d
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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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:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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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.
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).
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.
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Emerging growth company |
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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
As of April 26, 2023, the registrant had
Table of Contents
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PART I. |
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Item 1. |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Outset Medical, Inc.
Condensed Balance Sheets
(in thousands, except per share amounts)
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March 31, |
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December 31, |
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2023 |
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2022 |
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(Unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Short-term investments |
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Accounts receivable, net |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Restricted cash |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and stockholders' equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued compensation and related benefits |
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Accrued expenses and other current liabilities |
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Accrued warranty liability |
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Deferred revenue, current |
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Operating lease liabilities, current |
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Total current liabilities |
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Accrued interest |
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Deferred revenue |
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Operating lease liabilities |
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Term loan |
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Total liabilities |
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Stockholders' equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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Accumulated deficit |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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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)
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Three Months Ended |
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March 31, |
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2023 |
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2022 |
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Revenue: |
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Product revenue |
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$ |
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$ |
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Service and other revenue |
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Total revenue |
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Cost of revenue: |
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Cost of product revenue |
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Cost of service and other revenue |
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Total cost of revenue |
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Gross profit |
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Operating expenses: |
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Research and development |
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Sales and marketing |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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Interest income and other income, net |
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Interest expense |
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( |
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Loss before provision for income taxes |
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( |
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Provision for income taxes |
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Net loss |
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$ |
( |
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$ |
( |
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Net loss per share, basic and diluted |
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$ |
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$ |
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Shares used in computing net loss per share, basic and diluted |
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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)
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Three Months Ended |
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March 31, |
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2023 |
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2022 |
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Net loss |
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$ |
( |
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$ |
( |
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Other comprehensive income (loss): |
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Unrealized gain (loss) on available-for-sale securities |
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( |
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Comprehensive loss |
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$ |
( |
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$ |
( |
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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)
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Equity |
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Balance as of December 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Issuance of common stock through employee stock |
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— |
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— |
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Issuance of common stock for settlement of RSUs |
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— |
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— |
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— |
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— |
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— |
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Stock option exercises |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Unrealized gain on available-for-sale securities |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance as of March 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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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)
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Equity |
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Balance as of December 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Issuance of common stock through employee stock |
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— |
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— |
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— |
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Issuance of common stock for settlement of RSUs |
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— |
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— |
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— |
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— |
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— |
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Stock option exercises |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Unrealized loss on available-for-sale securities |
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— |
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— |
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— |
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( |
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— |
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( |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance as of March 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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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)
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Three Months Ended March 31, |
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2023 |
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2022 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Stock-based compensation expense |
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Depreciation and amortization |
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Non-cash lease expense |
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Non-cash interest expense |
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Accretion (amortization) of discount (premium) on investments, net |
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Provision for inventories |
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Other non-cash items |
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( |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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( |
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( |
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Inventories |
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Prepaid expenses and other assets |
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Accounts payable |
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Accrued compensation and related benefits |
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( |
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( |
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Accrued expenses and other current liabilities |
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( |
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Accrued warranty liability |
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( |
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( |
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Deferred revenue |
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Operating lease liabilities |
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( |
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( |
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Net cash used in operating activities |
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( |
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( |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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( |
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( |
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Purchases of investment securities |
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( |
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( |
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Maturities of investment securities |
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Net cash provided by (used in) investing activities |
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Cash flows from financing activities: |
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Proceeds from stock option exercises and employee stock purchase plan purchases |
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Net cash provided by financing activities |
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Net decrease in cash, cash equivalents and restricted cash |
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( |
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( |
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Cash, cash equivalents and restricted cash as of beginning of period |
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Cash, cash equivalents and restricted cash as of end of period |
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$ |
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$ |
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Supplemental cash flow disclosures: |
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Cash paid for income taxes |
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$ |
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$ |
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Cash paid for interest |
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$ |
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$ |
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Cash paid for amounts included in the measurement of operating lease liabilities |
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$ |
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$ |
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Supplemental non-cash investing and financing activities: |
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Capital expenditures included in accounts payable and accrued expenses |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
6
Outset Medical, Inc.
