 8,451 5,561 Liver total revenue 104 90 14 Total all other countries OCS transplant revenue 15,388 9,421 5,967 Total OCS transplant revenue $ 236,735 $ 93,459 $ 143,276 We also had service revenue unrelated to OCS transplant of $4.9 million, including $3.0 million of charter flight and aircraft management and related services and $1.9 million of flight school training revenue, from Summit's legacy operations for the year ended December 31, 2023. Revenue from customers in the United States related to OCS transplant was $221.3 million in the year ended December 31, 2023 and increased by $137.3 million compared to the year ended December 31, 2022, primarily due to higher sales volumes of our OCS Liver and OCS Heart disposable sets. Revenue for each organ in the table above includes net product revenue from sales of disposable sets as well as service revenue for organ retrieval, OCS organ management and logistics services under the NOP in the United States. Establishing the NOP, which launched in late 2021, has allowed us to broaden our customer base and increase utilization of the OCS in organ transplantation. Significantly all of our customers in the United States now participate in the NOP. By adding logistics to our NOP offering, we have been able to further increase product and service revenue. Revenue from customers outside the United States was $15.4 million in the year ended December 31, 2023 and increased by $6.0 million compared to the year ended December 31, 2022. Revenue outside of the United States increased for the year ended December 31, 2023 compared to the year ended December 31, 2022 due primarily to increased sales volume of OCS Heart disposable sets. Cost of Revenue, Gross Profit and Gross Margin Cost of net product revenue increased by $24.0 million in the year ended December 31, 2023 compared to the year ended December 31, 2022. Cost of service revenue increased by $35.3 million in the year ended December 31, 2023 compared to the year ended December 31, 2022 as we expanded and increased utilization of the NOP. Gross profit increased by $88.8 million in the year ended December 31, 2023 compared to the year ended December 31, 2022. Cost of service revenue included approximately $4.4 million of costs related to charter flight and aircraft management and related services and flight school training revenue, from Summit's legacy operations, which is unrelated to the NOP and organ transplant. Overall gross margin was 64% and 70% for the years ended December 31, 2023 and 2022, respectively. The decrease in gross margin from 2022 to 2023 was driven primarily by an increase in service revenue, which has a lower gross margin than product revenue. Gross margin from net product revenue was 77% and 79% for the years ended December 31, 2023 and 2022, respectively. The decrease in gross margin was primarily a result of increasing manufacturing capacity and increased costs of certain parts. Gross margin from service revenue was 29% and 21% for the years ended December 31, 2023 and 2022, respectively, and consisted primarily of organ retrieval, OCS organ management and logistics services under our NOP. Service revenue gross margin during the year ended December 31, 2023, included the introduction of transportation and logistics services and the purchase and integration of Summit in the third quarter of 2023. Service revenue gross margin during the year ended December 31, 2022 included our initial launch of the NOP program and did not include a full period of our NOP service offering. 72 Operating Expenses Research, Development and Clinical Trials Expenses Year Ended December 31, 2023 2022 Change (in thousands) Personnel related (including stock-based compensation expense) $ 15,489 $ 9,818 $ 5,671 Laboratory supplies and research materials 7,939 5,404 2,535 Consulting and third-party services 5,788 5,277 511 Clinical trials costs 1,077 1,778 (701 ) Facility related and other 5,762 4,535 1,227 Total research, development and clinical trials expenses $ 36,055 $ 26,812 $ 9,243 Total research, development and clinical trials expenses increased by $9.2 million from $26.8 million in the year ended December 31, 2022 to $36.1 million in the year ended December 31, 2023. Personnel related costs increased by $5.7 million primarily due to increased headcount to support development efforts for our next generation OCS program and overall compensation increases. Personnel related costs included stock-based compensation expense of $2.8 million and $1.5 million for the years ended December 31, 2023 and 2022, respectively. Laboratory supplies and research materials costs increased by $2.5 million from the year ended December 31, 2022 to the year ended December 31, 2023 primarily due to our increased need for supplies and materials used for development of our next generation OCS. Facility related and other costs increased by $1.2 million from the year ended December 31, 2022 to the year ended December 31, 2023 due primarily to the increased costs of supporting a larger group of research and development personnel and their development efforts. Clinical trial costs decreased by $0.7 million due to the timing of pre-approval and post-approval clinical trials. Acquired In-Process Research and Development Expenses IPR&D in 2023 was related to the acquisition of certain assets related to lung and heart perfusion technology from BTL. Selling, General and Administrative Expenses Year Ended December 31, 2023 2022 Change (in thousands) Personnel related (including stock-based compensation expense) $ 72,717 $ 40,551 $ 32,166 Professional and consultant fees 17,401 7,991 9,410 NOP Support 11,985 8,463 3,522 Tradeshows and conferences 4,575 4,788 (213 ) Facility related and other 12,875 8,104 4,771 Total selling, general and administrative expenses $ 119,553 $ 69,897 $ 49,656 Total selling, general and administrative expenses increased by $49.7 million from $69.9 million in the year ended December 31, 2022 to $119.6 million in the year ended December 31, 2023 due to increases in personnel related costs, professional and consultant fees, NOP support costs and facility related and other costs. Personnel related costs increased by $32.2 million primarily due to the continued expansion of our team to support the growth in our business, as well as an increase in stock-based compensation expense of $7.8 million, due primarily to additional grants to new and existing employees. Professional and consultant fees increased by $9.4 million due primarily to increased consulting, legal and audit fees related to the business growth. Professional and consultant fees also included transaction costs related to our acquisitions of $2.0 million. The increase in NOP support of $3.5 million was due to the continued growth and expansion of our NOP, including our national command and dispatch center. Facility related and other costs increased by $4.8 million due primarily to increased facilities costs and depreciation and amortization expense due to the growth in our business. 73 Other Income (Expense) Interest Expense Interest expense was $10.8 million and $3.7 million for the years ending December 31, 2023 and 2022, respectively. The increase was due primarily to interest expense for our $460.0 million principal amount of the Notes, which were issued in May 2023. Interest expense also increased due to an increase in the principal amount of the CIBC loan outstanding compared to the principal that had been outstanding under our prior credit agreement with OrbiMed, partially offset by the lower average interest rate for our indebtedness under the CIBC Credit Agreement. Other Income (Expense), Net Other income (expense), net for the years ended December 31, 2023 and 2022 included interest income of $12.5 million and $0.9 million, respectively, from interest earned on invested cash balances, due to higher invested cash balance and to a lesser extent higher interest rates. Other income (expense), net included $0.3 million of realized and unrealized foreign currency transactions gains during the year ended December 31, 2023. Other income (expense), net included $1.3 million of realized and unrealized foreign currency transactions losses during the year ended December 31, 2022. Other expense, net for the year ending December 31, 2022 also included a loss on extinguishment of debt of $0.6 million. (Provision) Benefit for Income Taxes We recorded a tax benefit of $1.7 million for the year ended December 31, 2023 for the release of a portion of our valuation allowance related to the net deferred tax liabilities recorded in purchase accounting. As part of the allocation of the purchase price of Summit, we recorded deferred tax liabilities for the differences between the fair value recognized in purchase accounting and the tax basis of property, plant and equipment and intangible assets. The net deferred tax liability is a source of income to support the recognition of a portion of our existing deferred tax assets. Therefore, we released the same amount of our valuation allowance. We maintain a valuation allowance on our overall net deferred tax asset as we deem it more likely than not that the net deferred tax asset will not be realized. Comparison of the Years Ended December 31, 2022 and 2021 For a discussion of our results of operations for the year ended December 31, 2022 as compared to the year ended December 31, 2021, 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, 2022 and 2021 included in our Annual Report on Form 10-K for the year ended December 31, 2022. Liquidity and Capital Resources Since our inception, we have incurred significant annual operating losses. To date, we have funded our operations primarily with proceeds from borrowings under loan agreements, proceeds from the issuance of our convertible senior notes, proceeds from the sale of common stock in our public offerings and revenue from clinical trials and commercial sales of our OCS products and NOP services. On May 11, 2023, we issued $460.0 million aggregate principal amount of the Notes, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The total net proceeds from the sale of the Notes, after deducting debt issuance costs of $14.6 million, and purchases of capped calls of $52.1 million, were $393.3 million. At December 31, 2023, our principal source of liquidity was cash of $394.8 million. 74 Cash Flows The following table summarizes our sources and uses of cash for each of the periods presented: Year Ended December 31, 2023 2022 2021 (in thousands) Net cash used in operating activities $ (13,028 ) $ (45,817 ) $ (28,864 ) Net cash provided by (used in) investing activities (193,953 ) 54,513 29,267 Net cash provided by financing activities 400,418 167,927 1,393 Effect of exchange rate changes on cash, cash equivalents and restricted cash 193 (1,021 ) (797 ) Net increase in cash, cash equivalents and restricted cash $ 193,630 $ 175,602 $ 999 Operating Activities During the year ended December 31, 2023, operating activities used $13.0 million of cash, primarily resulting from our net loss of $25.0 million and net cash used by changes in our operating assets and liabilities of $44.3 million, partially offset by net non-cash charges of $56.3 million, which included an IPR&D charge of $27.2 million. Net cash used by changes in our operating assets and liabilities for the year ended December 31, 2023 consisted primarily of an increase in accounts receivable of $33.8 million, an increase in inventory of $28.1 million and an increase in prepaid expenses and other current assets of $2.1 million, partially offset by an increase in accounts payable and accrued expenses and other current liabilities of $21.2 million. 