TransMedics Group, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of op erations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 28, 2019, as filed with the SEC on March 17, 2020 (“2019 Form 10-K”). Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Item 1.A. Risk Factors” section of this Quarterly Report on Form 10-Q and the “Item 1.A. Risk Factors” section of our 2019 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 believe our substantial body of clinical evidence has demonstrated the potential for the OCS to significantly increase the number of organ transplants and improve post-transplant outcomes. We developed the OCS to comprehensively address the major limitations of cold storage. The OCS is a portable organ perfusion, optimization and monitoring system that utilizes our proprietary and customized technology to replicate near-physiologic conditions for donor organs outside of the human body. We designed the OCS technology platform to perfuse donor organs with warm, oxygenated, nutrient-enriched blood, while maintaining the organs in a living, functioning state; the lung is breathing, the heart is beating and the liver is producing bile. Because the OCS significantly reduces injurious ischemic time on donor organs as compared to cold storage and enables the optimization and assessment of donor organs, it has demonstrated improved clinical outcomes relative to cold storage and offers the potential to significantly improve donor organ utilization. We designed the OCS to be a platform that allows us to leverage core technologies across products for multiple organs. To date, we have developed three OCS products, one for each of lung, heart and liver transplantations, making the OCS the only multi-organ technology platform. Our OCS products have been used for over 1,600 human organ transplants. During our clinical trials, we established relationships with over 55 leading transplant programs worldwide. We have commercialized the OCS Lung and OCS Heart outside of the United States and received our first Pre-Market Approval, or PMA, from the FDA in March 2018 for the use in the United States of the OCS Lung for donor lungs currently utilized for transplantation and since May 2019, for donor lungs currently unutilized for transplantation. 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; and providing general and administrative support for these operations. To date, we have funded our operations primarily with proceeds from sales of preferred stock and borrowings under loan agreements, proceeds from the sale of common stock in our IPO, the sale of our common stock in equity offerings, and revenue from clinical trials and commercial sales of our OCS products. Since our inception, we have incurred significant operating losses. Our ability to generate net revenue sufficient to achieve profitability will depend on the successful further development and commercialization of our products. We generated net revenue of $18.0 million and incurred a net loss of $22.4 million for the fiscal nine months ended September 30, 2020. We generated net revenue of $23.6 million and incurred a net loss of $33.5 million for the fiscal year ended December 28, 2019. As of September 30, 2020, we had an accumulated deficit of $391.9 million. We expect to continue to incur net losses for the foreseeable future as we focus on growing commercial sales of our products in both the United States and select non-U.S. markets, including growing our sales and clinical adoption team, which will pursue increasing commercial sales and clinical adoption of our OCS products; scaling our manufacturing operations; continuing research, development and clinical trial efforts; and seeking regulatory clearance for new products and product enhancements, including new indications, in both the United States and select non-U.S. markets. Further, following the closing of our IPO we have incurred and expect to continue to incur additional costs associated with operating as a public company. As a result, we will need substantial additional funding for expenses related to our operating activities, including selling, general and administrative expenses and research, development and clinical trials expenses. 23 On May 6, 2019, we completed our IPO, pursuant to which we issued and sold 6,543,500 shares of common stock, i nclusive of 853,500 shares we sold pursuant to the full exercise of the underwriters’ option to purchase additional shares. The aggregate net proceeds received by us from the IPO were $91.4 million, after deducting underwriting discounts and commissions as well as other offering costs of $6.0 million. On May 6, 2019, immediately prior to the completion of our IPO, we completed a corporate reorganization whereby TransMedics, Inc., the direct parent of TransMedics Group prior to the corporate reorganization, became a direct, wholly-owned subsidiary of TransMedics Group pursuant to the merger of TMDX, Inc., a direct, wholly-owned subsidiary of TransMedics Group prior to the corporate reorganization, merged with and into TransMedics, Inc., with TransMedics, Inc. as the surviving corporation. As part of the transactions, each outstanding share of capital stock of TransMedics, Inc. was converted into shares of common stock of TransMedics Group, each outstanding option to purchase shares of common stock of TransMedics, Inc. was converted into an outstanding option to purchase shares of common stock of TransMedics Group and each outstanding warrant to purchase shares of preferred stock of TransMedics, Inc. was converted into a warrant to purchase shares of common stock of TransMedics Group. On May 26, 2020, we completed an underwritten public offering of our common stock, which resulted in the sale of 5,750,000 shares of common stock, inclusive of 750,000 shares we sold pursuant to the full exercise of the underwriters’ option to purchase additional shares. The aggregate net proceeds received by us from the offering were approximately $75.0 million, after deducting underwriting discounts and commissions as well as other offering costs of $0.6 million. Because of the numerous risks and uncertainties associated with product development and commercialization, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability. Until such time, if ever, as we can generate substantial net revenue sufficient to achieve profitability, we expect to finance our operations through a combination of equity offerings, debt financings and strategic alliances. