om-10q_20200930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number: 001-39513

 

Outset Medical, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

20-0514392

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

3052 Orchard Dr.

San Jose, California

95134

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (669) 231-8200

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.001 per share

 

OM

 

The Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No  

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes      No  

As of October 30, 2020, the registrant had 42,700,611 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 


Table of Contents

 

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

1

Item 1.

Financial Statements (Unaudited)

 

1

 

Condensed Balance Sheets

 

1

 

Condensed Statements of Operations

 

2

 

Condensed Statements of Comprehensive Loss

 

3

 

Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

 

4

 

Condensed Statements of Cash Flows

 

6

 

Notes to Condensed Financial Statements

 

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

28

Item 4.

Controls and Procedures

 

28

PART II.

OTHER INFORMATION

 

29

Item 1.

Legal Proceedings

 

29

Item 1A.

Risk Factors

 

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

69

Item 3.

Defaults Upon Senior Securities

 

69

Item 4.

Mine Safety Disclosures

 

69

Item 5.

Other Information

 

69

Item 6.

Exhibits

 

70

Signatures

 

71

 

 


i


Summary of the Material Risks Associated with Our Business

 

Our business is subject to numerous risks and uncertainties that you should be aware of in evaluating it. These risks include, but are not limited to, the following:

 

 

We have a history of net losses, and we expect to continue to incur losses for the foreseeable future. If we ever achieve profitability, we may not be able to sustain it.

 

 

We may not be able to sufficiently reduce costs in the manufacturing and production of the Tablo system to achieve sustainable gross margins.

 

 

The commercial success of Tablo will depend upon attaining significant market acceptance among providers and patients.

 

 

We currently derive substantially all of our revenue from the sale of Tablo and associated consumables and are therefore highly dependent on Tablo for our success.

 

 

Our ability to generate revenue from home-based dialysis is subject to certain risks and uncertainties, including around the adoption of Tablo in the home setting.

 

 

We depend upon third-party suppliers, including contract manufacturers and single source suppliers, making us vulnerable to supply problems and price fluctuations.

 

 

We may experience manufacturing disruptions.

 

 

We need to ensure strong product performance and reliability to maintain and grow our business.

 

 

A pandemic, epidemic or outbreak of an infectious disease in the United States or worldwide, including the outbreak of the novel strain of coronavirus disease, COVID-19, could adversely affect our business.

 

 

If we are unable to continue to innovate and improve Tablo, we could lose customers or market share.

 

 

We face competition from many sources, including larger companies, and we may be unable to compete successfully.

 

 

We may face additional costs, loss of revenue, significant liabilities, harm to our brand, decreased use of our platform and business disruption if there are any security or data privacy breaches or other unauthorized or improper access.

 

The summary risk factors described above should be read together with the text of the full risk factors below, in the section entitled “Risk Factors” in Part II, Item 1.A. and the other information set forth in this Quarterly Report on Form 10-Q, including our consolidated financial statements and the related notes, as well as in other documents that we file with the Securities and Exchange Commission. The risks summarized above or described in full below are not the only risks that we face. Additional risks and uncertainties not precisely known to us, or that we currently deem to be immaterial may also materially adversely affect our business, results of operations and financial condition.

 


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Outset Medical, Inc.

Condensed Balance Sheets

(in thousands, except per share amounts)

 

 

 

September 30,

2020

 

 

December 31,

2019

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

311,327

 

 

$

36,926

 

Short-term investments

 

 

32,888

 

 

 

33,152

 

Accounts receivable, net

 

 

7,082

 

 

 

3,914

 

Inventories

 

 

11,810

 

 

 

4,596

 

Prepaid expenses and other current assets

 

 

4,717

 

 

 

1,058

 

Total current assets

 

$

367,824

 

 

$

79,646

 

Restricted cash

 

 

33,311

 

 

 

743

 

Property and equipment, net

 

 

14,412

 

 