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. Changes in accounts receivable, inventory, prepaid expenses and other current assets, 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, 2023, net cash used in investing activities of $194.0 million consisted of purchases of property, plant and equipment of $151.8 million, including $141.9 million of transplant-related aircraft purchases, the purchase of IPR&D assets from BTL for $27.2 million and the purchase of Summit for $14.9 million, net of cash received. 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. Financing Activities During the year ended December 31, 2023, net cash provided by financing activities of $400.4 million consisted of net proceeds from the issuance of our Notes of $445.4 million, partially offset by payments of $52.1 million for associated capped calls, proceeds from the issuance of common stock upon exercise of stock options of $6.2 million and proceeds from the issuance of common stock in connection with the 2019 Employee Stock Purchase Plan of $1.0 million. 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. 75 For a discussion of our cash flows for the year ended December 31, 2021, 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, 2022. Convertible Senior Notes On May 11, 2023, we issued $460.0 million aggregate principal amount of the Notes, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act, pursuant to an indenture dated May 11, 2023, by and between us and U.S. Bank Trust Company, National Association, or the Indenture. The initial conversion price of the Notes is approximately $94.00 per share of common stock, which represents a premium of approximately 32.5% over the closing price of our common stock on May 8, 2023. The Notes will mature on June 1, 2028, unless earlier repurchased, redeemed or converted. We used $52.1 million of the proceeds from the sale of the Notes to fund the cost of entering into capped call transactions, described below. The proceeds from the issuance of the Notes were approximately $393.3 million, net of capped call transaction costs of $52.1 million and initial purchaser discounts and other debt issuance costs totaling $14.6 million. The Notes bear interest at a rate of 1.50% per year and interest is payable semiannually in arrears on June 1 and December 1 of each year. The initial conversion rate is 10.6388 shares of common stock per $1,000 principal amount of the Notes, which represents an initial conversion price of approximately $94.00 per share of common stock. The conversion rate and conversion price are subject to customary adjustments upon the occurrence of certain events as described in the Indenture. Before March 1, 2028, noteholders have the right to convert their Notes only upon the occurrence of certain events, including certain corporate events, and during the five business days immediately after any ten consecutive trading days in which the trading price per $1,000 principal amount of Notes is less than ninety eight percent (98%) of the as converted value. Additionally, the noteholder can convert their Notes during any calendar quarter (and only during such calendar quarter), commencing after the calendar quarter ending on September 30, 2023 but before March 1, 2028, provided the last reported sale price of the common stock for at least 20 trading days is greater than or equal to 130% of the conversion price during the 30 consecutive trading days ending on the last trading day of a calendar quarter. From and after March 1, 2028, noteholders may convert their Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. We have the right to elect to settle conversions either in cash, shares or in a combination of cash and shares of our common stock. Prior to June 8, 2026, the Notes will not be redeemable. On or after June 8, 2026, we may redeem for cash all or any portion of the Notes (subject to the partial redemption limitation set forth in the Indenture), at our option, if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption. In addition, calling any Note for redemption will constitute a “Make-Whole Fundamental Change” (as defined in the Indenture) with respect to that Note, in which case the conversion rate applicable to the conversion of that Note will be increased in certain circumstances if it is converted after it is called for redemption. Long-Term Debt In July 2022, we entered into a credit agreement with CIBC as amended by the First Amendment to Credit Agreement, dated as of May 8, 2023, by and among the Company and CIBC, or the First Amendment, the Second Amendment to Credit Agreement, dated as of June 23, 2023, by and among the Company and CIBC, or the Second Amendment, and the Third Amendment to Credit Agreement, dated as of November 9, 2023, by and among the Company and CIBC, or the Third Amendment, pursuant to which 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 previously outstanding credit agreement with OrbiMed, which was entered into in June 2018. 76 On May 8, 2023, we entered into the First Amendment, which among other items, allowed for the issuance of the Notes and capped call transactions. On June 23, 2023, we entered into the Second Amendment, which among other items, permits us to make acquisitions of equity or assets of another entity, subject to the conditions under the Second Amendment, including acquisitions, without further consent of CIBC, up to a maximum amount of $50.0 million for the cash payable in connection with an individual acquisition and a maximum amount in aggregate of $150.0 million for the total cash consideration payable for all acquisitions made by us on or after June 23, 2023. The definition of consolidated adjusted EBITDA was also amended by the Second Amendment to add a provision for the pro forma effect of any acquisitions that occur during the period. Additionally, pursuant to the Second Amendment, we and CIBC agreed to extend the start of the principal repayment period to July 31, 2026, on which date we are obligated to begin repayment of the term loans in equal monthly installments until the maturity date in July 2027. On November 9, 2023, we entered into the Third Amendment, which, among other items, permits us to make acquisitions of equity or assets of another entity, subject to the conditions under the Third Amendment, without further consent of CIBC, for cash consideration in a maximum aggregate amount of $300.0 million for all such acquisitions made by the Company on or after November 9, 2023. 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 1.50%, 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%. 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. As discussed above, the definition of consolidated adjusted EBITDA was amended to include the pro forma effect of acquisitions. 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, 2023, 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 NOP, scale our manufacturing and sterilization operations, continue research, development and clinical trial efforts, seek regulatory approval for new products and product enhancements, including new indications, both in the United States and in select non-U.S. markets, and seek greater control of air and ground transport for our NOP. For example, if the demand for our products exceeds our existing manufacturing and sterilization capacity, our ability to fulfill orders would be limited until we have sufficiently expanded such operations. In addition, following the closing of our IPO, we have incurred and expect to continue to incur additional costs associated with operating as a public company. The timing and amount of our operating and capital expenditures will depend on many factors, including: • the amount of 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 growth of the NOP; • the costs and expenses of expanding our U.S. and non-U.S. sales and marketing infrastructure and our manufacturing operations; 77 • 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, including the NOP; • the costs associated with maintaining and growing our logistics capabilities, including by means of the acquisition of fixed-wing aircraft for our aviation transportation services or other acquisitions, joint ventures or strategic investments; • the cost of maintaining, replacing or acquiring additional fixed-wing aircraft; • the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims; and • 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, 2023, our outstanding principal balance was $60.0 million and is due in 2027. We estimate we will pay $4.5 million in interest payments during 2024. Our estimate of payments is based on an assumed rate of 7.3%, which was the interest rate in effect at December 31, 2023. On May 11, 2023, we issued $460.0 million aggregate principal amount of Notes due 2028. The Notes bear interest at a rate of 1.50% per year, payable semi-annually in arrears on June 1 and December 1 of each year. The Notes will mature on June 1, 2028, unless earlier converted, redeemed or repurchased. We lease facilities under long-term non-cancelable operating leases that have a weighted average remaining lease term of 4.7 years as of December 31, 2023. As of December 31, 2023, we had fixed lease payment obligations of $11.6 million, of which $2.6 million is payable during 2024. We also lease facilities under short-term leases, for which we expect to pay approximately $0.8 million in 2024 under existing leases. In connection with our acquisition of Summit we acquired a construction contract for the completion of a commercial aircraft hangar at Bozeman Yellowstone International Airport in Bozeman, Montana. We anticipate we will incur approximately $3.0 million to $4.0 million in 2024 to complete construction of the hangar. We intend to acquire additional fixed-wing aircraft as we scale our fleet of aircraft. During the year ended December 31, 2023, we acquired 11 transplant-related fixed-wing aircraft with an aggregate purchase price of $141.9 million and we plan to acquire additional aircraft in 2024, including two aircraft purchased in January and February 2024. 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, 2023, 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 78 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, OCS organ management and logistics 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, OCS organ management and logistics services under our NOP 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, OCS organ management services and organ transportation logistics. 