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms or at all. If we are unable to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the further development and commercialization efforts of one or more of our products, or may be forced to reduce or terminate our operations. We believe that our existing cash, cash equivalents, and marketable securities will be sufficient for us to fund our operating expenses, capital expenditure requirements and debt service payments for at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we ex pect. See “—Liquidity and Capital Resources.” COVID-19 The impact of the COVID-19 pandemic has been and will likely continue to be extensive in many aspects of society, which has resulted in and will likely continue to result in significant disruptions t o the global economy, as well as businesses and capital markets around the world. Impacts to our business as a result of COVID-19 include the temporary disruption of transplant procedures at many of the organ transplant centers who purchase OCS products; disruptions to our manufacturing operations and supply chain caused by facility closures, reductions in operating hours, staggered shifts and other social distancing efforts; labor shortages; decreased productivity and unavailability of materials or components; restrictions on or delays of our clinical trials and studies; delays of reviews and approvals by the FDA and other health authorities; limitations on our employees’ and customers’ ability to travel, and delays in product installations, trainings or shipments to and from affected countries and within the United States . In response to the pandemic , healthcare providers have, and may need to further, reallocate resources, such as physicians, staff, hospital beds and intensive care unit facilities, and the se actions significantly delay the provision of other medical care such as organ transplantation and reduce the number of transplant procedures that are performed, which has a negative impact on our revenue and clinical trial activities. Our sales and clinical adoption team has been and may continue to be restricted in visiting many transplant centers in person . Customer delays or reductions in capital expenditures and operating budgets also have a negative impact on our product sales. We plan to maintain these or similar restrictions until we believe employees can fully resume such activities in accordance with federal, state and local requirements. The COVID-19 pandemic also has impacted operations at the FDA and other health authoriti es, resulting in delays of reviews and approvals, including with respect to our OCS Heart PMA application, and may affect other potential PMA applications. For example, although the FDA had scheduled an advisory committee of experts from outside the FDA t o review and evaluate our OCS Heart PMA application in the second quarter of 2020, due to the COVID-19 pandemic the advisory committee meeting was postponed to October 2020. However, this meeting has been further temporarily postponed to allow the FDA to review additional, already collected, short and longer-term data from the OCS Heart EXPAND Trial and OCS Heart EXPAND Continued Access Protocol (“CAP”). The FDA has not yet communicated a new date for the advisory committee meeting. In addition, to minimize health risks to our employees during the COVID-19 peak in the second quarter of 2020, we asked our employees to stay home for several weeks. This resulted in a temporary reduction in our manufacturing and distribution of our OCS products at our facility in Andover, Massachusetts. Starting in May 2020, we resumed our manufacturing and distribution operations to pre-COVID levels, allowing us to meet all customer requirements. While we maintain an inventory of finished products and raw materials used in our OCS products, a prolonged pandemic could lead to shortages in the raw materials necessary to manufacture our products. If we experience a prolonged disruption in our manufacturing, supply chains, clinical trial or commercial operations, or if demand for our products is significantly reduced as a result of the COVID-19 pandemic, we would expect to experience a material adverse impact on our business, financial condition, results of operations and prospects. 24 In April 2020, we announced several steps to respon d to the COVID-19 pandemic. These steps are intended to protect the health and safety of our employees, to establish a process to support the continuous supply of our OCS products at transplant centers globally and to maintain financial flexibility. These actions include transitioning most employees to a remote work environment, except for those who are deemed essential to product supply and reducing near-term expenses, such as reducing non-essential discretionary expenses . We also deferred a portion of ex ecutive and employee compensation from April 2020 through August 31, 2020 . While the COVID-19 pandemic did not significantly impact our business or results of operations during the first quarter of 2020, OCS product sales have been negatively impacted by the COVID-19 pandemic since the second quarter of 2020 and we anticipate a negative impact to OCS product sales for the remainder of 2020; however, the length and extent of the pandemic, its consequences, and containment efforts wil l determine the future impact on our operations and financial condition. We have observed recovery in the frequency of transplant procedures, but not yet at the same activity level as prior to the disruption of business and economic activities resulting from COVID-19. In addition, while the number of transplant procedures performed has declined during the COVID-19 pandemic, organ transplantations are non-elective, life-saving procedures and we believe that the need for these procedures will persist. However, as interventions to contain the spread of the virus are lifted or reduced, new COVID-19 outbreaks may result in new or heightened restrictions, which could again cause disruptions to our customers’ operations and adversely impact organ transplant procedures. We continue to monitor developments regarding the COVID-19 pandemic and its impact on our business, financial condition, results of operations and prospects. However, we are unable to predict the extent of the impact with confidence due to the uncertainty of future developments, such as the duration of the pandemic, additional or modified government actions, new information which may emerge concerning the severity and incidence of COVID-19 and actions to contain the virus or treat its impact. In particular, the speed of the continued spread of COVID-19 globally, and the magnitude, duration and frequency of interventions to contain the spread of the virus, such as government-imposed quarantines, including shelter-in-place mandates, sweeping restrictions on travel, mandatory shutdowns for non-essential businesses, requirements regarding social distancing, and other public health safety measures, will determine the impact of the pandemic on our business. Components of Our Results of Operations Net Revenue We generate revenue primarily from sales of our single-use, organ-specific disposable sets (i.e., our organ-specific OCS Perfusion Sets sold together with our organ-specific OCS Solutions) used on our organ-specific OCS Consoles, each being a component of our OCS products. To a lesser extent, we also generate revenue from the sale of OCS Consoles to customers and from the implied rental of OCS Consoles loaned to