TransMedics Group (TMDX) Q2 2025 Earnings Call July 30, 2025 04:30 PM ET Speaker0Good afternoon, and welcome to TransMedics Second Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in listen only mode. We will be facilitating a question and answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Lane Morgan from the Gilmartin Group for a few introductory comments.Please go ...

TransMedics reported second-quarter financial results that were considerably better than most investors had anticipated. Investors were also pleased that TransMedics increased its guidance for the full 2025 year. Here's our initial take on TransMedics' (TMDX 2.92%) second-quarter financial report. TransMedics reported second-quarter financial results that were considerably better than most investors had anticipated. On the sales front, gains of 38% to $157 million were healthily higher than projected, as th ...

PART I [Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements for Q2 2025, showing significant revenue and net income growth, alongside balance sheet expansion [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets increased to $890.5 million, driven by cash and property, while stockholders' equity grew significantly to $318.1 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Current Assets** | $558,129 | $497,216 | | **Total Assets** | $890,522 | $804,076 | | **Total Current Liabilities** | $56,620 | $59,913 | | **Total Liabilities** | $572,421 | $575,473 | | **Total Stockholders' Equity** | $318,101 | $228,603 | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company achieved strong Q2 2025 performance with total revenue growing 37.7% year-over-year to $157.4 million, resulting in net income of $34.9 million Q2 and H1 2025 vs 2024 Performance (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenue** | $157,370 | $114,305 | $300,907 | $211,155 | | **Gross Profit** | $96,589 | $69,261 | $184,817 | $129,223 | | **Income from Operations** | $36,567 | $12,508 | $64,010 | $24,929 | | **Net Income** | $34,907 | $12,194 | $60,589 | $24,391 | | **Diluted EPS** | $0.92 | $0.35 | $1.62 | $0.70 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities significantly improved to $88.8 million in H1 2025, while investing activities used $36.1 million, primarily for capital expenditures Six Months Ended June 30 Cash Flow Summary (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $88,754 | $22,283 | | **Net cash used in investing activities** | ($36,113) | ($67,935) | | **Net cash provided by financing activities** | $10,117 | $13,826 | | **Net increase (decrease) in cash** | $63,925 | ($32,061) | [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes detail accounting policies, revenue disaggregation, debt, legal contingencies, and subsequent events, including land purchase for a new facility - The company is a medical technology firm focused on transforming organ transplants with its Organ Care System (OCS) and National OCS Program (NOP)[26](index=26&type=chunk) U.S. OCS Transplant Revenue by Organ (in thousands) | Organ | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Lung | $4,154 | $4,243 | | Heart | $32,171 | $27,173 | | Liver | $115,862 | $77,039 | - A class action lawsuit was filed in February 2025 against the company, alleging misstatements related to business practices, with the outcome and potential losses currently unpredictable[79](index=79&type=chunk) - In July 2025, the company purchased land in Mirandola, Italy, for **$2.6 million** to build a new manufacturing and R&D facility[91](index=91&type=chunk)[100](index=100&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses strong financial performance driven by OCS platform adoption, particularly in U.S. liver and heart transplants, and outlines strategic initiatives including a new Italian facility - The company's growth is driven by its OCS platform, which includes FDA-approved products for heart, lung, and liver transplants, and its National OCS Program (NOP), providing a turnkey organ procurement and logistics solution[94](index=94&type=chunk)[95](index=95&type=chunk) - A strategic plan was announced to build a design and manufacturing facility in Mirandola, Italy, to support the development of the next-generation OCS platform and expand international supply capabilities[100](index=100&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) In Q2 2025, total revenue grew 37.7% year-over-year to $157.4 million, leading to a surge in operating income to $36.6 million as revenue growth outpaced expense increases Q2 2025 vs Q2 2024 Results of Operations (in thousands) | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | **Total Revenue** | $157,370 | $114,305 | $43,065 | | **Gross Profit** | $96,589 | $69,261 | $27,328 | | **Income from Operations** | $36,567 | $12,508 | $24,059 | | **Net Income** | $34,907 | $12,194 | $22,713 | - U.S. OCS transplant revenue increased by **$43.7 million** in Q2 2025 compared to Q2 2024, driven by higher sales volumes of OCS Liver and OCS Heart disposable sets and increased NOP usage[119](index=119&type=chunk) - R&D expenses increased by **$2.1 million** in Q2 2025, primarily due to higher headcount and material costs for the next-generation OCS program[123](index=123&type=chunk) - SG&A expenses increased by **$1.2 million** in Q2 2025, driven by higher stock-based compensation and professional fees, partially offset by lower NOP support and tradeshow costs[124](index=124&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2025, the company held **$400.6 million** in cash, with operations generating **$88.8 million** in cash for the first half of the year, sufficient to fund future needs - The company's principal source of liquidity was cash of **$400.6 million** at June 30, 2025[139](index=139&type=chunk) Cash Flow Summary - Six Months Ended June 30 (in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $88,754 | $22,283 | | Net cash used in investing activities | ($36,113) | ($67,935) | | Net cash provided by financing activities | $10,117 | $13,826 | - A conditional conversion feature of the Convertible Senior Notes was triggered on June 30, 2025, making the notes convertible at the holders' option during Q3 2025 as the stock price exceeded 130% of the conversion price[150](index=150&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks from interest rate changes on variable-rate debt and foreign currency fluctuations, with no material changes since the 2024 Form 10-K - The company's primary market risks are related to interest rate changes on its variable rate debt and foreign currency exchange rate fluctuations[162](index=162&type=chunk) [Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls were ineffective as of June 30, 2025, due to a material weakness in internal control over financial reporting related to inventory movement - A material weakness was identified in internal control over financial reporting because the company has not designed and maintained effective controls over inventory movement within its manufacturing network[165](index=165&type=chunk) - Despite the material weakness, management concluded that the condensed consolidated financial statements included in the report are fairly presented in all material respects[165](index=165&type=chunk) - Management is in the process of finalizing a remediation plan to address the material weakness, which will involve designing and implementing new controls for inventory movement[166](index=166&type=chunk) PART II—OTHER INFORMATION [Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) The company is defending against a consolidated class action lawsuit filed in early 2025, alleging misstatements regarding business practices and billing activities - A class action lawsuit (Jewik v. TransMedics Group, Inc., et al.) was filed on February 14, 2025, and later consolidated with a similar suit[170](index=170&type=chunk) - The complaint alleges violations of the Securities Exchange Act based on purported misstatements and omissions regarding coercive business tactics, anticompetitive conduct, and fraudulent billing[170](index=170&type=chunk) [Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) This section refers investors to the company's 2024 Form 10-K for a comprehensive discussion of risks and uncertainties affecting the business - For a detailed discussion of risk factors, the report refers to "Item 1A. Risk Factors" in the company's 2024 Form 10-K[173](index=173&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of its equity securities during the reporting period - None[174](index=174&type=chunk) [Other Information](index=39&type=section&id=Item%205.%20Other%20Information) During the fiscal quarter ended June 30, 2025, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 trading plan during the quarter[175](index=175&type=chunk) [Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the 10-Q report, including CEO and CFO certifications and Inline XBRL financial data files - The exhibits filed with this report include CEO and CFO certifications pursuant to Sarbanes-Oxley Act rules and XBRL data files[176](index=176&type=chunk)

