10-Q
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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, 2021

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 Stock Market LLC

 

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 29, 2021, the registrant had 47,094,315 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

 

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

24

Item 4.

Controls and Procedures

 

24

PART II.

OTHER INFORMATION

 

25

Item 1.

Legal Proceedings

 

25

Item 1A.

Risk Factors

 

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

26

Item 3.

Defaults Upon Senior Securities

 

27

Item 4.

Mine Safety Disclosures

 

27

Item 5.

Other Information

 

27

Item 6.

Exhibits

 

28

Signatures

 

29

 

 

 


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Outset Medical, Inc.

Condensed Balance Sheets

(in thousands, except per share amounts)

 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

230,508

 

 

$

294,972

 

Short-term investments

 

 

142,535

 

 

 

19,898

 

Accounts receivable, net

 

 

19,302

 

 

 

6,468

 

Inventories

 

 

34,297

 

 

 

18,384

 

Prepaid expenses and other current assets

 

 

6,659

 

 

 

6,189

 

Total current assets

 

 

433,301

 

 

 

345,911

 

Restricted cash

 

 

33,311

 

 

 

33,311

 

Property and equipment, net

 

 

14,532

 

 

 

14,998

 

Operating lease right-of-use assets

 

 

7,494

 

 

 

8,253

 

Other assets

 

 

166

 

 

 

1,356

 

Total assets

 

$

488,804

 

 

$

403,829

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

2,702

 

 

$

4,948

 

Accrued compensation and related benefits

 

 

17,759

 

 

 

16,845

 

Accrued expenses and other current liabilities

 

 

11,389

 

 

 

7,903

 

Accrued warranty liability

 

 

3,234

 

 

 

2,913

 

Deferred revenue, current

 

 

5,212

 

 

 

3,201

 

Operating lease liabilities, current

 

 

1,109

 

 

 

882

 

Total current liabilities

 

 

41,405

 

 

 

36,692

 

Accrued interest, noncurrent

 

 

600

 

 

 

240

 

Deferred revenue, noncurrent

 

 

109

 

 

 

570

 

Operating lease liabilities, noncurrent

 

 

7,199

 

 

 

8,044

 

Term loan, noncurrent

 

 

29,740

 

 

 

29,674

 

Total liabilities

 

 

79,053

 

 

 

75,220

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value; 5,000 shares authorized, and no shares issued and outstanding as of September 30, 2021 and December 31, 2020

 

 

 

 

 

 

Common stock, $0.001 par value; 300,000 shares authorized as of September 30, 2021 and December 31, 2020; 47,018 and 42,722 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

 

 

47

 

 

 

43

 

Additional paid-in capital

 

 

994,486

 

 

 

822,624

 

Accumulated other comprehensive (loss) income

 

 

(20

)

 

 

1

 

Accumulated deficit

 

 

(584,762

)

 

 

(494,059

)

Total stockholders' equity

 

 

409,751

 

 

 

328,609

 

Total liabilities and stockholders' equity

 

$

488,804

 

 

$

403,829

 

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,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Product revenue

 

$

21,824

 

 

$

10,812

 

 

$

60,662

 

 

$

26,435

 

Service and other revenue

 

 

4,494

 

 

 

2,944

 

 

 

13,788

 

 

 

6,253

 

Total revenue

 

 

26,318

 

 

 

13,756

 

 

 

74,450

 

 

 

32,688

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product revenue

 

 

20,526

 

 

 

17,265

 

 

 

63,180

 

 

 

42,118

 

Cost of service and other revenue

 

 

2,846

 

 

 

1,617

 

 

 

6,983

 

 

 

4,024

 

Total cost of revenue

 

 

23,372

 

 

 

18,882

 

 

 

70,163

 

 

 

46,142

 

Gross profit

 

 

2,946

 

 

 

(5,126

)

 

 

4,287

 

 

 

(13,454

)

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

9,729

 

 

 

9,175

 

 

 

25,331

 

 

 

21,066

 

Sales and marketing

 

 

15,726

 

 

 

13,344

 

 

 

42,079

 

 

 

29,870

 

General and administrative

 

 

7,629

 

 

 

13,088

 

 

 

26,597

 

 

 

21,462

 

Total operating expenses

 

 

33,084

 

 

 

35,607

 

 

 

94,007

 

 

 

72,398

 

Loss from operations

 

 

(30,138

)

 

 

(40,733

)

 

 

(89,720

)

 

 

(85,852

)

Interest income and other income (expense), net

 

 

99

 

 

 

(3

)

 

 