customers at no charge. For each new transplant procedure, customers purchase an additional OCS disposable set for use on the customer’s existing organ-specific OCS Console. All of our revenue has been generated by sales to transplant centers in the United States, Europe and Asia-Pacific, or, in some cases, to distributors selling to transplant centers in select countries. Substantially all of our customer arrangements have multiple-performance obligations that contain deliverables consisting of OCS Perfusion Sets and OCS Solutions. In some of those multiple-element arrangements, the deliverables also include an OCS Console, whether sold or loaned to the customer. Some of our revenue has been generated from products sold in conjunction with the clinical trials conducted for our OCS products, under arrangements referred to as customer clinical trial agreements. Under most of these customer clinical trial agreements, we place an organ-specific OCS Console at the customer site for its use free of charge for the duration of the clinical trial, and the customer separately purchases from us the OCS disposable sets used in each transplant procedure during the clinical trial. When we loan the OCS Console to the customer, we retain title to the console at all times and do not require minimum purchase commitments from the customer related to any OCS products. In such cases, we invoice the customer for OCS disposable sets based on customer orders received for each new transplant procedure and the prices set forth in the customer agreement. Over time, we typically recover the cost of the loaned OCS Console through the customer’s continued purchasing and use of additional OCS disposable sets. For these reasons, we have determined that part of the arrangement consideration for the disposable set is an implied rental payment for use of the OCS Console. We intend to continue to loan OCS Consoles to some of our customers during commercialization of our OCS products. Because all elements of a customer order are delivered and recognized as revenue at the same time and because revenue allocated to elements other than OCS disposable sets, such as implied rental income and service revenue, is insignificant, all elements of revenue from customer arrangements are classified as a single category of revenue in our consolidated statements of operations. Under some of our customer clinical trial agreements, we make payments to our customers for reimbursements of clinical trial materials and for specified clinical documentation related to their use of our OCS products. Because some of these payments do not provide us with a separately identifiable benefit, we record such payments as a reduction of revenue from the customer, resulting in our net revenue presentation. We recorded reimbursable clinical trial costs as a reduction of revenue of $0.9 million and $2.1 million, for the fiscal three and nine months ended September 30, 2020, respectively, and $0.7 million and $1.8 million for the fiscal three and nine months ended September 28, 2019, respectively . 25 In March 2018, we received our first FDA PMA for the OCS Lung, and we began commercial sales of this product in the United States during the fourth quarter of 2018. In May 2019, we received our second FDA PMA for the OCS Lung for additional clinical indications. Therefore, our net revenue in the United States for the OCS Lung is now derived primarily from commercial sales and consists of sales of OCS disposable sets and, to a much le sser extent, sales of OCS Consoles. In 2019, we also recorded revenue from clinical trial sales of the OCS Lung for our OCS Lung EXPAND II Trial, which stopped enrollment as of June 24, 2019 since we received FDA PMA for the OCS Lung EXPAND indication. In the United States, we expect to continue to only have clinical trial sales for our OCS Heart and OCS Liver products until we receive similar FDA PMA for those products. Our net revenue in the United States for OCS Heart and OCS Liver products fluctuates from period to period as a result of the timing of patient enrollment in our clinical trials. Historically, our net revenue during periods of patient enrollment has been higher due to the sale of OCS disposable sets for use during these clinical trials, as compared to periods during which our clinical trials were not actively enrolling. Our OCS Heart EXPAND Trial began patient enrollment in September 2015 and completed patient enrollment in March 2018. Our OCS Liver PROTECT Trial began enrollment in January 2016 and completed enrollment in October 2019. Our OCS Heart EXPAND CAP began patient enrollment in May 2019 and is currently enrolling patients. Our OCS Heart DCD Trial began patient enrollment in December 2019 and has completed enrolling patients. Our OCS Heart DCD CAP has been approved by the FDA and we anticipate that we will begin enrolling patients by the end of 2020 or early 2021. Our OCS Liver PROTECT CAP began patient enrollment in February 2020 and is currently enrolling patients. Our net revenue may continue to fluctuate from period to period as a result of the timing of ongoing clinical trials in which our OCS products are used. Through September 30, 2020, all of our sales outside of the United States have been commercial sales (unrelated to any clinical trials) and our net revenue has been generated primarily from sales of OCS disposable sets and, to a much lesser extent, sales of OCS Consoles. Commercial sales of OCS disposable sets generally have a higher average selling price than clinical trial sales of OCS disposable sets. We expect that our net revenue will increase over the long term as a result of receiving our first two FDA PMAs for the OCS Lung in the United States in March 2018 and May 2019 and any potential future FDA approvals in the United States for OCS Heart and OCS Liver. We also expect that our net 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. We expect that net revenue will decrease in the short term as a result of the COVID-19 pandemic. Cost of Revenue, Gross Profit and Gross Margin Cost of revenue consists primarily of costs of components of our OCS Consoles and disposable sets, costs of direct materials, labor and the manufacturing overhead that directly supports production, and costs related to the depreciation of OCS Consoles loaned to customers. When we loan an OCS Console to a customer for its use free of charge, we capitalize as property and equipment the cost of our OCS Console and depreciate these assets over the five-year estimated useful life of the console. Included in the cost of OCS disposable sets are the costs of our OCS Lung, OCS Heart and OCS Liver Solutions. We expect that cost of revenue will increase or decrease in absolute dollars primarily as, and to the extent that, our net revenue increases or decreases. Gross profit is the amount by which our net revenue exceeds our cost of revenue in each reporting period. We calculate gross margin as gross profit divided by net revenue. Our gross margin has