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Operator: Good afternoon, and welcome to TransMedics First Quarter 2023 Earnings Conference Call. . I would now like to turn the call over to Brian Johnston from the Gilmartin Group for a few introductory comments.

Brian Johnston: Thank you. Earlier today, TransMedics released financial results for the quarter ended March 31, 2023. A copy of the press release is available on the company’s website. Before we begin, I’d like to remind you that management will make statements during this call, including during the question-and-answer portion that include forward-looking statements within the meaning of Federal Securities Laws. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements. All forward-looking statements, including, without limitation, are examination of operating trends, the potential commercial opportunity for our products and our future financial expectations, which include expectations for growth in our organization, and guidance and our expectations for revenue, gross margin and operating expenses in 2023 are based upon current estimates and various assumptions.

These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance to these statements. Additional information regarding these risks and uncertainties appears under the heading, Risk Factors on our Form 10-K filed with the Securities and Exchange Commission on February 27, 2023, and our subsequent filings with the Securities and Exchange Commission, which are available at www.sec.gov and on our website at www.transmedics.com. TransMedics disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise.

This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 1, 2023. And with that, I’ll turn the call over to Waleed Hassanein, President and Chief Executive Officer.

Waleed Hassanein: Thank you, Brian. Good afternoon, everyone, and welcome to TransMedics First Quarter 2023 Earnings Call. As always, joining me today is Stephen Gordon, our Chief Financial Officer. Since our last update, we have continued building on our strong 2022 performance, making progress on many of our previously outlined growth goals for 2023. I’m thrilled to report that our first quarter results demonstrated significant commercial momentum and accelerated clinical adoption through the TransMedics NOP. Importantly, in Q1, we also made progress in scaling our supply capacity of our OCS perfusion modules. Here are the top line results. In Q1, we achieved total revenue of $41.6 million, representing 162% year-over-year growth and 32% growth over 4Q 2022.

As predicted, NOP continued to be the primary driver for our revenue growth, a trend we expect to continue for the foreseeable future. Importantly, we also demonstrated continued improvement down the P&L as we benefited from increasing operating leverage which Stephen will detail in his section of today’s call. Before I move on to discuss the 1Q details, I would like to take a moment to mention that TransMedics has released our first annual ESG report which was published this morning on our website. Now let me move on and provide some more granular highlights on 1Q 2023. Overall, 1Q represented another new high watermark for case volume, driven by liver and heart cases, which increased sequentially for the fifth consecutive quarter. Meanwhile, lung volumes continue to lag as we work to help rebuild this very important market.

In line with our outlined growth strategy, we also grew the number of liver and heart transplant programs using OCS and NOP. There were 32 liver programs that used OCS and NOP in 1Q, of which 15 were active repeat users. For heart, there were 40 programs that use OCS and NOP, of which 11 were active and repeat users. There were 9 lung programs that use the OCS and NOP, of which 6 were repeat users. We are not concerned by the lung center trend given the small numbers and our previous guidance that our initiatives will take approximately 12 to 18 months to materially impact lung program growth. In terms of the NOP contribution, approximately 91% of our total U.S. case volume came from NOP. On a per organ basis, approximately 96% of liver, 83% of heart and 91% of lung cases were from NOP program.

We view these NOP penetration rates are as very encouraging and in line with our goal of having TransMedics NOP managing the lion’s share of U.S. transplant volume over the next several years. In 1Q, we also began to increase production and sterilization capacity. The increase was driven primarily by the scaling of our second shift in our operational existing clean room. We expect to see further gradual capacity expansion as we bring our new clean room online and fully operational. Given that we received FDA certification of our new clean room in 1Q, we are confident that the time line for the new clean room to be operational remains on track for late Q2. Our 1Q results clearly demonstrated the fast pace of growing clinical demand for our OCS technology and the NOP service model.

We remain laser focused on bolstering our supply chain and NOP infrastructure to sustain and further accelerate our growth. Let me outline our key focus areas to keep up with this accelerated demand, specifically on OCS production availability and NOP infrastructure capacity. So first, production — product availability. As we — as mentioned, we’re continuing to invest in our manufacturing capacity and supply chain to ensure continuous product availability. More specifically, we are enhancing production and sterilization capacity as well as raw material supply chain management. For production and sterilization capacity, as stated, we are on track to bring our new clean room production space online by midyear, but we are not stopping here. We have already secured additional new space in our current facility to support the increased production build as well as raw material and finished goods inventory growth.