 

7,895

 

Operating lease right-of-use assets

 

 

8,498

 

 

 

 

Other assets

 

 

1,977

 

 

 

82

 

Total assets

 

$

426,022

 

 

$

88,366

 

Labilities, redeemable convertible preferred stock and stockholders' equity (deficit)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,062

 

 

$

4,960

 

Accrued compensation and related benefits

 

 

10,850

 

 

 

6,956

 

Accrued expenses and other current liabilities

 

 

8,959

 

 

 

2,909

 

Accrued warranty liability

 

 

3,258

 

 

 

1,702

 

Deferred revenue, current

 

 

4,132

 

 

 

883

 

Operating lease liabilities, current

 

 

782

 

 

 

 

Term loan, current

 

 

 

 

 

7,500

 

Total current liabilities

 

 

33,043

 

 

 

24,910

 

Accrued interest, noncurrent

 

 

119

 

 

 

217

 

Deferred revenue, noncurrent

 

 

566

 

 

 

134

 

Operating lease liabilities, noncurrent

 

 

8,309

 

 

 

 

Redeemable convertible preferred stock warrant liability

 

 

 

 

 

4,285

 

Term loan, noncurrent

 

 

29,652

 

 

 

21,561

 

Total liabilities

 

 

71,689

 

 

 

51,107

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Redeemable convertible preferred stock, $0.001 par value; no shares authorized and no shares issued and outstanding as of September 30, 2020; 154,592 shares authorized and 147,214 shares issued and outstanding as of December 31, 2019

 

 

 

 

 

409,446

 

Stockholders' equity (deficit):

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 5,000 shares authorized, and no shares issued and outstanding as of September 30, 2020 and December 31, 2019

 

 

 

 

 

 

Common stock, $0.001 par value; 300,000 and 240,000 shares authorized as of September 30, 2020 and December 31, 2019, respectively; 42,701 and 922 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

 

 

42

 

 

 

1

 

Additional paid-in capital

 

 

816,306

 

 

 

357

 

Accumulated other comprehensive income

 

 

1

 

 

 

22

 

Accumulated deficit

 

 

(462,016

)

 

 

(372,567

)

Total stockholders' equity (deficit)

 

 

354,333

 

 

 

(372,187

)

Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit)

 

$

426,022

 

 

$

88,366

 

 

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

 

 

 

1


Outset Medical, Inc.

Condensed Statements of Operations

(Unaudited)

(in thousands, except per share amounts)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product revenue

 

$

10,812

 

 

$

2,409

 

 

$

26,435

 

 

$

7,501

 

Service and other revenue

 

 

2,944

 

 

 

221

 

 

 

6,253

 

 

 

492

 

Total revenue

 

 

13,756

 

 

 

2,630

 

 

 

32,688

 

 

 

7,993

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product revenue

 

 

17,265

 

 

 

6,350

 

 

 

42,118

 

 

 

18,950

 

Cost of service and other revenue

 

 

1,617

 

 

 

1,574

 

 

 

4,024

 

 

 

4,065

 

Total cost of revenue

 

 

18,882

 

 

 

7,924

 

 

 

46,142

 

 

 

23,015

 

Gross profit

 

 

(5,126

)

 

 

(5,294

)

 

 

(13,454

)

 

 

(15,022

)

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

9,175

 

 

 

5,708

 

 

 

21,066

 

 

 

16,698

 

Sales and marketing

 

 

13,344

 

 

 

5,009

 

 

 

29,870

 

 

 

13,376

 

General and administrative

 

 

13,088

 

 

 

2,439

 

 

 

21,462

 

 

 

6,641

 

Total operating expenses

 

 

35,607

 

 

 

13,156

 

 

 

72,398

 

 

 

36,715

 

Loss from operations

 

 

(40,733

)

 

 

(18,450

)

 

 

(85,852

)

 

 

(51,737

)

Interest income and other income (expense), net

 