been and will continue to be affected by a variety of factors, primarily production volumes, the cost of components and direct materials, manufacturing costs, headcount, the selling price of our OCS products and fluctuations in amounts paid by us to customers related to reimbursements of their clinical trial expenses. We expect that cost of revenue as a percentage of net revenue will decrease and gross margin and gross profit will 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 efficiencies of scale. We intend to use our design, engineering and manufacturing capabilities to further advance and improve the efficiency of our manufacturing processes, which we believe will reduce costs and increase our gross margin. As utilization by customers of our OCS products increases, we expect that a greater number of OCS disposable sets will be used per year on the same OCS Console, thereby driving overall gross margin improvement. Because we expect that the number of OCS disposable sets sold over time will be significantly greater than the number of OCS Consoles sold or loaned to customers over that same period, we expect that our gross margin improvement will not be significantly affected by the number of OCS Consoles that we sell or loan to customers. While we expect gross margin to increase over the long term, it will likely fluctuate from quarter to quarter. 26 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 develop clinical evidence of our products’ safety and effectiveness, regulatory expenses, testing, consultant services and other costs associated with our OCS technology platform and OCS products, which include: • employee-related expenses, including salaries, related benefits and stock-based compensation expense for employees engaged in research, hardware and software development, regulatory and clinical trial functions; • expenses incurred in connection with the clinical trials of our products, including under agreements with third parties, such as consultants, contractors and data management organizations; • the cost of maintaining and improving our product designs, including the testing of materials and parts used in our products; • laboratory supplies and research materials; 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 to developing the next generation of our OCS technology platform. Selling, General and Administrative Expenses Selling, general and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in our sales and clinical adoption team and personnel in executive, marketing, finance and administrative functions. Selling, general and administrative expenses also include direct and allocated facility-related costs, promotional activities, marketing, conferences and trade shows as well as professional fees for legal, patent, consulting, investor and public relations, accounting and audit services. We expect to continue to increase headcount in our sales and clinical adoption 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. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with our continued operation as a public company. Other Income (Expense) Interest Expense Interest expense consists of interest expense associated with outstanding borrowings under our loan agreement as well as the amortization of debt discount associated with such agreement. Change in Fair Value of Preferred Stock Warrant Liability Prior to our IPO in May 2019, we had outstanding warrants to purchase preferred stock. We classified these warrants as a liability on our consolidated balance sheet that we remeasured to fair value at each reporting date, and we recognized changes in the fair value of the warrant liability as a component of other income (expense) in our consolidated statements of operations. On May 6, 2019, immediately prior to the closing of our IPO, the warrants to purchase preferred stock were converted into warrants to purchase common stock, and the fair value of the warrant liability at that time was reclassified to common stock. As a result, subsequent to the closing of our IPO, we no longer remeasure the fair value of the warrant liability at each reporting date. Other Income (Expense), Net Other income (expense), net includes interest income, 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. 27 Provision for Income Taxes Since our inception, we have not recorded any U.S. federal or state income tax benefits for the net operating losses we have incurred in each year or for the research and development tax credits we generated in the United States, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credits will not be realized. In reporting periods subsequent to 2016, we have recorded provisions for foreign income taxes of an insignificant amount related to the operations of one of our foreign subsidiaries. As of December 28, 2019, we had U.S. federal and state net operating loss carryforwards of $287.8 million and $217.8 million, respectively, which may be available to offset future taxable income and begin to expire in 2020 and 2030 respectively. Our federal net operating losses include $72.8 million, which can be carried forward indefinitely. As of December 28, 2019, we also had U.S. federal and state research and development tax credit carryforwards of $7.0 million and $4.7 million, respectively, which may be available to offset future tax liabilities and begin to expire in 2020 and 2024, respectively. As of December 28, 2019, we had no foreign net operating loss carryforwards. We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date. Results of Operations Prior to 2020, our fiscal year ended on the last Saturday in December, and we reported fiscal years using a 52/53-week convention. Under this convention, certain fiscal years contained 53 weeks. Each fisc al year was typically composed of four 13-week fiscal quarters, but in years with 53 weeks, the fourth quarter was a 14-week period. Our fiscal year ended December 28, 2019 included 52 weeks. In February 2020, we changed the end of our fiscal year end from the last Saturday in December to December 31. As a result of this change, our current fiscal year will end on December 31, 2020 and our current and each subsequent fiscal quarter will end on March 31, June 30 and September 30. Comparison of the Fiscal Three Months Ended September 30, 2020 and September 28, 2019 The following table summarizes our results of operations for the fiscal three months ended September 30, 2020 and September 28, 2019: Fiscal Three Months Ended September 30, 2020 September 28, 2019 Change (in thousands) Net revenue $ 7,091 $ 7,205 $ (114 ) Cost of revenue 2,053 2,989 (936 ) Gross profit 5,038 4,216 822 Operating expenses: Research, development and clinical trials 4,155 4,939 (784 ) Selling, general and administrative 5,493 6,519 (1,026 ) Total operating expenses 9,648 11,458 (1,810 ) Loss from operations (4,610 ) (7,242 ) 2,632 Other income (expense): Interest expense (971 ) (1,084 ) 113 Other income (expense), net 499 56 443 Total other expense, net (472 ) (1,028 ) 