375

 

 

 

524

 

Interest expense

 

 

(431

)

 

 

(428

)

 

 

(1,284

)

 

 

(2,461

)

Change in fair value of redeemable convertible preferred stock
   warrant liability

 

 

 

 

 

437

 

 

 

 

 

 

(93

)

Loss on extinguishment of term loan

 

 

 

 

 

(1,567

)

 

 

 

 

 

(1,567

)

Loss before provision for income taxes

 

 

(30,470

)

 

 

(42,294

)

 

 

(90,629

)

 

 

(89,449

)

Provision for income taxes

 

 

 

 

 

 

 

 

74

 

 

 

 

Net loss

 

$

(30,470

)

 

$

(42,294

)

 

$

(90,703

)

 

$

(89,449

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to common stockholders, basic and diluted

 

$

(30,470

)

 

$

(42,294

)

 

$

(90,703

)

 

$

(47,281

)

Net loss per share attributable to common stockholders,
   basic and diluted

 

$

(0.65

)

 

$

(3.44

)

 

$

(1.96

)

 

$

(6.30

)

Weighted-average shares used in computing net loss per share
   attributable to common stockholders, basic and diluted

 

 

46,588

 

 

 

12,299

 

 

 

46,252

 

 

 

7,508

 

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,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net loss

 

$

(30,470

)

 

$

(42,294

)

 

$

(90,703

)

 

$

(89,449

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

8

 

 

 

1

 

 

 

(21

)

 

 

(21

)

Comprehensive loss

 

$

(30,462

)

 

$

(42,293

)

 

$

(90,724

)

 

$

(89,470

)

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 as of December 31, 2020

 

 

 

 

$

 

 

 

 

42,722

 

 

$

43

 

 

$

822,624

 

 

$

1

 

 

$

(494,059

)

 

$

328,609

 

Issuance of common stock through employee stock
  purchase plan

 

 

 

 

 

 

 

 

 

80

 

 

 

 

 

 

1,838

 

 

 

 

 

 

 

 

 

1,838

 

Stock option exercises

 

 

 

 

 

 

 

 

 

86

 

 

 

 

 

 

380

 

 

 

 

 

 

 

 

 

380

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,852

 

 

 

 

 

 

 

 

 

5,852

 

Unrealized loss on available-for-sale
  securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

(9

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30,025

)

 

 

(30,025

)

Balance as of March 31, 2021

 

 

 

 

$

 

 

 

 

42,888

 

 

$

43

 

 

$

830,694

 

 

$

(8

)

 

$

(524,084

)

 

$

306,645

 

Issuance of common stock upon follow-on
  public offering, net of issuance costs

 

 

 

 

 

 

 

 

 

2,946

 

 

 

3

 

 

 

149,082

 

 

 

 

 

 

 

 

 

149,085

 

Issuance of common stock for settlement of
   RSUs

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock option exercises

 

 

 

 

 

 

 

 

 

390

 

 

 

 

 

 

1,723

 

 

 

 

 

 

 

 

 

1,723

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,937

 

 

 

 

 

 

 

 

 

3,937

 

Unrealized loss on available-for-sale
  securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20

)

 

 

 

 

 

(20

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30,208

)

 

 

(30,208

)

Balance as of June 30, 2021

 

 

 

 

$

 

 

 

 

46,225

 

 

$

46

 

 

 

985,436

 

 

$

(28

)

 

$

(554,292

)

 

$

431,162

 

Issuance of common stock through employee
  stock purchase plan

 

 

 

 

 

 

 

 

 

36

 

 

 

 

 

 

1,596

 

 

  —

 

 

  —

 

 

 

1,596

 

Issuance of common stock for settlement of
  RSUs

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock option exercises

 

 

 

 

 

 

 

 

 

756

 

 

 

1

 

 

 

4,590

 

 

 

 

 

 

 

 

 

4,591

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,864

 

 

 

 

 

 

 

 

 

2,864

 

Unrealized income on available-for-sale
  securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

8

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30,470

)

 

 

(30,470

)

Balance as of September 30, 2021

 

 

 

 

$

 

 

 

 

47,018

 

 

$

47

 

 

$

994,486

 

 

$

(20

)

 

$

(584,762

)

 

$

409,751

 

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

 

 

Accumulated

 

 

Total
Stockholders’
Equity

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

(Deficit)

 

Balance as of 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 expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

580

 

 

 

 

 

 

 

 

 

580

 

Unrealized loss on available-for-sale
  securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(35

)

 

 

 

 

 

(35