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. 79 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, OCS organ management services and organ transportation 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. When a customer order includes disposable sets and organ retrieval, OCS organ management or logistics 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. Payments Made to Customers 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. 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 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. Revenue is reported net of taxes. 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 $0.8 million and $0.3 million as of December 31, 2023 and 2022, respectively. 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. Business Combinations and Fair Value Estimates In determining whether an acquisition should be accounted for as a business combination or asset acquisition, we first determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this is the case, the single identifiable asset or the group of similar assets is not deemed to be a business and the acquisition is accounted for as an asset acquisition. If this is not the case, we then further evaluate whether the acquisition includes, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. If so, we conclude that the acquisition is a business and account for it as a business combination. Determining the fair value of assets acquired and liabilities assumed in a business combination is judgmental in nature and can involve the use of significant estimates and assumptions. Fair value and useful life determinations are based on, among other things, valuations that use information and assumptions provided by management, which consider management’s best estimates of inputs and assumptions that a market participant would use. Actual results may vary from these estimates and may result in adjustments to goodwill and acquisition date fair values of assets and liabilities during a measurement period or upon a final 80 determination of asset and liability fair values, whichever comes first. Adjustments to fair values of assets and liabilities made after the end of the measurement period are recorded within operating results. 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. Item 7A. 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 gains of $0.3 million during the year ended December 31, 2023. 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 gain of less than $0.1 million during the year ended December 31, 2023. For the year ended December 31, 2023, 5% of our revenue and 2% 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. 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%. As of December 31, 2023 borrowings outstanding under the CIBC Credit Agreement totaled $60.0 million and the interest rate applicable to such borrowings was 7.3%. 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. In May 2023, we issued the Notes with an aggregate principal amount of $460.0 million. In connection with the issuance of the Notes, we entered into privately negotiated capped call transactions with certain counterparties. The capped calls are expected generally to offset the potential dilution to our common stock as a result of any conversion of the Notes. The Notes have a fixed annual interest rate of 1.50%. Accordingly, we do not have interest rate exposure on the Notes. 81 Item 8. Financial Statement s and Supplementary Data. TRANSMEDICS GROUP, INC. Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) 83 Consolidated Balance Sheets 85 Consolidated Statements of Operations 86 Consolidated Statements of Comprehensive Loss 87 Consolidated Statements of Stockholders’ Equity 88 Consolidated Statements of Cash Flows 89 Notes to Consolidated Financial Statements 90 82 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, 2023 and 2022, 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, 2023, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 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, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. 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. As described in Management’s Annual Report on Internal Control over Financial Reporting, management has excluded Summit Aviation, Inc. from its assessment of internal control over financial reporting as of December 31, 2023 because it was acquired by the Company in a purchase business combination during 2023. We have also excluded Summit Aviation, Inc. from our audit of internal control over financial reporting. Summit Aviation, Inc. is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 2% and 2%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2023. 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 83 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 $241.6 million in total revenues for the year ended December 31, 2023. 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, OCS organ management and logistics 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, OCS organ management, and transportation logistics 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, completion of services documents and cash receipts from customers. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts February 27, 2024 We have served as the Company’s auditor since 2001. 84 TRANSMEDICS GROUP, INC. CONSOLIDATED BA LANCE SHEETS (In thousands, except share amounts) December 31, 2023 2022 Assets Current assets: Cash $ 394,812 $ 201,182 Accounts receivable 63,576 27,611 Inventory 44,235 20,605 Prepaid expenses and other current assets 8,031 2,896 Total current assets 510,654 252,294 Property, plant and equipment, net 173,941 19,223 Operating lease right-of-use assets 6,546 5,130 Restricted cash 500 500 Goodwill 11,990 — Acquired intangible assets, net 2,354 — Other non-current assets 62 — Total assets $ 706,047 $ 277,147 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 12,717 $ 3,341 Accrued expenses and other current liabilities 38,221 18,635 Deferred revenue 1,961 241 Operating lease liabilities 2,035 1,444 Total current liabilities 54,934 23,661 Convertible senior notes, net 447,140 — Long-term debt, net 59,064 58,696 Operating lease liabilities, net of current portion 7,707 7,415 Total liabilities 568,845 89,772 Commitments and contingencies (Note 13) Stockholders' equity: Preferred stock, no par value; 25,000,000 shares authorized; no shares issued or outstanding — — Common stock, no par value; 150,000,000 shares authorized; 32,670,803 shares and 32,141,368 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively 641,106 666,277 Accumulated other comprehensive loss ( 199 ) ( 225 ) Accumulated deficit ( 503,705 ) ( 478,677 ) Total stockholders' equity 137,202 187,375 Total liabilities and stockholders' equity $ 706,047 $ 277,147 The accompanying notes are an integral part of these consolidated financial statements. 85 TRANSMEDICS GROUP, INC. CONSOLIDATED STATEM ENTS OF OPERATIONS (In thousands, except share and per share amounts) Year Ended December 31, 2023 2022 2021 Revenue: Net product revenue $ 176,069 $ 79,234 $ 29,657 Service revenue 65,554 14,225 605 Total revenue 241,623 93,459 30,262 Cost of revenue: Cost of net product revenue 41,015 16,970 9,031 Cost of service revenue 46,515 11,217 72 Total cost of revenue 87,530 28,187 9,103 Gross profit 154,093 65,272 21,159 Operating expenses: Research, development and clinical trials 36,055 26,812 22,304 Acquired in-process research and development expenses 27,212 — — Selling, general and administrative 119,553 69,897 38,283 Total operating expenses 182,820 96,709 60,587 Loss from operations ( 28,727 ) ( 31,437 ) ( 39,428 ) Other income (expense): Interest expense ( 10,791 ) ( 3,726 ) ( 3,874 ) Other income (expense), net 12,847 ( 1,002 ) ( 877 ) Total other income (expense), net 2,056 ( 4,728 ) ( 4,751 ) Loss before income taxes ( 26,671 ) ( 36,165 ) ( 44,179 ) (Provision) benefit for income taxes 1,643 ( 66 ) ( 36 ) Net loss $ ( 25,028 ) $ ( 36,231 ) $ ( 44,215 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 0.77 ) $ ( 1.23 ) $ ( 1.60 ) Weighted average common shares outstanding, basic and diluted 32,517,372 29,556,633 27,616,839 The accompanying notes are an integral part of these consolidated financial statements. 86 TRANSMEDICS GROUP, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In thousands) Year Ended December 31, 2023 2022 2021 Net loss $ ( 25,028 ) $ ( 36,231 ) $ ( 44,215 ) Other comprehensive income (loss): Foreign currency translation adjustment 26 ( 73 ) ( 46 ) Unrealized gains (losses) on marketable securities, net of tax of $ 0 — 36 ( 47 ) Total other comprehensive income (loss) 26 ( 37 ) ( 93 ) Comprehensive loss $ ( 25,002 ) $ ( 36,268 ) $ ( 44,308 ) The accompanying notes are an integral part of these consolidated financial statements. 87 TRANSMEDICS GROUP, INC. CONSOLIDATED STATEMENTS O F STOCKHOLDERS’ EQUITY (In thousands, except share amounts) Accumulated Other Total Common Stock Comprehen- Accumulated Stockholders' Shares Amount sive Loss Deficit Equity Balances at December 31, 2020 27,175,305 $ 502,217 $ ( 95 ) $ ( 398,231 ) $ 103,891 Issuance of common stock upon the exercise of common stock options 588,461 974 — — 974 Issuance of common stock in connection with employee stock purchase plan 27,849 419 — — 419 Stock-based compensation expense — 6,878 — — 6,878 Foreign currency translation adjustment — — ( 46 ) — ( 46 ) Unrealized losses on marketable securities — — ( 47 ) — ( 47 ) Net loss — — — ( 44,215 ) ( 44,215 ) Balances at December 31, 2021 27,791,615 510,488 ( 188 ) ( 442,446 ) 67,854 Issuance of common stock in public offering, net of discounts and issuance costs of $ 676 3,737,500 139,854 — — 139,854 Issuance of common stock upon the exercise of common stock options 507,795 4,667 — — 4,667 Issuance of common stock in connection with employee stock purchase plan 30,143 509 — — 509 Issuance of restricted common stock 26,093 — — — — Restricted common stock forfeitures ( 1,778 ) — — — — Issuance of common stock in connection with exercise of warrants 50,000 438 — — 438 Stock-based compensation expense — 10,321 — — 10,321 Foreign currency translation adjustment — — ( 73 ) — ( 73 ) Unrealized gains on marketable securities — — 36 — 36 Net loss — — — ( 36,231 ) ( 36,231 ) Balances at December 31, 2022 32,141,368 666,277 ( 225 ) ( 478,677 ) 187,375 Issuance of common stock upon the exercise of common stock options 493,935 6,155 — — 6,155 Issuance of common stock in connection with employee stock purchase plan 25,894 955 — — 955 Stock-based compensation expense — 19,791 — — 19,791 Purchases of capped calls related to convertible senior notes — ( 52,072 ) — — ( 52,072 ) Issuance of restricted common stock 10,304 — — — — Restricted common stock forfeitures ( 698 ) — — — — Foreign currency translation adjustment — — 26 — 26 Net loss — — — ( 25,028 ) ( 25,028 ) Balances at December 31, 2023 32,670,803 $ 641,106 $ ( 199 ) $ ( 503,705 ) $ 137,202 The accompanying notes are an integral part of these consolidated financial statements. 