556 Loss before income taxes (5,082 ) (8,270 ) 3,188 Provision for income taxes (6 ) (10 ) 4 Net loss $ (5,088 ) $ (8,280 ) $ 3,192 28 Net Revenue, Cost of Revenue and Gross Profit Fiscal Three Months Ended September 30, 2020 September 28, 2019 Change (in thousands) Net revenue $ 7,091 $ 7,205 $ (114 ) Cost of revenue 2,053 2,989 (936 ) Gross profit $ 5,038 $ 4,216 $ 822 Net Revenue Fiscal Three Months Ended September 30, 2020 September 28, 2019 Change (in thousands) Net revenue by geography: United States $ 5,920 $ 4,341 $ 1,579 Outside the U.S. 1,171 2,864 (1,693 ) Total net revenue $ 7,091 $ 7,205 $ (114 ) Net revenue by OCS product: OCS Lung net revenue $ 659 $ 2,114 $ (1,455 ) OCS Heart net revenue 5,427 3,739 1,688 OCS Liver net revenue 1,005 1,352 (347 ) Total net revenue $ 7,091 $ 7,205 $ (114 ) Net revenue was relatively flat between the fiscal three months ended September 30, 2020 and September 28, 2019. The decrease in the number of disposable sets was primarily driven by a decrease in the number of OCS transplant procedures performed in Europe, partially offset by the increase in number of procedures performed in the United States and rest of the world. Net revenue from customers in the United States was $5.9 million in the fiscal three months ended September 30, 2020 and increased by $1.6 million compared to the fiscal three months ended September 28, 2019, primarily due to higher volume of clinical trial sales of OCS products. Net revenue from sales of OCS Lung products in the United States decreased from $1.9 million in the fiscal three months ended September 28, 2019 to $0.6 million in the fiscal three months ended September 30, 2020. The decrease was due primarily to lower sales of OCS disposable sets from the adverse impact of COVID-19. COVID-19 impacted lung transplants more than other organs due to the nature of the disease, new protocols required for safe lung transplants and the use of ventilators post-transplant. Net revenue from OCS Heart disposable sets sold to customers for use in our ongoing clinical trials in the United States increased by $3.2 million, while net revenue from OCS Liver disposable sets decreased by $0.3 million. The increase in net revenue from OCS Heart disposable sets is attributed to a combination of higher volume of OCS Heart disposable sets sold in the OCS Heart EXPAND CAP and OCS Heart DCD Trial, which accounted for $2.7 million of the increase, and an increase in average selling price, which accounted for $0.5 million of the increase. The OCS Heart DCD trial completed patient enrollment in September 2020. The lower sales volume of OCS Liver disposable sets was primarily a result of the adverse impact of the COVID-19 pandemic on transplant procedures in the U.S. Net revenue from customers outside the United States was $1.2 million in the fiscal three months ended September 30, 2020 compared to $2.9 million in the fiscal three months ended September 28, 2019. The decrease in net revenue from customers outside the United States was primarily due to the adverse impact of COVID-19 on transplant procedures in Europe . Net revenue from sales of OCS Lung and OCS Heart products outside the United States decreased by $0.1 million and $1.5 million, respectively, from the fiscal three months ended September 28, 2019 to the fiscal three months ended September 30, 2020 29 Cost of Revenue, Gross Profit and Gross Margin Cost of revenue decreased by $0.9 million in the fiscal three months ended September 30, 2020 compared to the fiscal three months ended September 28, 2019. Gross profit increased by $0.8 million in the fiscal three months ended September 30, 2020 compared to the fiscal three months ended September 28, 2019. Gross profit increased primarily as a result of a higher average selling price and a higher sales volume of OCS Heart disposable sets sold in the United States in the third quarter of 2020. Gross margin was 71% and 59% for the fiscal three months ended September 30, 2020 and September 28, 2019, respectively. Gross margin increased primarily as a result of a higher average selling price and lower allocation of overhead charges. Overhead charges were lower from cost containment measures and savings related to COVID-19 restrictions. Operating Expenses Research, Development and Clinical Trials Expenses Fiscal Three Months Ended September 30, 2020 September 28, 2019 Change (in thousands) Personnel related (including stock-based compensation expense) $ 1,913 $ 1,765 $ 148 Clinical trials costs 866 968 (102 ) Consulting and third-party testing 239 1,073 (834 ) Laboratory supplies and research materials 665 452 213 Other 472 681 (209 ) Total research, development and clinical trials expenses $ 4,155 $ 4,939 $ (784 ) Total research, development and clinical trials expenses decreased by $0.8 million from $4.9 million in the fiscal three months ended September 28 , 2019 to $4.2 million in the fiscal three months ended September 30, 2020. Consulting and third-party testing costs and other costs decreased by $0.8 million and $0.2 million, respectively, due primarily to decreased activities as a result of the impact of the COVID-19 pandemic. Laboratory supplies and research material costs increased by $0.2 million due to timing of material purchases. Selling, General and Administrative Expenses Fiscal Three Months Ended September 30, 2020 September 28, 2019 Change (in thousands) Personnel related (including stock-based compensation expense) $ 3,253 $ 2,783 $ 470 Professional and consultant fees 947 1,908 (961 ) Tradeshows and conferences 79 327 (248 ) Other 1,214 1,501 (287 ) Total selling, general and administrative expenses $ 5,493 $ 6,519 $ (1,026 ) Total selling, general and administrative expenses decreased by $1.0 million from $6.5 million in the fiscal three months ended September 28 , 2019 to $5.5 million in the fiscal three months ended September 30, 2020 due to decreases in professional and consultant fees, tradeshows and conferences and other costs. The decrease in professional and consultant fees was due to cost management and cost containment strategies implemented by our management. The decrease in tradeshows and conferences expense was due to tradeshow and conference cancellations due to the COVID-19 pandemic. The decrease in other costs was primarily a result of cost management and cost containment strategies implemented by our management during the fiscal quarter ended September 30, 2020 to address the challenges of the operating environment caused by the COVID-19 pandemic. These decreases were partially offset by a $0.5 million increase in personnel related costs from expanding our commercial team to support commercial sales of our OCS Lung product in the United States. Stock-based compensation expense also increased by $0.3 million due primarily to additional grants to existing employees. Other Income (Expense) Interest Expense Interest expense was $1.0 million and $1.1 million for the fiscal three months ended September 30, 2020 and September 28, 2019, respectively. 