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 June 30, 2022

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 ☒

As of July 27, 2022, the registrant had 48,007,301 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 Stockholders’ Equity

 

4

 

Condensed Statements of Cash Flows

 

6

 

Notes to Condensed Financial Statements

 

7

Item 2.

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

 

13

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

22

Item 4.

Controls and Procedures

 

22

PART II.

OTHER INFORMATION

 

23

Item 1.

Legal Proceedings

 

23

Item 1A.

Risk Factors

 

23

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

24

Item 3.

Defaults Upon Senior Securities

 

25

Item 4.

Mine Safety Disclosures

 

25

Item 5.

Other Information

 

25

Item 6.

Exhibits

 

26

Signatures

 

27

 

 

 


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Outset Medical, Inc.

Condensed Balance Sheets

(in thousands, except per share amounts)

 

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

75,497

 

 

$

182,348

 

Short-term investments

 

 

186,565

 

 

 

157,140

 

Accounts receivable, net

 

 

24,627

 

 

 

25,600

 

Inventories

 

 

53,689

 

 

 

39,185

 

Prepaid expenses and other current assets

 

 

5,399

 

 

 

5,529

 

Total current assets

 

 

345,777

 

 

 

409,802

 

Restricted cash

 

 

33,311

 

 

 

33,311

 

Property and equipment, net

 

 

15,245

 

 

 

12,964

 

Operating lease right-of-use assets

 

 

6,687

 

 

 

7,231

 

Other assets

 

 

216

 

 

 

156

 

Total assets

 

$

401,236

 

 

$

463,464

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

2,753

 

 

$

1,763

 

Accrued compensation and related benefits

 

 

15,795

 

 

 

24,948

 

Accrued expenses and other current liabilities

 

 

23,261

 

 

 

13,789

 

Accrued warranty liability

 

 

3,444

 

 

 

3,704

 

Deferred revenue, current

 

 

7,752

 

 

 

6,340

 

Operating lease liabilities, current

 

 

1,235

 

 

 

1,151

 

Term loan, current

 

 

1,000

 

 

 

 

Total current liabilities

 

 

55,240

 

 

 

51,695

 

Accrued interest, noncurrent

 

 

960

 

 

 

721

 

Deferred revenue, noncurrent

 

 

205

 

 

 

312

 

Operating lease liabilities, noncurrent

 

 

6,261

 

 

 

6,893

 

Term loan, noncurrent

 

 

28,806

 

 

 

29,762

 

Total liabilities

 

 

91,472

 

 

 

89,383

 

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 June 30, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock, $0.001 par value; 300,000 shares authorized as of June 30, 2022 and December 31, 2021; 47,997 and 47,241 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively

 

 

48

 

 

 

47

 

Additional paid-in capital

 

 

1,017,396

 

 

 

1,000,212

 

Accumulated other comprehensive loss

 

 

(955

)

 

 

(184

)

Accumulated deficit

 

 

(706,725

)

 

 

(625,994

)

Total stockholders' equity

 

 

309,764

 

 

 

374,081

 

Total liabilities and stockholders' equity

 

$

401,236

 

 

$

463,464

 

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

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Product revenue

 

$

19,621

 

 

$

20,628

 

 

$

45,285

 

 

$

38,838

 

Service and other revenue

 

 

5,436

 

 

 

4,588

 

 

 

10,322

 

 

 

9,294

 

Total revenue

 

 

25,057

 

 

 

25,216

 

 

 

55,607

 

 

 

48,132

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product revenue

 

 

17,718

 

 

 

22,077

 

 

 

40,828

 

 

 

42,654

 

Cost of service and other revenue

 

 

3,557

 

 

 

2,087

 

 

 

6,555

 

 

 

4,137

 

Total cost of revenue

 

 

21,275

 

 

 

24,164

 

 

 

47,383

 

 

 

46,791

 

Gross profit

 

 

3,782

 

 

 

1,052

 

 

 

8,224

 

 

 

1,341

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

13,521

 

 

 

8,032

 

 

 

24,352

 

 

 

15,602

 

Sales and marketing

 

 

23,198

 

 

 

13,204

 

 

 

43,575

 

 

 

26,353

 

General and administrative

 

 

10,784

 

 

 

9,722

 