88 TRANSMEDICS GROUP, INC. CONSOLIDATED STATEME NTS OF CASH FLOWS (In thousands) Year Ended December 31, 2023 2022 2021 Cash flows from operating activities: Net loss $ ( 25,028 ) $ ( 36,231 ) $ ( 44,215 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization expense 8,177 3,478 1,817 Stock-based compensation expense 19,791 10,321 6,878 Acquired in-process research and development expenses 27,212 — — Deferred taxes ( 1,660 ) — — Loss on extinguishment of debt — 575 — Loss on sale of marketable securities — 107 — Non-cash interest expense and end of term accretion expense 2,128 465 540 Non-cash lease expense 1,041 717 829 Net amortization of premiums on marketable securities — 381 1,356 Unrealized foreign currency transaction (gains) losses ( 342 ) 1,129 928 Changes in operating assets and liabilities, net of acquired assets and liabilities: Accounts receivable ( 33,816 ) ( 21,678 ) 840 Inventory ( 28,092 ) ( 8,024 ) ( 4,894 ) Prepaid expenses and other current assets ( 2,101 ) 2,521 ( 3,151 ) Other non-current assets ( 54 ) — — Accounts payable 6,957 ( 3,270 ) 5,090 Accrued expenses and other current liabilities 14,250 3,437 4,875 Deferred revenue 83 — 7 Operating lease liabilities ( 1,574 ) 255 236 Net cash used in operating activities ( 13,028 ) ( 45,817 ) ( 28,864 ) Cash flows from investing activities: Purchases of property, plant and equipment ( 151,847 ) ( 11,907 ) ( 3,519 ) Purchase of business, net of cash acquired ( 14,894 ) — — Purchase of in-process research and development assets ( 27,212 ) — — Purchases of marketable securities — ( 10,496 ) ( 72,024 ) Proceeds from sales and maturities of marketable securities — 76,916 104,810 Net cash provided by (used in) investing activities ( 193,953 ) 54,513 29,267 Cash flows from financing activities: Proceeds from issuance of convertible senior notes, net of issuance costs paid of $ 14,620 445,380 — — Purchases of capped calls related to convertible senior notes ( 52,072 ) — — Proceeds from issuance of long-term debt, net of issuance costs — 58,509 — Repayments of long-term debt — ( 36,050 ) — Proceeds from issuance of common stock in public offering, net of underwriting discounts and commissions and issuance costs paid — 139,854 — Proceeds from issuance of common stock upon exercise of stock options 6,155 4,667 974 Proceeds from issuance of common stock upon exercise of warrants — 438 — Proceeds from issuance of common stock in connection with employee stock purchase plan 955 509 419 Net cash provided by financing activities 400,418 167,927 1,393 Effect of exchange rate changes on cash, cash equivalents and restricted cash 193 ( 1,021 ) ( 797 ) Net increase in cash, cash equivalents and restricted cash 193,630 175,602 999 Cash, cash equivalents and restricted cash, beginning of period 201,682 26,080 25,081 Cash, cash equivalents and restricted cash, end of period $ 395,312 $ 201,682 $ 26,080 Supplemental disclosure of cash flow information: Cash paid for interest $ 8,089 $ 3,260 $ 3,334 Supplemental disclosure of non-cash activities: Transfers of inventory to property, plant and equipment $ 4,574 $ 2,135 $ 1,823 Purchases of property, plant and equipment included in accounts payable and accrued expenses $ 2,454 $ 62 $ 1,200 Operating lease liabilities arising from obtaining right-of-use assets $ 2,171 $ — $ — Reconciliation of cash, cash equivalents and restricted cash: Cash and cash equivalents $ 394,812 $ 201,182 $ 25,580 Restricted cash 500 500 500 Total cash, cash equivalents and restricted cash shown in the statement of cash flows $ 395,312 $ 201,682 $ 26,080 The accompanying notes are an integral part of these consolidated financial statements. 89 TRANSMEDICS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of the Business and Basis of Presentation TransMedics Group, Inc. (“TransMedics Group” and, together with its consolidated subsidiaries, the “Company”) was incorporated in the Commonwealth of Massachusetts in October 2018. TransMedics, Inc. (“TransMedics”), an operating company and wholly 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, OCS organ management and logistics services, to provide transplant programs in the United States with a more efficient process to procure donor organs with the OCS. Our logistics services include aviation transportation, ground transportation and other coordination activity. On August 16, 2023, the Company acquired Summit Aviation, Inc. and Northside Property Group, LLC (together “Summit”). Summit was a charter flight operator based in Bozeman, Montana. The acquisition enabled TransMedics to add aviation transportation services to its NOP and become a comprehensive national provider of donor organ retrieval and delivery in the United States. 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 annual losses since inception, including a net loss of $ 25.0 million for the year ended December 31, 2023. As of December 31, 2023, the Company had an accumulated deficit of $ 503.7 million. The Company believes that its existing cash of $ 394.8 million as of December 31, 2023 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 when needed, the Company will be required to delay, reduce or eliminate some or all of its research and development programs, product expansion or commercialization efforts, or the Company may be unable to continue operations. The Company is subject to risks and uncertainties common to companies in the medical device industry and of similar size, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, uncertainty of market acceptance of products, and the need to obtain additional financing to fund operations. Products currently under development will require additional research and development efforts, including additional clinical testing and regulatory approval, prior to commercialization. These efforts require additional capital, adequate personnel, infrastructure and extensive compliance-reporting capabilities. 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 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. 90 2. 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, the valuation of assets acquired and liabilities assumed in business combinations, including acquired intangible assets and the resulting goodwill, 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 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, 2023 and 2022 , 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, 2023 , no customer accounted for more than 10 % of revenue. For the years ended December 31, 2022 and 2021, one customer accounted for 14 % of revenue and one customer accounted for 11 % of revenue, respectively. As of December 31, 2023 and 2022 , no customer accounted for 10 % or more of accounts receivable. 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, 2023 and 2022 , 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, 2023 and 2022 . 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 91 charged or written-off against the reserve. As of December 31, 2023 and 2022 , the Company had no allowance for credit losses. During the years ended December 31, 2023, 2022 and 2021, 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, 2023 and 2021, the Company did no t write off any accounts receivable balances. Business Combinations In determining whether an acquisition should be accounted for as a business combination or asset acquisition, the Company first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this is the case, the single identifiable asset or the group of similar assets is not deemed to be a business and the acquisition is accounted for as an asset acquisition. If this is not the case, the Company then further evaluates whether the acquisition includes, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. If so, the Company concludes that the acquisition is a business and accounts for it as a business combination. The Company accounts for business combinations using the acquisition method of accounting. In accordance with this method, assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date. The fair value of the consideration paid is assigned to the assets acquired and liabilities assumed based on their respective fair values. Goodwill represents the excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed. Determining the fair value of assets acquired and liabilities assumed is judgmental in nature and can involve the use of significant estimates and assumptions. Fair value and useful life determinations are based on, among other things, valuations that use information and assumptions provided by management, which consider management’s best estimates of inputs and assumptions that a market participant would use. Actual results may vary from these estimates and may result in adjustments to goodwill and acquisition date fair values of assets and liabilities during a measurement period or upon a final determination of asset and liability fair values, whichever comes first. Adjustments to fair values of assets and liabilities made after the end of the measurement period are recorded within operating results. Transaction costs related to business combinations are expensed as incurred and are included in general and administrative expense in the consolidated statements of operations. Asset Acquisitions The Company measures and recognizes asset acquisitions that are not deemed to be business combinations based on the cost to acquire the asset or group of assets, which includes transaction costs. Goodwill is not recognized in asset acquisitions. In an asset acquisition, the cost allocated to acquire in-process research and development (“IPR&D”) with no alternative future use is charged to expense at the acquisition date. On August 2, 2023 , the Company acquired certain assets related to lung and heart perfusion technology from Bridge to Life Ltd. and its subsidiary Tevosol, Inc., together (“BTL”). The Company intends to further develop these technologies to expand its product offerings and indications for organ transplantation. The Company accounted for the purchase of BTL as an asset acquisition as substantially all of the fair value of gross assets acquired were concentrated on a single set of identifiable activities consisting of lung and heart perfusion technology, referred to as the in-process research and development (“IPR&D”) asset. Due to the stage of development of the IPR&D asset at the date of acquisition, it was not yet probable that there was future economic benefit from this asset. Absent successful clinical results and regulatory approval for the asset applications, there was no alternative future use associated with the asset. Accordingly, the value of the IPR&D asset of $ 27.2 million was expensed as research and development expense in the consolidated statements of operations. Goodwill and Acquired Intangible Assets The Company records goodwill when consideration paid in a business combination exceeds the value of the net assets acquired. The Company’s estimates of fair value are based upon assumptions believed to be reasonable at that time, but that are inherently uncertain and unpredictable. Goodwill is not amortized, but rather is tested for impairment annually in the fourth quarter, or more frequently if facts and circumstances warrant a review, such as 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. 