30 Other Income (Expense), Net Other income (expense), net for the fiscal three months ended September 30, 2020 and September 28, 2019 included interest income of $0.1 million and $0.4 million, respectively, resulting from interest earned on invested cash balances, and $0.4 million of foreign currency transaction gains and $0.4 million of foreign currency transaction losses, respectively. Comparison of the Fiscal Nine Months Ended September 30, 2020 and September 28, 2019 The following table summarizes our results of operations for the fiscal nine months ended September 30, 2020 and September 28, 2019: Fiscal Nine Months Ended September 30, 2020 September 28, 2019 Change (in thousands) Net revenue $ 18,012 $ 17,547 $ 465 Cost of revenue 6,205 7,425 (1,220 ) Gross profit 11,807 10,122 1,685 Operating expenses: Research, development and clinical trials 14,283 13,608 675 Selling, general and administrative 18,012 17,423 589 Total operating expenses 32,295 31,031 1,264 Loss from operations (20,488 ) (20,909 ) 421 Other income (expense): Interest expense (3,014 ) (3,290 ) 276 Change in fair value of preferred stock warrant liability — (341 ) 341 Other income (expense), net 1,087 200 887 Total other expense, net (1,927 ) (3,431 ) 1,504 Loss before income taxes (22,415 ) (24,340 ) 1,925 Provision for income taxes (22 ) (30 ) 8 Net loss $ (22,437 ) $ (24,370 ) $ 1,933 Net Revenue, Cost of Revenue and Gross Profit Fiscal Nine Months Ended September 30, 2020 September 28, 2019 Change (in thousands) Net revenue $ 18,012 $ 17,547 $ 465 Cost of revenue 6,205 7,425 (1,220 ) Gross profit $ 11,807 $ 10,122 $ 1,685 Net Revenue Fiscal Nine Months Ended September 30, 2020 September 28, 2019 Change (in thousands) Net revenue by geography: United States $ 13,568 $ 11,596 $ 1,972 Outside the U.S. 4,444 5,951 (1,507 ) Total net revenue $ 18,012 $ 17,547 $ 465 Net revenue by OCS product: OCS Lung net revenue $ 3,102 $ 5,744 $ (2,642 ) OCS Heart net revenue 11,778 8,305 3,473 OCS Liver net revenue 3,132 3,498 (366 ) Total net revenue $ 18,012 $ 17,547 $ 465 31 Net revenue increased by $0 .5 million in the fiscal nine months ended September 30, 2020 compared to the fiscal nine months ended September 28, 2019 primarily as a result of an increase in the number of OCS disposable sets sold to customers globally. Net revenue from customers in the United States was $13.6 million in the fiscal nine months ended September 30, 2020 and increased by $2.0 million compared to the fiscal nine months ended September 28, 2019 primarily due to sales of OCS Heart disposable sets for use in our ongoing clinical trials, partially offset by a decrease in commercial sales of OCS Lung and OCS Liver products as a result of the adverse impact of the COVID-19 pandemic. COVID-19 impacted lung transplants more than other organs due to the nature of the disease, new protocols required for safe lung transplants and the use of ventilators post-transplant. Net revenue from sales of OCS Lung products in the United States decreased from $5.3 million in the fiscal nine months ended September 28, 2019 to $2.9 million in the fiscal nine months ended September 30, 2020. Net revenue from OCS Heart disposable sets sold to customers in the United States for use in our clinical trials increased from $2.8 million in the fiscal nine months ended September 28, 2019 to $7.5 million in the fiscal nine months ended September 30, 2020. In addition, the U.S. selling price of OCS disposable sets sold in the fiscal nine months ended September 30, 2020 was approximately 22% higher than the U.S. selling prices of OCS disposable sets sold in the same period in fiscal 2019. This accounted for a $1.7 million increase in net revenue in the United States during the fiscal nine months ended September 30, 2020 compared to the fiscal nine months ended September 28, 2019. Net revenue from customers outside the U.S. was $4.4 million in the fiscal nine months ended September 30, 2020 compared to $6.0 million in the fiscal nine months ended September 28, 2019. The decrease in net revenue from customers outside the United States was primarily due to the adverse impact of COVID-19 on transplant procedures in Europe. Cost of Revenue, Gross Profit and Gross Margin Cost of revenue decreased by $1.2 million in the fiscal nine months ended September 30, 2020 compared to the fiscal nine months ended September 28, 2019. Gross profit increased by $1.7 million in the fiscal nine months ended September 30, 2020 compared to the fiscal nine months ended September 28, 2019. Gross margin was 66% and 58% for the fiscal nine months ended September 30, 2020 and September 28, 2019, respectively. Gross profit and gross margin increased primarily as a result of a higher average selling price of OCS disposable sets sold in the United States in the fiscal nine months ended September 30, 2020 relative to the average selling price of OCS disposable sets in the comparable period of fiscal 2019 and overall higher sales, which resulted in a reduction of the impact of fixed costs in our manufacturing operation. Operating Expenses Research, Development and Clinical Trials Expenses Fiscal Nine Months Ended September 30, 2020 September 28, 2019 Change (in thousands) Personnel related (including stock-based compensation expense) $ 6,097 $ 4,415 $ 1,682 Clinical trials costs 3,580 3,071 509 Consulting and third-party testing 1,177 2,220 (1,043 ) Laboratory supplies and research materials 1,510 1,692 (182 ) Other 1,919 2,210 (291 ) Total research, development and clinical trials expenses $ 14,283 $ 13,608 $ 675 Total research, development and clinical trials expenses increased by $0.7 million from $13.6 million in the fiscal nine months ended September 28, 2019 to $14.3 million in the fiscal nine months ended September 30, 2020. Personnel related costs and clinical trial costs increased by $1.7 million and $0.5 million, respectively, due primarily to additional resources supporting clinical trials and new product development. Consulting and third-party testing, laboratory supplies and research materials costs and other costs decreased by $1.0 million, $0.2 million and $0.3 million, respectively, due primarily to our cost management and cost containment strategies implemented by our management during the fiscal quarter ended June 30, 2020 to address the challenges of the operating environment caused by the COVID-19 pandemic. 