[Introduction](index=1&type=section&id=Introduction) [Company Overview](index=1&type=section&id=Company%20Overview) TransMedics is a medical technology company transforming organ transplant therapy for patients with end-stage organ failure - TransMedics is a medical technology company focused on transforming organ transplant therapy for patients with end-stage lung, heart, and liver failure[1](index=1&type=chunk) [Recent Highlights & CEO Commentary](index=1&type=section&id=Recent%20Highlights) The company reported strong Q2 performance with 38% revenue growth, driven by strategic execution and platform value - CEO reported a strong quarter, marked by profitable year-over-year revenue growth of **38%**[3](index=3&type=chunk) - Performance reflects successful execution of strategy, differentiated value of OCS and NOP platforms, and unique leadership position in the transplant market[3](index=3&type=chunk) - Company is focused on achieving and surpassing the target of **10,000 US NOP transplants in 2028**, while ramping up investments for future growth[3](index=3&type=chunk) [Second Quarter 2025 Financial Performance](index=1&type=section&id=Second%20Quarter%202025%20Financial%20Results) [Key Financial Metrics](index=1&type=section&id=Key%20Financial%20Metrics) The company reported significant Q2 2025 growth with a 38% revenue increase and more than doubled net income Q2 2025 Key Financial Highlights | Metric | Q2 2025 | Q2 2024 | YoY Change | | :----- | :------ | :------ | :--------- | | Total Revenue | $157.4 million | $114.3 million | +38% | | Gross Margin | 61% | 61% | Consistent | | Operating Expenses | $60.0 million | $56.8 million | +$3.2 million | | Net Income | $34.9 million | $12.2 million | +186% | | Diluted EPS | $0.92 | $0.35 | +163% | [Revenue Analysis](index=1&type=section&id=Revenue%20Analysis) Q2 2025 revenue grew 38% to $157.4 million, driven by increased OCS and NOP service utilization Q2 2025 Revenue Breakdown | Revenue Type | Q2 2025 (in thousands) | Q2 2024 (in thousands) | YoY Change | | :----------- | :--------------------- | :--------------------- | :--------- | | Net product revenue | $96,100 | $71,732 | +33.9% | | Service revenue | $61,270 | $42,573 | +44.0% | | Total revenue | $157,370 | $114,305 | +37.7% | - The increase in revenue was primarily due to increased utilization of the Organ Care System (OCS), particularly in Liver and Heart through the National OCS Program (NOP) and related NOP service revenue, fueled by the continued expansion and utilization of the aviation fleet[4](index=4&type=chunk) [Profitability and Expenses](index=1&type=section&id=Profitability%20and%20Expenses) Gross margin remained stable at 61%, while net income significantly improved to $34.9 million Q2 2025 Profitability and Expenses | Metric (in thousands) | Q2 2025 | Q2 2024 | YoY Change | | :-------------------- | :------ | :------ | :--------- | | Gross Profit | $96,589 | $69,261 | +39.4% | | Gross Margin | 61% | 61% | Consistent | | Operating Expenses | $60,022 | $56,753 | +5.8% | | R&D and Clinical Trials | $15,934 | $13,858 | +15.0% | | SG&A | $44,088 | $42,895 | +2.8% | | Income from Operations | $36,567 | $12,508 | +192.4% | | Net Income | $34,907 | $12,194 | +186.3% | - The increase in operating expenses was driven primarily by increased research and development investment as well as investment throughout the organization to support company growth[5](index=5&type=chunk)[6](index=6&type=chunk) - Stock compensation expense in Q2 2025 was **$9.0 million**, up from **$7.3 million** in Q2 2024[6](index=6&type=chunk) [Balance Sheet Highlights](index=2&type=section&id=Balance%20Sheet%20Highlights) The company maintained a strong liquidity position with cash totaling $400.6 million as of June 30, 2025 Key Balance Sheet Items (as of June 30, 2025) | Metric (in thousands) | June 30, 2025 | Dec 31, 2024 | Change | | :----- | :------------ | :----------- | :----- | | Cash | $400,575 | $336,650 | +$63,925 | | Total Assets | $890,522 | $804,076 | +$86,446 | | Total Liabilities | $572,421 | $575,473 | -$3,052 | | Total Stockholders' Equity | $318,101 | $228,603 | +$89,498 | [2025 Financial Outlook](index=2&type=section&id=2025%20Financial%20Outlook) [2025 Financial Outlook](index=2&type=section&id=2025%20Financial%20Outlook) The company raised its full-year 2025 revenue guidance to $585-$605 million, representing 35% growth at the midpoint Full Year 2025 Revenue Guidance | Guidance Type | Range | Growth at Midpoint (YoY) | | :------------ | :---- | :----------------------- | | New FY2025 Revenue Guidance | $585 million - $605 million | 35% | | Previous FY2025 Revenue Guidance | $565 million - $585 million | N/A | [Operational Achievements and Strategic Initiatives](index=1&type=section&id=Operational%20Achievements%20and%20Strategic%20Initiatives) [Operational Achievements