92 The Company has determined that there is a single reporting unit for the purpose of conducting this goodwill impairment assessment. The Company has the option of performing either a qualitative or quantitative assessment to determine whether further impairment testing is necessary. If it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, a quantitative impairment test will be required. The quantitative goodwill impairment test requires management to estimate and compare the fair value of the reporting unit with its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets, goodwill is not impaired. If the fair value of the reporting unit is less than the carrying value, the difference is recorded as an impairment loss up to the amount of goodwill. Intangible assets are recorded at their estimated fair values at the date of acquisition and are reported net of accumulated amortization. The Company amortizes acquired intangible assets with finite lives over their estimated useful lives based on the pattern of consumption of the economic benefits or, if that pattern cannot be readily determined, on a straight-line basis. Property, Plant and Equipment Property, plant 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 Transplant aircraft 10 years Flight school aircraft 5 years Manufacturing equipment 5 years OCS Consoles 5 years Computer equipment and software 3 years Laboratory equipment 3 years Office, trade show and training equipment 5 years Leasehold improvements Shorter of term of lease or 15 years Depreciation and amortization expense of aircraft is recognized over the estimated useful lives of each asset to their salvage value. Salvage values estimated for transplant and flight school aircraft are approximately 50 % of the original purchase price. 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, plant 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 primarily of property, plant and equipment, right-of-use assets and intangible assets with finite lives. 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, determined based on discounted cash flows. The Company did no t record any impairment losses on long-lived assets during the years ended December 31, 2023, 2022 and 2021 . 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 93 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 amortized over their estimated useful life. 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, 2023, 2022 and 2021. The Company also capitalizes development costs related to internal-use software when it is probable that the expenditures will result in additional functionality. Costs incurred in the preliminary and post-implementation stages of development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use and depreciated over their estimated useful life. Capitalization ceases upon completion of all substantial testing performed to ensure the product is ready for its intended use. The Company did no t capitalize any software development costs related to internal-use software during the years ended December 31, 2023, 2022 and 2021 . Inventory 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 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, 2023 . Leases The Company accounts for leases under ASC Topic 842, Leases (“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. 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 94 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 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. The Company's 1.50 % Convertible Senior Notes due 2028 (the "Notes") are carried at the face value less unamortized debt discount and issuance costs on the consolidated balance sheets, and the fair value of the convertible senior notes is presented at each reporting period for disclosure purposes only (see Note 8). 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 and deliver human organs for transplant in a near-physiologic condition to address the limitations of cold storage organ preservation. Operating segments are defined as components of an enterprise for which separate financial information is regularly evaluated by the Company’s chief operating decision maker, or decision-making group, in deciding how to allocate resources and assess performance. The Company has determined that its chief operating decision maker is its Chief Executive Officer. The Company’s chief operating decision maker reviews the Company’s financial information on a consolidated basis for purposes of allocating resources and assessing financial performance. 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, 2023 and 2022 , the warranty accrual was less than $ 0.1 million each. 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, OCS organ management and logistics services under its NOP in the United States. 95 The Company recognizes revenue from sales to customers applying the following five steps: (1) identification of the contract, or contracts, with a customer, (2) identification of the performance obligations in the contract, (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations in the contract, and (5) recognition of revenue when, or as, performance obligations are satisfied. 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, OCS organ management services and organ transportation under the Company's NOP 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, OCS organ management services and organ transportation logistics. 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, OCS organ management services and organ transportation logistics 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, OCS organ management or logistics 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. 96 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, 2023 and 2022. 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 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. Revenue is reported net of taxes. Distributors The Company markets and sells its products primarily through its direct sales force, which sells its products to end customers globally. A small portion of the Company’s revenue is generated by sales to a limited number of distributors in Europe and Asia-Pacific. When the Company transacts with a distributor, its contractual arrangement is with the distributor and not with the end customer. Whether the Company transacts business with and receives the order from a distributor or directly from an end customer, its revenue recognition policy and resulting pattern of revenue recognition for the order are the same. 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. Patent Costs 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’ equity. 97 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 $ 0.3 million, ($ 1.3 million) and ($ 1.0 million) for the years ended December 31, 2023, 2022 and 2021 , 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 Income (Loss) and Accumulated Other Comprehensive Income (Loss) Comprehensive income (loss) includes net income (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 income (loss) are foreign currency translation adjustments and unrealized gains (losses) on marketable securities. Accumulated other comprehensive income (loss) on the consolidated balance sheets consists primarily of foreign currency translation adjustments. Accumulated other comprehensive income (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, using the treasury stock method, and outstanding convertible notes, using the if-converted method. 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, 2023, 2022 and 2021. 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, 2023 2022 Warrants to purchase common stock 14,440 14,440 Options to purchase common stock 3,289,051 3,288,791 Employee stock purchase plan 9,506 14,135 Restricted stock units 328,366 — Restricted stock awards 9,606 24,315 Convertible senior notes 4,893,848 — 8,544,817 3,341,681 98 Income Taxes 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. Recently issued accounting pronouncements In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , which requires public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently assessing the impact of the adoption of this guidance. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , which requires public entities, on an annual basis, to provide disclosure of specific categories in their tax rate reconciliations, as well as disclosure of income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently assessing the impact of the adoption of this guidance. 3. Acquisition of Summit On August 16, 2023 , the Company acquired Summit pursuant to the terms of an equity purchase agreement. Summit was a charter flight operator based in Bozeman, Montana. The acquisition enabled TransMedics to add aviation transportation services to its NOP and become a comprehensive national provider of donor organ retrieval and delivery in the United States. The acquisition was accounted for as a purchase of a business under ASC Topic 805, Business Combinations. Under the acquisition method of accounting, the assets and liabilities were recorded as of the acquisition date, at their respective fair values. The preliminary purchase consideration of $ 14.9 million reflected an upfront cash payment of $ 18.0 million, net of cash acquired and working capital adjustments. The Company’s consolidated financial statements reflect the preliminary allocation of the purchase price to the assets and liabilities assumed based on fair value as of the date of the acquisition. The Company's estimate of preliminary purchase consideration is subject to change upon finalizing working capital adjustments. The Company’s preliminary estimate of the fair value of specifically identifiable assets acquired and liabilities assumed as of the date of acquisition is subject to change upon finalizing its valuation analysis. During the three months ended December 31, 2023, the Company recorded an adjustment to goodwill of $ 0.3 million, representing an adjustment to its estimate of the fair value of accounts payable and deferred tax liabilities as of the acquisition date. The final determinations, which are expected to be completed by August 2024, may result in additional changes in the fair value of certain assets and liabilities as compared to these preliminary estimates. 