In addition, we are working with specialized third-party workflow optimization experts to revamp our production process workflow to maximize efficiencies within both clean room spaces. Lastly, we are significantly increasing our sterilization capabilities by qualifying a brand-new major sterilizer while working to expand the capacity and the throughput of our current sterilization partner. This expanded sterilization capacity will be online in H2 2023. For raw material management, historically, we’ve never had our raw material shortage. However, as we are significantly increasing our production capacity to meet the growing clinical demand for OCS technology, we have established a new dedicated raw material planning and monitoring team within our operations team.

This new team’s function is to establish a scalable process to closely track our growing demand for raw material and proactively replenish our raw material to meet our near-, mid- and long-term needs. Second, we continue to expand our NOP infrastructure. Specifically, we will grow our surgical and field clinical staffing throughout the next 12 to 18 months to meet the growing demand for the NOP clinical services across the U.S. We are also planning to opportunistically add 2 to 3 new launch points later this year to expand our coverage and reach larger pools of potential donors faster and more efficiently. Next, we will revamp and scale the logistical management of the NOP case flow. We have recruited a senior logistics executives from Amazon to lead our initiative to streamline, scale and digitize the entire logistical workflow of our NOP program, literally, starting from the initial transplant centers call to the NOP hotline through the organ arriving at the transplant center.

One key feature of this exciting new initiative is creating a digital, central command and control and dispatch center — I’m sorry, creating a digital, central command, control and dispatch center here in and over to oversee and manage our national NOP workload. We hope to start sharing more granular detail on this exciting initiative towards the end of 2023. Additionally, we announced at ISHLT in April that we are planning for the launch of our customer-facing portion of the TransMedics OCS connect application. This is a secure and HIPAA-compliant app that will provide surgeons and clinicians with real-time updates on the overall status of the organ on OCS as well as logistics and travel time information. It will also enable secure real-time communication of case information between our team, managing the organ and the transplant program clinical staff.

We are very excited about this new function of our OCS connect and we hope it will provide more transparency and confidence to our users about the status of their organs and route to their transplant center. Finally, and as we have stated several times, we fully intend to eventually control the entire air and ground transport function for the NOP transplant cases. This will help remove a critical bottleneck for our growth. We are seeing our NOP volumes are starting to outpace the capacity, the availability and flight radius of the fragmented transplant air charter model that we and the transplant programs are using today. We also announced that ISHLT that we expect to launch this important TransMedics aviation initiative sometime in H2 2023.

We are actively engaged on several fronts to establish a national dedicated NOP transplant charter flight network to cover our existing and potential new hubs. I’m looking forward to discussing this exciting initiative further in the latter half of this year. In the meantime, please allow me to take this opportunity to discuss in detail and clarify the current way of air transportation for organ transplants in the United States. To start, it is important to recognize that all, I repeat, all air transport for heart, lung and liver transplant in the United States are transported via chartered flights. These flights costs are part of the organ acquisition cost center and are an allowed charge for the CMS cost support, all commercial transplant payers and CMS routinely reimburse these costs.

Historically, when organ transport was limited to a short distance within the donor service area or DSA, of the involved Organ Procurement Organization or OPO, the OPOs were the main flight coordinators for the transplant programs. Consequentially, a few OPOs purchased their own short-range aircraft to manage local travel. Back then, more than 90% of donor organ allocation came from the transplant programs local OPO DSA, literally less than 250 miles. And only less than 10% came from outside of their local DSA. Today, the reality is the complete opposite. Let me explain why and how. Approximately 5 or 6 years ago, organ allocation for lungs, hearts and liver transplants shifted from regional to national allocation in the United States. This effectively means that a donor in San Francisco can and should be allocated to the matched recipient in Boston or New York, or Raleigh-Durham, North Carolina.