 

 

20,493

 

 

 

18,968

 

Total operating expenses

 

 

47,503

 

 

 

30,958

 

 

 

88,420

 

 

 

60,923

 

Loss from operations

 

 

(43,721

)

 

 

(29,906

)

 

 

(80,196

)

 

 

(59,582

)

Interest income and other income, net

 

 

459

 

 

 

164

 

 

 

579

 

 

 

276

 

Interest expense

 

 

(481

)

 

 

(431

)

 

 

(903

)

 

 

(853

)

Loss before provision for income taxes

 

 

(43,743

)

 

 

(30,173

)

 

 

(80,520

)

 

 

(60,159

)

Provision for income taxes

 

 

96

 

 

 

35

 

 

 

211

 

 

 

74

 

Net loss

 

$

(43,839

)

 

$

(30,208

)

 

$

(80,731

)

 

$

(60,233

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(0.92

)

 

$

(0.66

)

 

$

(1.69

)

 

$

(1.36

)

Shares used in computing net loss per share, basic and diluted

 

 

47,882

 

 

 

45,680

 

 

 

47,686

 

 

 

44,228

 

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

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net loss

 

$

(43,839

)

 

$

(30,208

)

 

$

(80,731

)

 

$

(60,233

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on available-for-sale securities

 

 

(306

)

 

 

(20

)

 

 

(771

)

 

 

(29

)

Comprehensive loss

 

$

(44,145

)

 

$

(30,228

)

 

$

(81,502

)

 

$

(60,262

)

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

3


Outset Medical, Inc.

Condensed Statement of Stockholders’ Equity

(Unaudited)

(in thousands)

 

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2021

 

 

47,241

 

 

$

47

 

 

$

1,000,212

 

 

$

(184

)

 

$

(625,994

)

 

$

374,081

 

Issuance of common stock through employee stock
  purchase plan

 

 

55

 

 

 

 

 

 

2,063

 

 

 

 

 

 

 

 

 

2,063

 

Issuance of common stock for settlement of RSUs

 

 

88

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock option exercises

 

 

328

 

 

 

1

 

 

 

1,659

 

 

 

 

 

 

 

 

 

1,660

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

5,006

 

 

 

 

 

 

 

 

 

5,006

 

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

(465

)

 

 

 

 

 

(465

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(36,892

)

 

 

(36,892

)

Balance as of March 31, 2022

 

 

47,712

 

 

$

48

 

 

$

1,008,940

 

 

$

(649

)

 

$

(662,886

)

 

$

345,453

 

Issuance of common stock for settlement of RSUs

 

 

52

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock option exercises

 

 

233

 

 

 

 

 

 

1,042

 

 

 

 

 

 

 

 

 

1,042

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

7,414

 

 

 

 

 

 

 

 

 

7,414

 

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

(306

)

 

 

 

 

 

(306

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(43,839

)

 

 

(43,839

)

Balance as of June 30, 2022

 

 

47,997

 

 

$

48

 

 

$

1,017,396

 

 

$

(955

)

 

$

(706,725

)

 

$

309,764

 

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

4


Outset Medical, Inc.

Condensed Statement of Stockholders’ Equity

(Unaudited)

(in thousands)

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

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

 

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

5


 

Outset Medical, Inc.

Condensed Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(80,731

)

 

$

(60,233

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Stock-based compensation expense

 

 

12,420

 

 

 

9,789

 

Depreciation and amortization

 

 

2,586

 

 

 

2,553

 

Non-cash lease expense

 

 

544

 

 

 

501

 

Non-cash interest expense

 

 

282

 

 

 

282

 

Accretion of discount on investments, net

 

 

1,035

 

 

 

435

 

Provision for inventories

 

 

808

 

 

 

325

 

Other non-cash items

 

 

29

 

 

 

5

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

964

 

 

 

(9,946

)

Inventories

 

 

(15,311

)

 

 

(12,116

)

Prepaid expenses and other assets

 

 

70

 

 

 

570

 

Accounts payable

 

 

684

 

 

 

(2,509

)

Accrued payroll and related benefits

 

 

(9,153

)

 

 

(1,538

)

Accrued expenses and other current liabilities

 

 

8,366

 

 

 

1,508

 

Accrued warranty liability