99 The following tables summarize the preliminary allocation of the purchase price (in thousands): Assets Acquired and Liabilities Assumed: Accounts receivable $ 2,089 Other current assets 1,040 Property, plant and equipment 5,922 Right-of-use asset 288 Intangible assets 2,430 Goodwill 11,990 Total assets acquired 23,759 Accounts payable and other current liabilities ( 6,917 ) Deferred tax liabilities ( 1,660 ) Operating lease liabilities ( 288 ) Total allocation of purchase price consideration, net of cash acquired $ 14,894 Property, plant and equipment consist primarily of flight school aircraft and construction-in-progress related to a commercial aircraft hangar that Summit is in the process of constructing. Flight school aircraft were valued using market comparisons adjusted for aircraft-specific condition. The fair value of construction-in-progress approximated its cost. Intangible assets consisted primarily of a customer relationship asset of $ 2.3 million related to flight school revenue and was valued using the multi-period excess earnings method, a form of the income approach. Significant assumptions and estimates utilized in this model include the revenue growth rate, contract renewal probability and the discount rate. Intangible assets are being amortized on a straight-line basis to selling, general and administrative over their estimated useful lives of 12 years as of the acquisition date. Goodwill was recognized for the excess purchase price over the fair value of the net assets acquired. Goodwill is primarily attributable to the workforce of the acquired business (which is not eligible for separate recognition as an identifiable intangible asset) and anticipated synergies between Summit’s existing business processes and the NOP. Goodwill from the acquisition is included within the Company’s one reporting unit and is included in the Company’s enterprise-level annual review for impairment. Goodwill resulting from the acquisition is no t deductible for tax purposes. Deferred tax liabilities relate to the differences between the fair value recognized in purchase accounting and the tax basis of property, plant and equipment and intangible assets. The net deferred tax liability is a source of income to support the recognition of a portion of our existing deferred tax assets. Therefore, the Company recorded a tax benefit of $ 1.7 million for the release of a portion of its valuation allowance related to the net deferred tax liabilities recorded in purchase accounting. The Company incurred total transaction costs of $ 2.0 million for third-party professional services utilized for the acquisition, which are included in selling, general and administrative costs in the consolidated statements of operations. The operating results of the acquired entity have been included in the consolidated financial statements beginning on the acquisition date. Pro forma results of operations for the acquisition have not been presented as they are not material to the Company’s consolidated results of operations. 4. Inventory Inventory consisted of the following (in thousands): December 31, 2023 2022 Raw materials $ 25,823 $ 10,939 Work-in-process 3,806 1,876 Finished goods 14,606 7,790 $ 44,235 $ 20,605 100 5. Property, Plant and Equipment, Net Property, plant and equipment, net consisted of the following (in thousands): December 31, 2023 2022 Transplant aircraft $ 141,855 $ — Flight school aircraft 3,484 — OCS Consoles 14,491 10,878 Manufacturing equipment 6,898 3,721 Computer equipment and software 3,021 2,064 Laboratory equipment 1,875 671 Office, trade show and training equipment 4,006 2,121 Leasehold improvements 13,354 12,415 Construction-in-progress 6,250 482 195,234 32,352 Less: Accumulated depreciation and amortization ( 21,293 ) ( 13,129 ) $ 173,941 $ 19,223 During the years ended December 31, 2023, 2022 and 2021, total depreciation and amortization expense was $ 8.1 million, $ 3.5 million and $ 1.8 million, respectively. Construction-in-progress as of December 31, 2023 primarily relates to construction of a commercial aircraft hangar at Bozeman Yellowstone International Airport in Bozeman, Montana. Substantially all of the Company's property, plant and equipment are held in the United States. 6. Goodwill and Intangible Assets The carrying amount of goodwill was $ 12.0 million as of December 31, 2023 related to the Company’s acquisition of Summit. Goodwill is not amortized, but instead is reviewed for impairment at least annually or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. To date, the Company has had no impairments to goodwill. Acquired intangible assets consisted of the following (in thousands): December 31, 2023 Weighted Average Useful Life Gross Amount Accumulated Amortization Carrying Value (in years) Customer relationship 12 $ 2,320 $ 73 $ 2,247 Other 12 110 3 107 $ 2,430 $ 76 $ 2,354 Amortization expense is recorded within selling, general and administrative expense. Amortization expense for the year ended December 31, 2023 was $ 0.1 million. Future amortization expense of the intangible assets as of December 31, 2023, is expected to be as follows (in thousands): Year Ending December 31, 2024 $ 203 2025 203 2026 203 2027 203 2028 203 Thereafter 1,339 $ 2,354 101 7. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following (in thousands): December 31, 2023 2022 Accrued payroll and related expenses $ 20,300 $ 9,812 Accrued transportation costs 4,381 2,581 Accrued research, development and clinical trials expenses 1,771 1,876 Accrued other 11,769 4,366 $ 38,221 $ 18,635 8. Long-Term Debt and Financing Arrangements Convertible Senior Notes Convertible senior notes consisted of the following (in thousands): December 31, 2023 Principal amount of convertible senior notes $ 460,000 Less: Current portion of convertible senior notes — Convertible senior notes, net of current portion 460,000 Debt discount, net of accretion ( 12,860 ) Convertible senior notes, net of discount and current portion $ 447,140 As of December 31, 2023, the estimated fair value of the Notes was $ 524.9 million. The fair value was determined based on the quoted price of the last trade of the Notes prior to the end of the reporting period in an inactive market, which is considered as Level 2 in the fair value hierarchy. On May 11, 2023, the Company issued $ 460.0 million aggregate principal amount of the Notes, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act, pursuant to an indenture dated May 11, 2023, by and between the Company and U.S. Bank Trust Company, National Association (the “Indenture”). The initial conversion price of the Notes is approximately $ 94.00 per share of common stock, which represents a premium of approximately 32.5 % over the closing price of the Company’s common stock on May 8, 2023. The Notes will mature on June 1, 2028 , unless earlier repurchased, redeemed or converted. The Company used $ 52.1 million of the proceeds from the sale of the Notes to fund the cost of entering into capped call transactions, described below. The proceeds from the issuance of the Notes were approximately $ 393.3 million, net of capped call transaction costs of $ 52.1 million and initial purchaser discounts and other debt issuance costs totaling $ 14.6 million. The Notes bear interest at a rate of 1.50 % per year and interest is payable semiannually in arrears on June 1 and December 1 of each year. The initial conversion rate is 10.6388 shares of common stock per $ 1,000 principal amount of the Notes, which represents an initial conversion price of approximately $ 94.00 per share of common stock. The conversion rate and conversion price are subject to customary adjustments upon the occurrence of certain events as described in the Indenture. Before March 1, 2028 , noteholders have the right to convert their Notes only upon the occurrence of certain events, including certain corporate events, and during the five business days immediately after any ten consecutive trading days in which the trading price per $ 1,000 principal amount of Notes is less than ninety eight percent ( 98 %) of the as converted value. Additionally, the noteholder can convert their Notes during any calendar quarter (and only during such calendar quarter), commencing after the calendar quarter ending on September 30, 2023 but before March 1, 2028 , provided the last reported sale price of the common stock for at least 20 trading days is greater than or equal to 130 % of the conversion price during the 30 consecutive trading days ending on the last trading day of a calendar quarter. From and after March 1, 2028, noteholders may convert their Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. The Company has the right to elect to settle conversions either in cash, shares or in a combination of cash and shares of its common stock. 102 Prior to June 8, 2026, the Notes will not be redeemable. On or after June 8, 2026, the Company may redeem for cash all or any portion of the Notes (subject to the partial redemption limitation set forth in the Indenture), at its option, if the last reported sale price of the Company’s common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption. In addition, calling any Note for redemption will constitute a “Make-Whole Fundamental Change” (as defined in the Indenture) with respect to that Note, in which case the conversion rate applicable to the conversion of that Note will be increased in certain circumstances if it is converted after it is called for redemption. The Company accounts for the Notes as a single liability in accordance with ASC 470-20 as the Company concluded that embedded conversion features within the Notes do not meet the requirements for bifurcation. Initial purchaser discounts and other debt issuance costs related to the Notes totaling $ 14.6 million were recorded by the Company as a debt discount. The debt discount is reflected as a reduction of the carrying value of the Notes on the Company’s consolidated balance sheets and is being accreted to interest expense over the term of the Notes using the effective interest method. During the year ended December 31, 2023 , the Company recognized $ 6.2 million in interest expense related to the 1.50 % cash coupon of the Notes and amortization of the debt issuance costs. During the year ended December 31, 2023, the effective interest rate on the outstanding Notes was approximately 2.1 %. Capped Call Transactions In connection with the offering of the Notes, the Company entered into privately negotiated capped call transactions (the “Capped Calls”) with certain financial institution counterparties (the “Option Counterparties”). The Capped Calls are generally intended to reduce or offset the potential dilution to the common stock upon any conversion of the Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price. For accounting purposes, the Capped Calls are separate transactions, and not part of the terms of the Notes. The Capped Calls are recorded in stockholders’ equity and are not accounted for as derivatives. The cost of $ 52.1 million incurred to purchase the Capped Calls were recorded as a reduction to common stock on the accompanying consolidated balance sheets. Each of