With that change, the rate of organ acceptance by nearly all the leading transplant centers flipped overnight to more than 90% national or distant allocation and only less than 10% local allocation. This led to many OPOs selling their jets and shifting most of the responsibility, if not all the responsibility of air transport coordination back to the transplant programs. To make this more interesting, between 2020 and 2022, the OCS technology became FDA approved in the United States, and the NOP was established. This shift led to a very important shift in the United States organ placements because the OCS enables safe, longer distance procurement across the entire country and from outside the Continental U.S. like Hawaii, Alaska, Puerto Rico and Canada.

So how do transplant programs coordinate their organ transport charter flights today? They rely exclusively on a few regional charter flight brokers who owns no jets or even have the license to operate a charter flight. They rely — those charter flight brokers rely exclusively on the third-party owners and operators of charter flights. This is a very cost and operationally inefficient way of running organ transplant — transportation and will become a major bottleneck for NOP growth going forward. This antiquated, fragmented approach is not geared to the distances that we are now covering, the volume of donor organ missions that we do on a daily basis using NOP or the volume expected in the near and long-term future. Importantly, many of the jets used today are older vintage with very limited flight range and lacks Wi-Fi communication capabilities.

We saw firsthand in 2022, the massive cost inefficiencies that exist in the current model, and we believe TransMedics managing our own logistical network will create value for our clinical users, their patients and other critical stakeholders in organ transplantation in the United States. We believe strongly that securing this dedicated national network of charter flights under TransMedics aviation, would act as an additional significant catalyst for the growth of NOP and TransMedics business in the United States. Again, I hope to share more details as we get this initiative operational later this year. There’s no doubt our OCS technology and NOP service model are driving a transformative shift in organ transplantation in the United States as demonstrated by our first quarter performance and strong growth trajectory thus far.

It is important to note that we strongly believe that this is only the beginning. We are not stopping or slowing down. We have bigger goals in mind, and we fully intend to execute on our strategy to achieve sustained long-term growth for our business. We remain laser-focused on execution and navigating the steep growth curve to drive continued success. As I’ve done in the past, I would like to share with you all what we see as a potential challenges that could temporarily impact our growth trajectory for the remainder of 2023. First, constraints on our supply chain and production capacity. As stated earlier, we need to be cognizant of our demand for raw materials as we increase production capacity, though we do not currently foresee any issues we could face some delays regarding some parts availability or obsolescence issues that could temporarily hamper our immediate-term growth.

Second, clinical NOP staffing. Delays could limit our ability to cover new regions, hubs temporarily until we resolve it. Finally, delays in securing our logistical network and air transport could temporarily slow down — slow us down later this year and into 2024. That said, given our strong 1Q ’23 results, an increased confidence in the trajectory of our finished goods supply balanced with potential scalability challenges above, we are increasing our annual revenue guidance for the full year 2023 to be between $160 million to $170 million, up from our previously communicated guidance of $138 million to $145 million. This new guidance represents 71% to 82% growth over full year 2022 total revenue. With that, let me turn the call to Stephen to cover the detailed financial results for the quarter.

Stephen?

Stephen Gordon: Thank you, Waleed. I will now provide some additional details on the Q1 results and other financial information for the quarter. For the first quarter of 2023, our total revenue was $41.6 million, this is an increase of 162% from the first quarter of 2022 and a 32% sequential increase from last quarter. In the U.S., revenue was $37.5 million, an increase of 177% from Q1 2022 and 29% sequentially from last quarter. The organ breakdown on U.S. revenue was $23.1 million of OCS Liver, $13 million of OCS Heart and $1.4 million of lung. Ex-U.S. revenue was $4.1 million, a 75% increase from Q1 of 2022 and the ex-U.S. revenue was made of $3.8 million of heart and $0.2 million of lung. Regarding the breakout of product and service revenue this quarter, as a reminder, the service revenue includes the added amounts we charge for the surgical procurement and organ management as part of the NOP.

In Q1, product revenue was $34 million and service revenue was $7.6 million. So service revenue was 18% of the total in Q1. Gross margin for the first quarter of 2023 was 69%. While this is down from 76% in the first quarter of 2022, it is a sequential increase from the 66% reported in Q4 of 2022. The margin on product revenue was 79% in Q1 and the margin on service revenue was 27% in Q1 2023. The sequential improvement in service margin reflected some of the improvements in production capacity and drove the overall — the higher overall sequential gross margin. Total operating expenses for the quarter were $30.9 million, 44% above Q1 2022 operating expense, driven primarily by our continued investment in scaling both the NOP as well as the overall company operations.

