SEC Filing | Outset Medical, Inc.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

View:

Download DOC

Download PDF

Download XLS

Download XBRL

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

☐

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

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.

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

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.

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.

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.

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.

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