the Capped Calls has an initial strike price of approximately $ 94.00 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Notes. The Capped Calls have an initial cap price of $ 141.88 per share, subject to certain adjustments. The Capped Calls cover, subject to anti-dilution adjustments, approximately 4,893,848 shares of the Company’s common stock, which is the same number of shares of the Company’s common stock initially underlying the Notes. The Capped Calls are subject to automatic exercise over a 40 trading day period commencing on April 3, 2028 , subject to earlier termination under certain circumstances. Long-term debt Long-term debt consisted of the following (in thousands): December 31, 2023 2022 Principal amount of long-term debt $ 60,000 $ 60,000 Less: Current portion of long-term debt — — Long-term debt, net of current portion 60,000 60,000 Debt discount, net of accretion ( 936 ) ( 1,304 ) Long-term debt, net of discount and current portion $ 59,064 $ 58,696 Canadian Imperial Bank of Commerce Credit Agreement In July 2022, the Company entered into a credit agreement with Canadian Imperial Bank of Commerce (“CIBC”), as amended by the First Amendment to Credit Agreement, dated as of May 8, 2023, by and among the Company and CIBC (the “First Amendment”), the Second Amendment to Credit Agreement, dated as of June 23, 2023, by and among the Company, and CIBC (the “Second Amendment”), the Third Amendment to Credit Agreement, dated as of November 9, 2023, by and among the Company, and CIBC (the “Third Amendment”) (as amended, the “CIBC Credit Agreement”), pursuant to which the Company borrowed $ 60.0 million. In connection with the CIBC Credit Agreement, the Company repaid all amounts due under its previously outstanding credit agreement and recorded a loss on extinguishment of debt of $ 0.6 million during 2022, which amount was classified as other expense in the consolidated statements of operations. 103 On May 8, 2023, the Company entered into the First Amendment, which among other items, allowed for the issuance of the Notes and capped call transactions. On June 23, 2023, the Company entered into the Second Amendment, which among other items, permits the Company to make acquisitions of equity or assets of another entity, subject to the conditions under the Second Amendment, including acquisitions, without further consent of CIBC, up to a maximum amount of $ 50.0 million for the cash payable in connection with an individual acquisition and a maximum amount in aggregate of $ 150.0 million for the total cash consideration payable for all acquisitions made by the Company on or after June 23, 2023. The definition of consolidated adjusted EBITDA was also amended by the Second Amendment to add a provision for the pro forma effect of any acquisitions that occur during the period. Additionally, pursuant to the Second Amendment, the parties agreed to extend the start of the principal repayment period to July 31, 2026, on which date the Company is obligated to begin repayment of the term loans in equal monthly installments until the maturity date in July 2027. On November 9, 2023, the Company entered into the Third Amendment, which, among other items, permits the Company to make acquisitions of equity or assets of another entity, subject to the conditions under the Third Amendment, without further consent of CIBC, for cash consideration in a maximum aggregate amount of $ 300.0 million for all such acquisitions made by the Company on or after November 9, 2023. 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 1.50 %, 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 %. 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 sheets 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 . As discussed above, the definition of consolidated adjusted EBITDA was amended to include the pro forma effect of acquisitions. 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, 2023, 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 %. 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, 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, 2023, the stated interest rate applicable to borrowings under the CIBC Credit Agreement was 7.3 % . During the years ended December 31, 2023 and 2022, the weighted average effective interest rate on outstanding borrowings under the CIBC Credit Agreement was approximately 7.7 % and 6.6 %, respectively. 104 9. Equity Preferred Stock As of December 31, 2023 , 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. Common Stock As of December 31, 2023 , 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, 2023 , no dividends had been declared or paid. Warrants As of December 31, 2023 , 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. 10. 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. On May 25, 2023, the shareholders of the Company approved the Amended and Restated TransMedics Group, Inc. 2019 Stock Incentive Plan (the “Amended Plan”) to among other things, (i) increase the number of shares of the Company’s common stock available for issuance thereunder by 1,000,000 shares, (ii) prohibit the payment of dividend or dividend equivalents on a current basis with respect to unvested awards, (iii) extend the expiration date of the Amended Plan until June 1, 2033 and (iv) increase the annual limits on non-employee director compensation. As of December 31, 2023, 1,359,742 shares of common stock were available for issuance under the Amended Plan. 2021 Inducement Plan In August 2021, the Company’s board of directors approved the TransMedics Group, Inc. Inducement Plan (the “Inducement Plan”). Pursuant to the terms of the Inducement Plan, the Company may grant nonqualified stock options, stock appreciation rights, restricted stock, unrestricted stock, restricted stock unit awards and performance awards to individuals who were not previously employees or directors of the Company or individuals returning to employment after a bona fide period of non-employment with the Company. A total of 1,000,000 shares of the Company’s common stock were initially available for issuance under the Inducement Plan. On November 2, 2023, the Company's board of directors approved an increase of 500,000 to shares available under the Inducement Plan. As of December 31, 2023, 607,366 shares of common stock remained available for issuance under the Inducement Plan. 105 Awards granted under the 2019 Plan and Inducement Plan vest over periods determined by the board of directors and expire no longer than ten years from the date of the grant. The exercise price for stock options granted is not less than the fair value of common shares based on quoted market prices. 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, 2023 , 25,894 shares were issued under the 2019 ESPP and as of December 31, 2023, 264,559 shares remained available for issuance. 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” options. 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, 2023 2022 2021 Risk-free interest rate 4.15 % 2.33 % 0.90 % Expected term (in years) 6.03 6.03 6.03 Expected volatility 69 % 59 % 58 % Expected dividend yield 0 % 0 % 0 % The following table summarizes the Company’s option activity since December 31, 2022: Number of Shares Weighted Average Exercise Price Weighted Average Contractual Term Aggregate Intrinsic Value (in years) (in thousands) Outstanding as of December 31, 2022 3,288,791 $ 21.56 7.86 $ 132,076 Granted 639,045 64.37 Exercised ( 493,935 ) 12.46 Forfeited ( 143,913 ) 34.14 Expired ( 937 ) 30.57 Outstanding as of December 31, 2023 3,289,051 $ 30.69 7.52 $ 159,343 Vested and expected to vest as of December 31, 2023 3,289,051 $ 30.69 7.52 $ 159,343 Options exercisable as of December 31, 2023 1,920,240 $ 23.78 6.84 $ 105,898 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, 2023, 2022 and 2021 , was $ 31.0 million, $ 15.0 million and $ 16.3 million, respectively. The weighted average grant-date fair 106 value of stock options granted during the years ended December 31, 2023, 2022 and 2021 was $ 41.75 per share, $ 11.32 per share and $ 18.63 per share, respectively. The Company has no t granted any stock-based awards with performance-based vesting conditions. Restricted Common Stock 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, 2022: Shares Weighted Average Grant-Date Fair Value Unvested restricted common stock as of December 31, 2022 24,315 $ 28.79 Issued 10,304 72.75 Vested ( 24,315 ) 28.79 Forfeited ( 698 ) 71.60 Unvested restricted common stock as of December 31, 2023 9,606 $ 72.83 The aggregate fair value of restricted stock that vested during the year ended December 31, 2023 was $ 1.7 million. There was no restricted stock vesting during the years ended December 31, 2022 or 2021. The Company granted restricted common stock during the year ended December 31, 2022 with a weighted average grant-date fair value of $ 28.74 per share. The Company did no t grant restricted common stock during the year ended December 31, 2021. Restricted Common Stock Units The following table summarizes the Company's restricted common stock unit activity since December 31, 2022: Shares Weighted Average Grant-Date Fair Value Unvested restricted stock units as of December 31, 2022 — $ — Granted 357,594 63.74 Vested — — Forfeited ( 29,228 ) 56.53 Unvested restricted stock units as of December 31, 2023 328,366 $ 64.38 The Company did no t grant restricted common stock units during the years ended December 31, 2022 or 2021. 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, 2023 2022 2021 Cost of revenue $ 438 $ 125 $ 72 Research, development and clinical trials expenses 2,823 1,465 1,114 Selling, general and administrative expenses 16,530 8,731 5,692 $ 19,791 $ 10,321 $ 6,878 As of December 31, 2023, total unrecognized compensation cost related to unvested share-based awards was $ 48.6 million, which is expected to be recognized over a weighted-average period of 2.4 years. 