Operating loss was $2.1 million in the first quarter of 2023, compared to $9.4 million in the first quarter of 2022, demonstrating the strong leverage in the business as we grow our revenue. Our net loss for the first quarter of 2023 was $2.6 million compared to $10.6 million in the first quarter of 2022. And our total cash was $195.4 million as of March 31, 2023, which equates to a reduction of $5.8 million from the balance at the end of Q4 2022. Our weighted average common shares outstanding for the quarter were $32.3 million. Overall, our financial results in Q1 2023 reflect our continued execution of the OCS and NOP growth plan. We have been able to unlock additional production capacity as planned, which was reflected in both our top and bottom line results.

And just to repeat our guidance update, we are increasing annual revenue guidance to the range of $160 million to $170 million, which represents 71% to 82% growth. Now I would like to turn the call back to Waleed for closing comments.

Waleed Hassanein: Thank you so much, Stephen. We are thrilled by our 1Q results and continued growth of clinical demand for our OCS technology and the NOP clinical services. That said, as I said before, we strongly believe we are still in the early stage of the long-term sustained growth trajectory we envision for TransMedics. We are not basking in our success. We understand that this steep growth curve could pose potential challenges. We remain focused — laser-focused on driving our operational, commercial and clinical initiatives while navigating any potential challenges to meet our near- and long-term growth potential. We look forward to continuing to make strides on our strategic initiatives throughout 2023. With that, I will now turn the call to the operator for Q&A. Operator?

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Operator: . Our first question is from Bill Plovanic with Canaccord.

William Plovanic: I’m going to start out with — and congratulations on the quarter. Just curious, how did capacity issues impact new account adoption? Like are you constraining your sales folks from bringing on new accounts and over this past quarter and then what does the new clean room add in terms of net capacity? And how does that come online over the next few quarters? And then how does that impact gross margin?

Waleed Hassanein: So Bill, thank you for the question. I’ll address the first two parts of the question, and then I’ll let Stephen address the impact on gross margin. So the ramping up of the capacity limited to a lesser extent in Q1 compared to Q3 and Q4 of last year, our ability to go deeper in some of the accounts. We tried not to limit new accounts addition in Q1. That’s why you see the growth in the new accounts for heart and liver, but you noticed that the repeat and active users remain slightly up or remain flat. It’s because we wanted to get new accounts in, yet we wanted to supply our traditional users with the added capacity. That started in the beginning of Q1. At the end of Q1, this constraint pretty much dissolved based on the increased capacity.

As far as the new clean room capacity, we expect at least, and this is a guesstimate at this point because I believe the additional workflow optimization and efficiencies would even increase that substantially. I — we guesstimate approximately 4 times the capacity I would say, over the next 18 to 24 months because when we open that new clean room, it’s not going to be fully staffed. It’s not going to be double shift it will take time. But it will add additional capacity gradually. That’s why I said gradually. But definitely, over the next 18 to 24 months, we expect a significant capacity increase. The key point to the audience or the people listening is we’re not just stopping at the current — we are constantly looking at capacity. We’re constantly — we do not want to get back to a situation where we were at in Q2, Q3 and Q4 of last year.

So Nick and the team are constantly monitoring that, and we are going to be aggressive on making sure that we avoid a significant back-order situation from happening to us again. With that, I’ll turn it on to Stephen to discuss the gross margin.

Stephen Gordon: Bill, this is Stephen. So regarding gross margin, we did — we were able to see a sequential increase. Primarily, that was around the service margin this quarter because we didn’t have as much logistical costs of moving disposables quickly around the country to meet NOP needs. So we’re able to kind of reduce that some. At the same time, we do have additional costs from the new clean room that’s already kind of baked into our margin. So as I’ve said in the past, I expect moderate increase in margin as our revenue grows and sequentially, and I still feel like that’s the right answer.