and Strategic Initiatives](index=1&type=section&id=Operational%20Achievements%20and%20Strategic%20Initiatives) Key Q2 achievements include FDA approval to initiate the Next-Gen OCS™ Lung trial and the launch of the NOP ACCESS™ digital ecosystem - Received conditional Investigations Device Exemption (IDE) approval from the U.S. Food and Drug Administration to initiate the Next-Gen OCS™ Lung trial[5](index=5&type=chunk) - Launched first-in-class OCS NOP digital ecosystem, NOP ACCESS™, across major NOP™ transplant programs across the U.S[5](index=5&type=chunk) [About TransMedics Group, Inc.](index=2&type=section&id=About%20TransMedics%20Group,%20Inc.) [About TransMedics Group, Inc.](index=2&type=section&id=About%20TransMedics%20Group,%20Inc.) TransMedics is the global leader in portable warm perfusion and assessment technologies for donor organs - TransMedics is the world's leader in portable extracorporeal warm perfusion and assessment of donor organs for transplantation[9](index=9&type=chunk) - The company develops technologies to preserve organ quality, assess organ viability prior to transplant, and potentially increase the utilization of donor organs for the treatment of end-stage heart, lung, and liver failure[9](index=9&type=chunk) [Financial Statements (Unaudited)](index=5&type=section&id=Financial%20Statements%20(Unaudited)) [Consolidated Statements of Operations](index=5&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) The statements detail financial performance for the three and six months ended June 30, 2025, showing significant growth Consolidated Statements of Operations (Three Months Ended June 30) | Metric (in thousands, except per share) | 2025 | 2024 | | :------------------------------------ | :--- | :--- | | Total revenue | $157,370 | $114,305 | | Gross profit | $96,589 | $69,261 | | Operating expenses | $60,022 | $56,753 | | Income from operations | $36,567 | $12,508 | | Net income | $34,907 | $12,194 | | Diluted Net income per share | $0.92 | $0.35 | Consolidated Statements of Operations (Six Months Ended June 30) | Metric (in thousands, except per share) | 2025 | 2024 | | :------------------------------------ | :--- | :--- | | Total revenue | $300,907 | $211,155 | | Gross profit | $184,817 | $129,223 | | Operating expenses | $120,807 | $104,294 | | Income from operations | $64,010 | $24,929 | | Net income | $60,589 | $24,391 | | Diluted Net income per share | $1.62 | $0.70 | [Condensed Consolidated Balance Sheets](index=6&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) The balance sheets show an increase in total assets and stockholders' equity as of June 30, 2025 Condensed Consolidated Balance Sheets (as of June 30, 2025 vs. Dec 31, 2024) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Cash | $400,575 | $336,650 | | Total current assets | $558,129 | $497,216 | | Total assets | $890,522 | $804,076 | | Total current liabilities | $56,620 | $59,913 | | Total liabilities | $572,421 | $575,473 | | Total stockholders' equity | $318,101 | $228,603 | [Additional Information](index=2&type=section&id=Additional%20Information) [Webcast and Conference Call Details](index=2&type=section&id=Webcast%20and%20Conference%20Call%20Details) A conference call to discuss Q2 2025 financial results will be held on Thursday, July 30, 2025 - A conference call will be hosted on **Thursday, July 30, 2025, at 4:30 p.m. ET / 1:30 p.m. PT**[8](index=8&type=chunk) - A live and archived webcast of the event and the company's slide presentation will be available on the 'Investors' section of the TransMedics website[8](index=8&type=chunk) [Forward-Looking Statements](index=2&type=section&id=Forward-Looking%20Statements) This press release contains forward-looking statements regarding future results, strategy, and growth targets - Forward-looking statements address future results and events, including financial guidance, projected estimates, strategy, focus on achieving **10,000 US NOP transplants in 2028**, and investments for growth[10](index=10&type=chunk) - These statements are subject to risks and uncertainties, and actual results could differ materially due to factors such as financial result fluctuations, ability to attract and retain key personnel, indebtedness, profitability, funding needs, internal control weaknesses, dependence on OCS, regulatory approvals, and market acceptance[10](index=10&type=chunk)[11](index=11&type=chunk)[12](index=12&type=chunk) - The company undertakes no obligation to update any forward-looking statement, except as required by applicable law[12](index=12&type=chunk) [Investor Contact](index=4&type=section&id=Investor%20Contact) Contact information for investor relations is provided for any inquiries - Investor contact information: Brian Johnston, Laine Morgan, 332-895-3222, Investors@transmedics.com[13](index=13&type=chunk)