 

(3

)

 

 

569

 

 

 

524

 

 

 

2,111

 

Interest expense

 

 

(428

)

 

 

(1,047

)

 

 

(2,461

)

 

 

(3,237

)

Change in fair value of redeemable convertible preferred

  stock warrant liability

 

 

437

 

 

 

3,546

 

 

 

(93

)

 

 

4,030

 

Loss on extinguishment of term loan

 

 

(1,567

)

 

 

 

 

 

(1,567

)

 

 

 

Loss before provision for income taxes

 

 

(42,294

)

 

 

(15,382

)

 

 

(89,449

)

 

 

(48,833

)

Provision for income taxes

 

 

 

 

 

20

 

 

 

 

 

 

20

 

Net loss

 

$

(42,294

)

 

$

(15,402

)

 

$

(89,449

)

 

$

(48,853

)

Net loss attributable to common stockholders, basic and diluted

 

$

(42,294

)

 

$

(16,666

)

 

$

(47,281

)

 

$

(66,015

)

Net loss per share attributable to common stockholders,

  basic and diluted

 

$

(3.44

)

 

$

(18.93

)

 

$

(6.30

)

 

$

(78.77

)

Weighted average shares used in computing net loss per share

  attributable to common stockholders, basic and diluted

 

 

12,299

 

 

 

880

 

 

 

7,508

 

 

 

838

 

 

 

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

2


Outset Medical, Inc.

Condensed Statements of Comprehensive Loss

(Unaudited)

(in thousands)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net loss

 

$

(42,294

)

 

$

(15,402

)

 

$

(89,449

)

 

$

(48,853

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale securities

 

 

1

 

 

 

(8

)

 

 

(21

)

 

 

102

 

Comprehensive loss

 

$

(42,293

)

 

$

(15,410

)

 

$

(89,470

)

 

$

(48,751

)

 

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

 

 

3


Outset Medical, Inc.

Condensed Statement of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(Unaudited)

(in thousands)

 

 

 

Redeemable Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

Equity

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

(Deficit)

 

Balance December 31, 2019

 

 

147,214

 

 

$

409,446

 

 

 

 

922

 

 

$

1

 

 

$

357

 

 

$

22

 

 

$

(372,567

)

 

$

(372,187

)

Issuance of Series E redeemable convertible preferred stock,

   net of issuance costs

 

 

57,782

 

 

 

126,758

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock on settlement of accrued dividend

 

 

 

 

 

(41,763

)

 

 

 

4,850

 

 

 

5

 

 

 

41,758

 

 

 

 

 

 

 

 

 

41,763

 

Deemed dividend on settlement of accrued dividend

 

 

 

 

 

(42,530

)

 

 

 

 

 

 

 

 

 

42,530

 

 

 

 

 

 

 

 

 

42,530

 

Stock option exercises

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

14

 

 

 

 

 

 

 

 

 

14

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

580

 

 

 

 

 

 

 

 

 

580

 

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(35

)

 

 

 

 

 

(35

)

Adjustment to redemption value on redeemable

   convertible preferred stock

 

 

 

 

 

362

 

 

 

 

 

 

 

 

 

 

(362

)

 

 

 

 

 

 

 

 

(362

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,650

)

 

 

(20,650

)

Balance March 31, 2020

 

 

204,996

 

 

 

452,273

 

 

 

 

5,776

 

 

 

6

 

 

 

84,877

 

 

 

(13

)

 

 

(393,217

)

 

 

(308,347

)

Stock option exercises

 

 

 

 

 

 

 

 

 

26

 

 

 

 

 

 

80

 

 

 

 

 

 

 

 

 

80

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

683

 

 

 

 

 

 

 

 

 

683

 

Unrealized gain on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13

 

 

 

 

 

 

13

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,505

)

 

 

(26,505

)

Balance June 30, 2020

 

 

204,996

 

 

 

452,273

 