William Plovanic: Great. And for my second question, just on the aviation. You talked about the potential expansion and thanks for going through that in detail. A, what’s the most likely pathway to business and the cost to do so to get into? Is this an acquisition or is this building it kind of plane by plane. And then b, do you think you’ll need to raise capital or equity or debt or some form to do what you’re looking to do. And then c, how does this impact the revenue gross — the P&L revenue gross margin operating.

Waleed Hassanein: Thank you, Bill. Again, I’ll address the first two parts of your question, and I’ll let Stephen address the impact on the P&L. We evaluated all different options of how to build the TransMedics aviation business in TransMedics. We have completely eliminated the organic option of adding one plane at a time because it will take significantly long time for TransMedics to secure a Part 135 charter operating license is going to take at least 12 to 18 months. So our two most efficient paths are either acquiring a Part 135 operator that had significant assets of jets that we can leverage quickly or creating a joint venture with one operator that had, again, a license and a significant number of assets. These are the two options that we are actively pursuing across the United States.

As far as the ability to finance this, we’ve always stated publicly that we do not expect to tap into our current balance sheet to finance anything related to the aviation business. So we’re exploring different modalities of financing that is non-dilutive or less dilutive forms of financing options in front of us. And we’re working with our advisers on the different options. I’ll turn it on Stephen.

Stephen Gordon: Yes, Bill, from a P&L perspective, so today, the revenue for flights is not in our P&L. So we would think of that as an adder from a revenue perspective for each transplant, whether it’s $20,000 or $30,000 depends on the length of the flight. So that will be one change. So more of our revenue would be in the service bucket, although we think the service revenue, the service margin will be improved. The overall company gross margin percent may come down a bit. But from a dollar perspective, it should be an accretive to our income. And once we’re in positive EPS, it would be favorable to EPS.

Operator: The next question is from Allen Gong with JPMorgan.

Allen Gong: Congratulations on the really strong quarter. We — there’s obviously a lot of really exciting things to talk about when it comes to heart and liver, but I do want to like kind of touch on lung a little bit. It’s clearly continuing to face pretty significant challenges even as the rest of your portfolio is taking off. I understand that lung really was impacted quite a bit by COVID and has not really come back necessarily in the same way for you even as transplants have recovered. So what kind of details can you provide on your strategy to really get that market back up and running for OCS?

Waleed Hassanein: Thank you, Allen, for the question. I think as — I’ll focus on what I stated publicly before. And hopefully, as the year progresses, we will be able to reveal some of more granular detail about our initiatives. So basically, what we’re doing is literally we are trying to leverage three things. We’re trying to leverage the NOP and the success of the NOP in liver and heart to rev up the lung market. So that’s one angle and we discussed that in detail at the ISHLT. The second angle is we’re trying to reeducate the market, market in general, including patients group, about the importance of OCS Lung and what does it mean to a patient on the waiting list waiting for a lung transplant. And also the market in the form of the pulmonologists and the transplant surgeons.

Because I believe the last 3 years of — I mean, the 3 years with COVID, people just kind of lost focus on even understanding what the importance of machine perfusion for lung would be. So that’s another area. The third area is we’re — and this is the area that I’m going to be as vague as I can. And hopefully, as the year progresses, we will provide more granularity around it. We’re trying to find the right mix of a catalyst to kind of quickly galvanize a major clinical focus on machine perfusion for lung using our platform, our NOP. I’ll leave it at that, Allen, but I promise you that hopefully within the next quarter or 2, we will discuss in detail. Again, I am not concerned about the trend we saw in Q1. We’re watching what’s happening in Q2, and we feel that the early initiatives are starting to bear fruit.

But we’re not stopping here. We’re going to continue to push forward with all 3 prongs as we move forward. And we will explore other modalities as well. So this is an important market for us, and we’re not going to give it up that easy.

Allen Gong: And then another question with a bit of a more positive slant. When I look at your updated guidance, it looks like a really impressive be in raised quarter. But when I look at what you’ve kind of left for yourself, 2Q, 3Q, 4Q, you’re basically implying flat revenues, right? On a quarterly basis. Now I’m not saying the cadence will exactly be like that. But what’s really holding you back from meaningfully outperforming that once you have capacity up and running at the end of 2Q. Like why shouldn’t you be able to really outperform this bar you set for yourself?