Core Insights - TransMedics Group, Inc. reported a strong financial performance for Q2 2025, with a 38% year-over-year revenue growth, reaching $157.4 million, driven by increased utilization of its Organ Care System (OCS) [2][3][11] - The company is focused on achieving a target of 10,000 US NOP transplants by 2028 and is increasing investments to support future growth [2][7] - Net income for Q2 2025 was $34.9 million, representing 22% of revenue, a significant increase from $12.2 million in Q2 2024 [6][11] Financial Performance - Total revenue for Q2 2025 was $157.4 million, a 38% increase from $114.3 million in Q2 2024, primarily due to higher OCS utilization in liver and heart transplants [3][11] - Gross margin remained stable at 61% for Q2 2025, consistent with the same period in 2024 [4][13] - Operating expenses increased to $60.0 million in Q2 2025 from $56.8 million in Q2 2024, mainly due to higher research and development investments [5][13] Financial Outlook - The company raised its full-year 2025 revenue guidance to a range of $585 million to $605 million, indicating a 35% growth at the midpoint compared to the previous year [7][11] - Cash reserves as of June 30, 2025, were reported at $400.6 million, up from $336.7 million at the end of 2024 [6][14] Strategic Developments - TransMedics received conditional Investigational Device Exemption (IDE) approval from the FDA to initiate the Next-Gen OCS™ Lung trial [11] - The company launched the first-in-class OCS NOP digital ecosystem, NOP ACCESS™, across major NOP transplant programs in the U.S. [11]