107 11. Income Taxes Tax Provision Components During the years ended December 31, 2023, 2022 and 2021 , 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, 2023, 2022 and 2021 and, accordingly, recorded a foreign income tax provision of less than $ 0.1 million, $ 0.1 million and less than $ 0.1 million for the years ended December 31, 2023, 2022 and 2021, respectively. The Company recorded a tax benefit of $ 1.7 million for the release of a portion of its valuation allowance related to the net deferred tax liabilities recorded in purchase accounting during the year ended December 31, 2023. As part of the allocation of the purchase price of Summit, the Company recorded deferred tax liabilities for the differences between the fair value recognized in purchase accounting and the tax basis of property, plant and equipment and intangible assets. The net deferred tax liability is a source of income to support the recognition of a portion of its existing deferred tax assets. Therefore, the Company released the same amount of its valuation allowance. The Company maintains a valuation allowance on its overall net deferred tax asset as it deems it more likely than not that the net deferred tax asset will not be realized. Loss Before Income Taxes The domestic and foreign components of loss before income taxes were as follows (in thousands): Year Ended December 31, 2023 2022 2021 United States $ ( 27,038 ) $ ( 36,416 ) $ ( 44,321 ) Foreign 367 251 142 $ ( 26,671 ) $ ( 36,165 ) $ ( 44,179 ) 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, 2023 2022 2021 Federal statutory income tax rate ( 21.0 )% ( 21.0 )% ( 21.0 )% State taxes, net of federal benefit ( 7.1 )% ( 5.4 )% ( 6.9 )% Federal and state research and development tax credits ( 10.2 )% ( 5.4 )% ( 2.4 )% State deferred tax adjustment ( 27.5 )% — — Nondeductible items 1.2 % 0.7 % 0.1 % Stock-based compensation expense ( 5.7 )% ( 3.5 )% ( 3.3 )% Deferred tax effect of change in state blended rate ( 5.9 )% 16.2 % ( 1.7 )% Return to provision ( 1.5 )% 2.6 % 1.1 % Other ( 0.1 )% 0.1 % ( 0.2 )% Change in deferred tax asset valuation allowance 71.6 % 15.8 % 34.3 % Effective income tax rate ( 6.2 )% 0.1 % 0.0 % 108 Net deferred tax assets consisted of the following (in thousands): December 31, 2023 2022 Deferred tax assets: Net operating loss carryforwards $ 99,332 $ 92,445 Capitalized research and development expense 14,062 8,109 Acquired in-process research and development expenses 7,275 — Research and development tax credit carryforwards 16,195 13,565 Accrued expenses 5,657 2,994 Stock-based compensation expense 6,704 3,492 Lease liability 2,600 2,218 Section 163(j) interest 191 754 Other 400 483 Total deferred tax assets 152,416 124,060 Deferred tax liabilities: Property, plant and equipment ( 9,055 ) ( 885 ) Right-of-use assets ( 1,721 ) ( 1,284 ) Intangible assets ( 654 ) — Total deferred tax liabilities ( 11,430 ) ( 2,169 ) Valuation allowance ( 140,986 ) ( 121,891 ) Net deferred tax assets $ — $ — As of December 31, 2023, the Company had federal net operating loss carryforwards of $ 376.4 million, which may be available to offset future taxable income, of which $ 207.4 million of the total net operating loss carryforwards expire at various dates beginning in 2024 , 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, 2023, the Company had state net operating loss carryforwards of $ 328.8 million, which may be available to offset future taxable income and expire at various dates beginning in 2030 . As of December 31, 2023, the Company also had U.S. federal and state research and development tax credit carryforwards of $ 10.7 million and $ 6.5 million, respectively, which may be available to offset future tax liabilities and begin to expire in 2024 . As of December 31, 2023 , 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. As of December 31, 2023 and 2022 , 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's policy is to record any interest or penalties related to income taxes as part of the income tax provision. 109 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, 2023. 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 2020 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, 2023 related primarily to current year federal and state net operating losses generated, acquired IPR&D and capitalized research and development costs. 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 state 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 year ended December 31, 2021 related primarily to the increase in net operating loss carryforwards in 2021. The changes in the valuation allowance were as follows (in thousands): Year Ended December 31, 2023 2022 2021 Valuation allowance as of beginning of year $ ( 121,891 ) $ ( 116,164 ) $ ( 101,029 ) Decreases recorded as benefit to income tax provision — — — Increases recorded to income tax provision ( 19,095 ) ( 5,727 ) ( 15,135 ) Valuation allowance as of end of year $ ( 140,986 ) $ ( 121,891 ) $ ( 116,164 ) 12. Leases The Company leases its office, laboratory and manufacturing space under two noncancelable 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. In June 2023, the Company amended one of its lease agreements to add space through the remainder of the lease term and under the existing terms of the lease. In connection with the acquisition of Summit, the Company acquired a 20-year operating lease with one 10-year renewal option, for space at the Bozeman Yellowstone International Airport in Bozeman, Montana where the Company is constructing a commercial aircraft hangar (see Note 3). The Company also leases office space for its NOP and hangar space for its aircraft at various locations in the United States under short-term leases. The components of the Company’s lease expense under ASC 842 are as follows (in thousands): Year Ended December 31, 2023 2022 2021 Operating lease cost $ 1,692 $ 1,353 $ 1,353 Short-term lease cost 1,606 806 159 Variable lease cost 1,495 718 640 $ 4,793 $ 2,877 $ 2,152 110 Supplemental disclosure of cash flow information related to the leases were as follows (in thousands): Year Ended December 31, 2023 2022 2021 Cash paid for amounts included in the measurement of operating lease liabilities $ 2,246 $ 1,948 $ 1,901 The weighted-average remaining lease term as of December 31, 2023 and 2022 was 4.7 years and 5.0 years, respectively. The weighted-average discount rate as of December 31, 2023 and 2022 was 6.9 % and 6.7 % , respectively. Because the interest rate implicit in the leases 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 leases. Future payments for the Company’s operating lease liabilities as of December 31, 2023 are as follows (in thousands): Year Ending December 31, 2024 $ 2,638 2025 2,704 2026 2,771 2027 2,839 2028 25 Thereafter 610 Total future minimum lease payments 11,587 Less: imputed interest ( 1,845 ) Total operating lease liabilities $ 9,742 The following table represents operating lease liabilities on the consolidated balance sheets (in thousands): December 31, 2023 Current operating lease liabilities $ 2,035 Operating lease liabilities, net of current portion 7,707 Total operating lease liabilities $ 9,742 13. 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. As of December 31, 2022, the Company had no t made any contributions to the plan. Effective January 1, 2023, the Company instituted an employer matching program for the 401(k) Plan pursuant to which the Company will match 100 % of the first 3 % of each participating employee’s eligible compensation contributed to the plan and 50 % of up to an additional 2 % each participating employee’s eligible compensation contributed to the plan. For the year ended December 31, 2023, the Company recorded expense of $ 1.4 million related to these matching contributions. Indemnification Agreements In the ordinary course of business, the Company has agreed to defend and indemnify its customers against third-party claims asserting infringement of certain intellectual property rights, which may include patents, copyrights, trademarks, or trade secrets. The Company’s exposure under these indemnification provisions is generally limited to the total amount paid by 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. 111 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, 2023 and 2022. 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, 2023 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. 14. Revenue 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. The Company records the reduction of revenue in the same period as the revenue is recognized and records a corresponding accrual for its estimate of the payments. As clinical trials reach the closeout phase, the Company updates its accrual estimates with corresponding adjustments to revenue. The Company will continue to update its clinical trial accrual estimates as information related to clinical trial payments is received. The reconciliation of gross product revenue to net product revenue for these certain payments is shown below (in thousands): Year Ended December 31, 2023 2022 2021 Gross product revenue from sales to customers $ 176,047 $ 77,854 $ 30,780 Less: clinical trial payments ( 22 ) ( 1,380 ) 1,123 Total net product revenue $ 176,069 $ 79,234 $ 29,657 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 $ 0.9 million, $ 1.0 million and $ 2.1 million for the years ended December 31, 2023, 2022 and 2021, respectively, as operating expenses. Summit makes payments to its aircraft management customers who had opted in to Summit's charter program. Summit pays the aircraft owner a fee for the use of the aircraft for charter flight services. The Company determined that fees incurred for the use of aircraft management customers' aircraft 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 Summit's aircraft management services and the consideration to the customer represents the fair value of the distinct good or service received. As a result, such fees are recorded as cost of sales. The Company recorded expense for the use of customers' aircraft of $ 1.1 million for the year ended December 31, 2023. As part of the Summit integration, Summit's legacy aircraft management customers are being transitioned to third parties and following this transition, the Company will no longer make such payments to customers. 112 Disaggregated Revenue The Company disaggregates revenue from contracts with customers related to OCS transplant 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, 2023 2022 2021 OCS Transplant Revenue by country by organ(1)(2): United States Lung total revenue $ 10,548 $ 7,967 $ 9,843 Heart total revenue 59,080 29,902 10,103 Liver total revenue 151,719 46,169 1,915 Total United States OCS transplant revenue 221,347 84,038 21,861 All other countries Lung revenue 1,272 880 822 Heart revenue 14,012 8,451 7,579 Liver revenue 104 90 — Total all other countries OCS transplant revenue 15,388 9,421 8,401 Total OCS transplant revenue $ 236,735 $ 93,459 $ 30,262 (1) Revenue by country is categorized based on the location of the end customer. Total revenue includes product and service revenue. (2) Service revenue unrelated to OCS transplant, which was $ 4.9 million for the year December 31, 2023 , is not included in this table. 15. Related Party Transactions Employment of Dr. Amira Hassanein Dr. Amira Hassanein, who serves as Product Director for the Company’s OCS Lung program, is the sister of Dr. Waleed Hassanein, the Company’s President, Chief Executive Officer and a member of the Company’s board of directors. The Company paid Dr. Amira Hassanein $ 0.4 million in total compensation in each of the years ended December 31, 2023, 2022 and 2021 , respectively, for her services as an employee. 16. Subsequent Events In separate transactions in January 2024 and February 2024, the Company acquired two fixed-wing aircraft from two separate sellers for a total purchase price of $ 26.6 million. The Company plans to utilize these aircraft as part of the NOP's aviation transportation services. 113 Item 9. Changes in and Disagreements with Accou ntants on Accounting and Financial Disclosure. None