Waleed Hassanein: Thank you, Allen. Excellent question. So Allen, we were trying in the script, we’re trying to identify a nuance that is taking place as we ramp up production capacity, which has been our achilles heel for the last 3 quarters. Now we’re straining our ability to secure raw material at the same pace or at the same volume as we historically have kept in inventory. So we have to be conservative and prudent to make sure that we allow Nick and the team to have enough buffer of raw material. They don’t know what’s coming around the corner. We are ramping up our purchasing of every raw material we use for the build of all of our product solutions. So we had to leave some room to allow for some surprises to take place.

And also, as you know, we are conservative by nature, and we like to be realistic. We know what the I think in med tech, having 70% to 80% growth is not an easy thing to do. And we think this is very realistic and we hope to do better. But right now, I cannot — we have to be prudent that the team is working very hard to make sure that we don’t run out of raw material. The other area, as I stated on the call, the other area is making sure that we’re ramping up our staffing and also ramping up our control of our logistical network, specifically aviation. If we get all these 3 done, Allen, this is really when I feel confident that going forward and our long-term growth trajectory. But this is a year that we’re still building. We’re still building our supply infrastructure, our NOP infrastructure, we’re upgrading and scaling our logistics.

We’re adding a whole new business units in TransMedics called TransMedics aviation. So we have to be prudent. We have to be realistic, and we feel pretty strongly and pretty excited about the opportunity here and the potential in front of us. And we feel that the guidance we outlined reflect reality from where we see it.

Operator: The next question is from Cecilia Furlong with Morgan Stanley.

Cecilia Furlong: Great. Congrats on another strong quarter. I wanted to start, Waleed, some of your comments in the Q&A, just about the center targeting balance that you talked about in 1Q as you work through some of the supply. And as you think going forward, just as capacity increases, can you talk about how you’re thinking about the focus on bringing on new or the earlier stage NOP users versus really recircling on and driving deeper utilization across your current repeat users. And then also, as we think about , what are you contemplating the balance from a commercial standpoint on trying to reinvigorate lung versus driving those heart as well as liver sites going forward?

Waleed Hassanein: Thank you, Cecilia, for the question. I think my answer for both questions will be the same, Cecilia. We’ve always said from the day we went public, we’ve said TransMedics is not a single organ company. We’re not a single-trick pony. TransMedics full potential happens when we have all three organs firing in all cylinders. Also, as we gained FDA approval of heart and liver, we also stated publicly that, that kind of makes the business more resilient to any headwinds in one organ, i.e., the delays. So from our perspective, we are going to continue to push on all three fronts to achieve our overall growth for the business, regardless where it’s coming from. So that’s number one or the second half of your question.

The first half of your question, again, we stated this last quarter that our growth strategy is not a single focus point. We’re focusing on going deeper in our existing accounts or existing centers, but also growing the number of users in the United States. And that’s something we’re going to continue to pursue. That’s why at some point, hopefully in the future, at some point, the number of centers is really going to be to us. It’s really as long as we’re demonstrating growth — and the third element to the strategy is growing the overall U.S. transplant volume. So one can argue, if we just stay with one core group of centers, and we were able to penetrate their existing volume deeper and grow their overall volume by 30% or 40%, that could achieve significant success growth-wise for TransMedics, but that’s not what we’re doing.

We’re doing all of above. We’re targeting existing centers to grow their penetration and overall volume. We’re targeting new centers to hook them up on NOP and its benefits for them and for their patients and for their staff and going deeper and growing their overall volume. So that’s what we’ll be doing over the next few years. And that we believe that if we achieve that coherent strategy, that is the recipe for a huge growth and successful TransMedics. And in our humble view makes TransMedics more resilient to any of these headwinds that we could experience throughout this growth potential.

Cecilia Furlong: Great. Super helpful. And if I could follow up as well. Just on margins, and specifically, the service margin component of gross margin that we saw pick up. Stephen, if you could talk through how we should think about just that component of gross margin through the balance of the year? And then secondly, on OpEx as well as we think specifically SG&A some of the initiatives you talked about in terms of building out, adding incremental components to NOP. Just how we should think about the balance of this year from an OpEx and SG&A standpoint.