32 Selling, General and Administrative Expenses Fiscal Nine Months Ended September 30, 2020 September 28, 2019 Change (in thousands) Personnel related (including stock-based compensation expense) $ 9,382 $ 7,153 $ 2,229 Professional and consultant fees 4,145 4,876 (731 ) Tradeshows and conferences 566 1,475 (909 ) Other 3,919 3,919 — Total selling, general and administrative expenses $ 18,012 $ 17,423 $ 589 Total selling, general and administrative expenses increased by $0.6 million from $17.4 million in the fiscal nine months ended September 28, 2019 to $18.0 million in the fiscal nine months ended September 30, 2020 due primarily to increases in personnel related costs, as we hired additional resources and engaged consultants to support commercial sales of our OCS Lung product in the United States and to support our operation as a public company. Stock-based compensation expense also increased by $0.9 million due primarily to additional grants to existing employees. Professional and consultant fees and tradeshows and conferences decreased by $0.7 million and $0.9 million, respectively, primarily as a result of tradeshows and conferences being canceled or delayed due to the COVID-19 pandemic and cost management and cost containment strategies implemented by our management. Other Income (Expense) Interest Expense Interest expense was $3.0 million and $3.3 million for the fiscal nine months ended September 30, 2020 and September 28, 2019, respectively. Change in Fair Value of Preferred Stock Warrant Liability The change in the fair value of our preferred stock warrant liability in the fiscal nine months ended September 28, 2019 was due primarily to the changes in the fair value of our preferred stock during that period. On May 6, 2019, immediately prior to the closing of our IPO, the warrants to purchase preferred stock were converted into warrants to purchase common stock, and the fair value of the warrant liability at that time was reclassified to common stock. As a result, subsequent to the closing of our IPO, we no longer remeasure the fair value of the warrant liability at each reporting date. Other Income (Expense), Net Other income (expense), net for the fiscal nine months ended September 30, 2020 and September 28, 2019 included interest income of $0.6 million in each period resulting from interest earned on invested cash balances, and $0.5 million of foreign currency transaction gains and $0.4 million of foreign currency transaction losses, respectively. Liquidity and Capital Resources Since our inception, we have incurred significant operating losses. To date, we have funded our operations primarily with proceeds from sales of preferred stock and 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. As of September 30, 2020, we had cash, cash equivalents, and marketable securities of $132.7 million. On May 6, 2019, we completed our IPO, pursuant to which we issued and sold 6,543,500 shares of common stock, inclusive of 853,500 shares we sold pursuant to the full exercise of the underwriters’ option to purchase additional shares. The aggregate net proceeds received by us from the IPO were $91.4 million, after deducting underwriting discounts and commissions as well as other offering costs of $6.0 million. On May 26, 2020, we completed an underwritten public offering of our common stock, which resulted in the sale of 5,750,000 shares of common stock, inclusive of 750,000 shares we sold pursuant to the full exercise of the underwriters’ option to purchase additional shares. The aggregate net proceeds received by us from the offering were approximately $75.0 million, after deducting underwriting discounts and commissions as well as other offering costs of $0.6 million. 33 Cash Flows The following table summarizes our sources and uses of cash for each of the fiscal periods presented: Fiscal Nine Months Ended September 30, 2020 September 28, 2019 (in thousands) Cash used in operating activities $ (23,127 ) $ (25,022 ) Cash used in investing activities (51,482 ) (67,861 ) Cash provided by in financing activities 75,516 92,969 Effect of exchange rate changes on cash, cash equivalents and restricted cash 398 80 Net increase in cash, cash equivalents and restricted cash $ 1,305 $ 166 Operating Activities During the fiscal nine months ended September 30, 2020, operating activities used $23.1 million of cash, primarily resulting from our net loss of $22.4 million and net cash used by changes in our operating assets and liabilities of $3.7 million, partially offset by net non-cash charges of $3.0 million. Net cash used by changes in our operating assets and liabilities for the fiscal nine months ended September 30, 2020 consisted primarily of a $3.1 million decrease in accounts payable and accrued expenses, a $2.4 million increase in inventory and a $0.7 million increase in prepaid expenses and other current assets, partially offset by a $1.2 million increase in deferred revenue and a $0.5 million decrease in accounts receivable. During the fiscal nine months ended September 28, 2019, operating activities used $25.0 million of cash, primarily resulting from our net loss of $24.4 million and net cash used by changes in our operating assets and liabilities of $3.0 million, partially offset by net non-cash charges of $2.4 million. Net cash used by changes in our operating assets and liabilities for the fiscal nine months ended September 28, 2019 consisted primarily of a $3.1 million increase in accounts receivable and $3.2 million increase in inventory, both partially offset by a $4.0 million increase in accounts payable and accrued expenses and other current liabilities. Changes in accounts receivable, inventory, accounts payable, and accrued expenses and other current liabilities in each reporting period are generally due to growth in our business and timing of invoices and payments. Investing Activities During the fiscal nine months ended September 30, 2020, net cash used in investing activities of $51.5 million consisted of $101.5 million in purchases of marketable securities and $0.5 million in purchases of property and equipment, partially offset by proceeds from sales and maturities of marketable securities of $50.5 million. During the fiscal nine months ended September 28, 2019, net cash used in investing activities of $67.9 million consisted of purchases of marketable securities. Financing Activities During the fiscal nine months ended September 30, 2020, net cash provided by financing activities of $75.5 million consisted primarily of proceeds from the issuance of common stock in our May 2020 public offering and employee share ownership plans of $76.2 million, partially offset by payments of offering costs of $0.7 million. During the fiscal nine months ended September 28, 2019, net cash provided by financing activities of $93.0 million consisted of the proceeds from issuance of common stock in our IPO that closed in May 2019, partially offset by payment of offering costs related to our IPO. Long-Term Debt In June 2018, TransMedics entered into the Credit Agreement with OrbiMed, pursuant to which it borrowed $35.0 million. 