Core Insights - TransMedics Group, Inc. is a medical technology company focused on transforming organ transplant therapy for patients with end-stage lung, heart, and liver failure [1][3] - The company will present at the Canaccord Genuity 45th Annual Growth Conference on August 12, 2025, at 11:30 a.m. ET [1][2] Company Overview - TransMedics is recognized as the world's leader in portable extracorporeal warm perfusion and assessment of donor organs for transplantation [3] - The company is headquartered in Andover, Massachusetts, and was founded to address the unmet need for more and better organs for transplantation [3] - TransMedics has developed technologies aimed at preserving organ quality, assessing organ viability prior to transplant, and potentially increasing the utilization of donor organs for treating end-stage heart, lung, and liver failure [3]

Core Insights - Wall Street analysts forecast TransMedics (TMDX) will report quarterly earnings of $0.48 per share, reflecting a year-over-year increase of 37.1% [1] - Anticipated revenues for the quarter are projected to be $147.37 million, representing a 28.9% increase compared to the same quarter last year [1] - The consensus EPS estimate has remained unchanged over the past 30 days, indicating analysts' reassessment of their projections [1] Revenue Estimates - Analysts predict 'Net revenue by OCS product- OCS Lung net revenue' will reach $4.50 million, indicating a year-over-year decrease of 4.2% [4] - The estimate for 'Net revenue by OCS product- OCS Liver net revenue' is $108.56 million, showing a significant increase of 40.9% from the prior-year quarter [4] - 'Net revenue by OCS product- OCS Heart net revenue' is expected to be $32.38 million, reflecting a 3% increase from the previous year [4] Geographic Revenue Insights - 'Geographic Revenues- United States' is expected to be $142.05 million, indicating a year-over-year increase of 31% [5] - 'Geographic Revenues- All other countries' is projected to be $4.47 million, showing a decrease of 5.2% from the prior-year quarter [5] Stock Performance - TransMedics shares have decreased by 17.8% over the past month, contrasting with the Zacks S&P 500 composite's increase of 4.9% [5] - The company holds a Zacks Rank 3 (Hold), suggesting it is expected to closely follow overall market performance in the near term [5]

Company Overview - TransMedics Inc. (NASDAQ: TMDX) is involved in the design, manufacturing, and selling of organ care systems (OCS) [1] - The stock price experienced a significant increase of 53% from April 23 to its interim high on June 11, followed by a decline of 25%, bringing the current price to $108 [1] Stock Performance - The stock rose to an interim high on June 11, indicating strong market interest and performance during that period [1] - The subsequent decline of 25% suggests volatility and potential market corrections following the peak [1]

Company Overview - TransMedics Group, Inc. is a medical technology company focused on transforming organ transplant therapy for patients with end-stage lung, heart, and liver failure [3] - The company is headquartered in Andover, Massachusetts, and is recognized as the world's leader in portable extracorporeal warm perfusion and assessment of donor organs for transplantation [3] Financial Results Announcement - TransMedics will release its financial results for the second quarter of 2025 after market close on July 30, 2025 [1] - A conference call will be hosted by the management team at 4:30 p.m. ET / 1:30 p.m. PT on the same day [1] Investor Engagement - Investors can participate in the conference call by dialing (844) 676-6010 for domestic calls or (412) 634-6944 for international calls [2] - A live and archived webcast of the conference call will be available on the "Investors" section of the TransMedics website [2]

Core Insights - TransMedics (NASDAQ: TMDX) experienced a significant 55% drop in stock price following its Q3 2024 report, which met management's expectations [1] - The company has since recovered its stock price through strong execution and building trust with investors [1] Company Performance - The stock's decline was attributed to the Q3 2024 report, which did not exceed management's promises [1] - Recovery in stock price indicates effective management strategies and operational execution [1]