Stephen Gordon: Thanks, Cecilia. So first, on the service margin, we were able to see, as I mentioned, an increase in Q1 from this kind of challenging situation we’re in Q4, so I think we should see that stay. So we should be kind of at that level. I don’t expect a big increase in that level that we were in Q1, but we should remain there as long as we don’t fall into another device or disposable shortage situation. So that will help as our revenue grows and help our overall margin for the company. As far as OpEx, I mean, we grew OpEx about 44%. I think I mentioned in the last call, kind of growth overall annually in the 30%, 35% range. That includes a lot of these initiatives. So I think that gives a sense of how we’re investing.

Operator: Next question is from Suraj Kalia with Oppenheimer.

Suraj Kalia: Waleed, Stephen, Tamer. Can you hear me all right?

Unidentified Company Representative: Yes. Prefect Suraj.

Suraj Kalia: Perfect. Gentlemen, congrats on another nice quarter. So Waleed, I was asked a question by a client then suffice it to say, through me for loop. Maybe you can help clarify. So the question was should TransMedics have waited to get into the logistics, i.e., TransMedics aviation till a critical mass of organs are under their belt. I believe you gave a number of 535 done till sometime in April. Would it have made more sense to reach 1,000, 2,000? Any additional color there would be great.

Waleed Hassanein: Sure. Suraj, thank you for the question. We — of course, we would have never entertained this thought if we do not believe that not only we’ve achieved a critical mass that what we see coming will literally — could literally put the entire logistics into a screeching halt. So we feel very confident that we are on the — we have enough critical mass today. But more importantly, we are very concerned that our volume by year-end is going to literally be at a much higher scale that could actually start becoming a bottleneck finding airplanes. We’re having problems finding airplanes for our missions today. Not at the end of the year, and we know our volume is going to be significantly higher by year-end and definitely into 2024.

So it makes perfect sense. The question makes sense, and this — we want to reiterate that we believe we are — we have reached a critical mass today and what we see coming would even behoove us to act quickly and decisively before it becomes another area that we are talking about on these calls.

Suraj Kalia: Fair enough. Waleed, one for you or one for Stephen, and I’ll hop back in queue. So Waleed, it’s been a little over a year with the heart approvals. Whether it’s heart, whether it’s livers, how should we think about the pie? Are you all taking away share from cold storage? Or do you think the overall pie is increasing? Waleed, that’s for you? And Stephen, for you, if I may, so when TransMedics aviation, we look at it, would it be a separate “subsidiary”, so the P&L would be different? Or would everything be under the TransMedics umbrella traditional reporting, so to speak, in OpEx and so on and so forth. And Stephen, would I be too far off in saying all said and done in 2 years, including 25 surgeons per organ, let’s say, 16 planes lease — obviously, the form but — we are talking about an incremental expense somewhere $50 million, $70 million per year.

Waleed Hassanein: Thank you, Suraj. So let me address the first question. The answer is both. We’re taking a significant portion of the existing market, and we’re growing the overall market. And again, the numbers speak for themselves. We’ve seen heart grew by 9% last year, lung grew by 7%, liver grew by 3%. We expect the overall growth of these organs to be higher in 2022 — I’m sorry, 2023. And we’re taking a meaningful percentage of their current volume. Why? Because we’re streamlining the process through the NOP. And this is what I said earlier to Cecilia’s question. Our strategy is not just to cannibalize the existing market. Our strategy is to do that plus grow the overall market. And I think our — I believe that our results speak for themselves. We have demonstrated our ability to do both in our 2022 results, and we are continuing to see that trajectory in ’23, and we expect that to continue going forward.

Stephen Gordon: And Suraj, let me address the question on the subsidiary. I don’t expect it to be a separate subsidiary reporting separately. I expect it to be part of our overall P&L. And when it comes to — well, I can’t really talk about the investment at this moment, what I can say is, it will include a revenue component added revenue as well as cost. So it’s not going to be a breakeven. It will be added bottom line to TransMedics as well. I hope that makes sense.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Waleed Hassanein for any closing remarks.

Waleed Hassanein: Thank you. We thank you all for your time this evening, and we look forward to having our next call for our Q2 results. Have a wonderful evening.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.