 

 

 

5,802

 

 

 

6

 

 

 

85,640

 

 

 

 

 

 

(419,722

)

 

 

(334,076

)

Issuance of common stock upon net exercises of Series B

   redeemable convertible preferred stock warrants

 

 

 

 

 

 

 

 

 

65

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash exercises of Series C redeemable convertible preferred

  stock warrants

 

 

1,655

 

 

 

4,288

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of Series A redeemable convertible preferred

  stock warrants to common stock warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,252

 

 

 

 

 

 

 

 

 

1,252

 

Conversion of redeemable convertible preferred stock to

  common stock upon initial public offering

 

 

(206,651

)

 

 

(456,561

)

 

 

 

26,167

 

 

 

26

 

 

 

456,535

 

 

 

 

 

 

 

 

 

456,561

 

Issuance of common stock upon initial public offering, net of

   issuance costs

 

 

 

 

 

 

 

 

 

10,294

 

 

 

10

 

 

 

254,795

 

 

 

 

 

 

 

 

 

254,805

 

Reclassification of redeemable convertible preferred stock

  warrant liability to equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,126

 

 

 

 

 

 

 

 

 

3,126

 

Stock option exercises

 

 

 

 

 

 

 

 

 

373

 

 

 

 

 

 

1,050

 

 

 

 

 

 

 

 

 

1,050

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,908

 

 

 

 

 

 

 

 

 

13,908

 

Unrealized gain on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(42,294

)

 

 

(42,294

)

Balance September 30, 2020

 

 

 

 

$

 

 

 

 

42,701

 

 

$

42

 

 

$

816,306

 

 

$

1

 

 

$

(462,016

)

 

$

354,333

 

 

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

 

4


Outset Medical, Inc.

Condensed Statement of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(Unaudited)

(in thousands)

 

 

 

Redeemable Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

Income

 

 

Accumulated

 

 

Total

Stockholders’

Equity

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

(Loss)

 

 

Deficit

 

 

(Deficit)

 

Balance December 31, 2018

 

 

147,214

 

 

$

392,284

 

 

 

 

789

 

 

$

1

 

 

$

 

 

$

(60

)

 

$

(287,891

)

 

$

(287,950

)

Stock option exercises

 

 

 

 

 

 

 

 

 

25

 

 

 

 

 

 

76

 

 

 

 

 

 

 

 

 

76

 

Common stock warrant exercises

 

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

76

 

 

 

 

 

 

 

 

 

76

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

239

 

 

 

 

 

 

 

 

 

239

 

Unrealized gain on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

82

 

 

 

 

 

 

82

 

Adjustment to redemption value on redeemable

   convertible preferred stock

 

 

 

 

 

7,870

 

 

 

 

 

 

 

 

 

 

(391

)

 

 

 

 

 

(7,479

)

 

 

(7,870

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,422

)

 

 

(16,422

)

Balance March 31, 2019

 

 

147,214

 

 

 

400,154

 

 

 

 

823

 

 

 

1

 

 

 

 

 

 

22

 

 

 

(311,792

)

 

 

(311,769

)

Stock option exercises

 

 

 

 

 

 

 

 

 

54

 

 

 

 

 

 

162

 

 

 

 

 

 

 

 

 

162

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

161

 

 

 

 

 

 

 

 

 

161

 

Unrealized gain on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28

 

 

 

 

 

 

28

 

Adjustment to redemption value on redeemable

   convertible preferred stock

 

 

 

 

 

8,028

 

 

 

 

 

 

 

 

 

 

(323

)

 

 

 

 

 

(7,705

)

 

 

(8,028

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,029

)

 

 

(17,029

)

Balance June 30, 2019

 

 

147,214

 

 

 

408,182

 

 

 

 

877

 

 

 

1

 

 

 

 

 

 

50

 

 

 

(336,526

)

 

 

(336,475

)

Stock option exercises

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

16