34 Borrowings under the Credit Agreement bear interest at an annual rate equal to the LIBOR subject to a minimum of 1.0% and a maximum of 4.0%, plus 8.5%, or the Applicable Margin, subject in the aggregate to a maximum interest rate of 11.5%. In addition, bor rowings under the Credit Agreement bear paid-in-kind, or PIK interest, at an annual rate equal to the amount by which LIBOR plus the Applicable Margin exceeds 11.5%, but not to exceed 12.5%. The PIK interest is added to the principal amount of the borrowin gs outstanding at the end of each quarter until the maturity date of the Credit Agreement in June 2023. Borrowings under the Credit Agreement are repayable in quarterly interest-only payments until the maturity date, at which time all principal and accrued interest is due and payable. At our option, we may prepay outstanding borrowings under the Credit Agreement, subject to a prepayment premium that decreases annually. Our current prepayment premium is 4.0% and will decrease to zero in June 2021 . We are als o required to make a final payment in an amount equal to 3.0% of the principal amount of any prepayment or repayment, which we are accreting to interest expense over the term of the Credit Agreement using the effective interest method. All obligations under the Credit Agreement are guaranteed by us and each of our material subsidiaries. All obligations of us and each guarantor are secured by substantially all of our and each guarantor’s assets, including their intellectual property, subject to certain exceptions, including a perfected security interest in substantially all tangible and intangible assets of us and each guarantor. Under the Credit Agreement, we have agreed to certain affirmative and negative covenants to which we will remain subject until maturity. The financial covenants include maintaining a minimum liquidity amount of $3.0 million; the requirement, on an annual basis, to deliver to OrbiMed annual audited financial statements with an unqualified audit opinion from our independent registered public accounting firm; and restrictions on our activities, including limitations on dispositions, mergers or acquisitions; encumbering our intellectual property; incurring indebtedness or liens; paying dividends; making certain investments; and engaging in certain other business transactions. The obligations under the 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 ot her material debt, certain events with respect to governmental approvals (if such events could cause a material adverse change in our business), failure to comply with certain covenants, including the minimum liquidity and unqualified audit opinion covenants, and a material adverse change in our business, operations or other financial condition. As of September 30, 2020, we were in compliance with all of the covenants under the Credit Agreement. Upon the occurrence of an event of default and until such event of default is no longer continuing, the Applicable Margin will increase by 4.0% per annum. If an event of default (other than certain events of bankruptcy or insolvency) occurs and is continuing, OrbiMed 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 sales and clinical adoption team, scale our manufacturing operation, continue research, development and clinical trial efforts, and seek regulatory approval for new products and product enhancements, including new indications, both in the United States and in select non-U.S. markets. In addition, following the closing of our IPO, we have incurred and expect to continue to incur additional costs associated with operating as a public company. The timing and amount of our operating and capital expenditures will depend on many factors, including: • the amount of net 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; • the costs and expenses of expanding our U.S. and non-U.S. sales and marketing infrastructure and our manufacturing operations; • the extent to which our OCS products are adopted by the transplant community; • the ability of our customers to obtain adequate reimbursement from third-party payors for procedures performed using the OCS products; • the degree of success we experience in commercializing our OCS products for additional indications; • the costs, timing and outcomes of any future clinical studies and regulatory reviews, including to seek and obtain approvals for new indications for our OCS products; 35 • the emergence of competing or complementary technologies; • the number and types of future products we develop and commercialize; • 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, cash e quivalents, and marketable securities will enable us to fund our operating expenses, capital expenditure requirements, and debt service payments for at least 12 months following the filing of this Quarterly Report on Form 10-Q. We may need to raise additi onal funding, which might not be available on favorable terms or at all. See “Item 1.A. Risk Factors—Risks Related to Our Financial Position and Need for Additional Capital” in our 2019 Form 10-K. Contractual Obligations and Commitments The following table summarizes our contractual obligations as of September 30, 2020 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods: Payments Due by Period Total Less Than 1 Year 1 to 3 Years 4 to 5 Years More than 5 Years (in thousands) Operating lease commitments(1) $ 14,752 $ 1,833 $ 3,921 $ 4,119 $ 4,879 Debt obligations(2) 45,147 3,334 41,813 — — Total $ 59,899 $ 5,167 $ 45,734 $ 4,119 $ 4,879 (1) Amounts in table reflect payments due for our leases of office and laboratory space in Andover, Massachusetts under two operating lease agreements. On January 9, 2020, we amended these lease agreements to, among other things, extend the expiration date of each lease to December 2026, increase the rentable square feet subject to each lease, and increase annual base rent for each lease. On June 2, 2020, we further amended these lease agreements to delay the commencement date of the increased space and extend the expiration date for each lease to December 2027. For more information, see “Note 10. Operating Leases” to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. (2) Amounts in table reflect the contractually required principal and interest payments payable under the Credit Agreement, under which borrowings bear interest at a variable rate. For purposes of this table, the interest due under the Credit Agreement was calculated using an assumed interest rate of 9.5% per annum, which was the interest rate in effect as of September 30, 2020. Because such interest rate is below the PIK interest threshold of 11.5%, we did not include PIK in our calculated payments. Inflation Risk We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition or results of operations. Critical Accounting Policies and Significant Judgments and Estimates Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We evaluate our estimates on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. There have been no material changes to our critical accounting policies and estimates from those disclosed in our consolidated financial statements and the related notes and other financial information included in our 2019 Form 10-K. 36 Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC. Recently Issued Accounting Pronouncements A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Emerging Growth Company Status The Jumpstart Our Business Startups Act of 2012 permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company.