Notes to Condensed Financial Statements
1. Description of Business
Outset Medical, Inc. (the Company) is a medical technology company pioneering a first-of-its-kind technology to reduce the cost and complexity of dialysis. The Tablo® Hemodialysis System (Tablo), cleared by the U.S. Food and Drug Administration (FDA) for use from the hospital to the home, represents a significant technological advancement designed to transform the dialysis experience for patients and operationally simplify it for providers. Tablo serves as a single enterprise solution designed to be utilized across the continuum of care, allowing dialysis to be delivered anytime, anywhere, and by virtually anyone. The integration of water purification and on-demand dialysate production in a single 35-inch compact console enables Tablo to serve as a dialysis clinic on wheels. With a simple-to-use touchscreen interface, two-way wireless data transmission and a proprietary data analytics platform, Tablo is a new holistic approach to dialysis care. The Company’s headquarters are located in San Jose, California.
Liquidity
Since inception, the Company has incurred net losses and negative cash flows from operations. During the three months ended March 31, 2023 and 2022, the Company incurred a net loss of $
As of March 31, 2023, the Company had cash, cash equivalents and short-term investments of $
Basis of Presentation
The accompanying condensed financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, that are necessary for the fair statement of the Company’s financial position, results of operations, comprehensive loss, and cash flows for the interim periods presented. The financial data and the other financial information disclosed in these notes to the condensed financial statements related to the three-month period are also unaudited. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results of operations to be anticipated for any other future annual or interim period. The condensed balance sheet as of December 31, 2022 included herein was derived from the audited financial statements as of that date.
These unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements and related notes for the year ended December 31, 2022, which are included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the Securities and Exchange Commission (SEC) on February 13, 2023 (2022 Annual Report).
All share amounts disclosed in the notes to the condensed financial statements are rounded to the nearest thousand except for per share data.
2. Summary of Significant Accounting Policies
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires an entity to utilize a new impairment model known as the current expected credit loss (CECL) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial assets and certain other instruments, including but not limited to available-for-sale debt securities. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security. ASU 2016-13 requires a cumulative effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective. The Company adopted ASU 2016-13 during the first quarter of fiscal year 2023. The adoption did not have a material impact on the Company's financial statements. Please see the description of the Company’s "Credit Losses” accounting policy in the “Significant Accounting Policies” section below.
Significant Accounting Policies
7
With the exception of the change from accounting for credit losses as a result of the adoption of ASU 2016-13, there have been no new or material changes to the Company’s significant accounting policies as described in its 2022 Annual Report that have had a material impact on the Company’s condensed financial statements and related notes.
Credit Losses
Accounts receivable. The allowance for doubtful accounts is based on the Company’s assessment of the Company’s best estimate of the amount of credit losses in customer accounts. The Company regularly reviews the allowance by considering factors such as existing contractual payment terms, historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. The allowance for doubtful accounts was not significant as of March 31, 2023 and December 31, 2022.
Available-for-sale debt securities. The Company primarily holds U.S. government-sponsored enterprises debt securities, corporate debt securities, commercial paper, U.S. Treasury securities and money market funds. The Company regularly reviews the securities in an unrealized loss position and evaluates the current expected credit loss by considering factors such as historical experience, market data, financial condition and near-term prospects of the investee, the extent of the loss related to the credit of the issuer, and the expected cash flows from the security. The Company segments its portfolio based on the underlying risk profiles of the securities and has a zero-loss expectation for U.S. treasury and U.S. government-sponsored enterprises debt securities. The basis for this assumption is that these securities have consistently high credit ratings by rating agencies, have a long history with no credit losses, are explicitly guaranteed by a sovereign entity, which can print its own currency, and are denominated in a currency that is routinely held by central banks, used in international commerce, and commonly viewed as a reserve currency. Additionally, all of the Company’s investments in corporate debt securities are in securities with high-quality credit ratings, which have historically experienced low rates of default. For the three months ended March 31, 2023 and 2022, the Company did not recognize credit loss related to available-for-sales debt securities.
3. Revenue and Deferred Revenue
Disaggregation of Revenue
Revenue by source consists of the following (in thousands):
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Three Months Ended March 31, |
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2023 |
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2022 |
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Consoles |
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$ |
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$ |
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Consumables |
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Total product revenue |
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Service and other revenue |
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Total revenue |
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$ |
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$ |
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For the three months ended March 31, 2023, $
Remaining Performance Obligations and Contract Liabilities
As of March 31, 2023, the aggregate amount of the transaction price allocated to the remaining performance obligations related to customer service contracts that are unsatisfied or partially unsatisfied was $
The contract liabilities consist of deferred revenue which represents payments received in advance of revenue recognition. Revenue under these agreements is recognized over the related service period. During the three months ended March 31, 2023, the Company recognized $
8
4.
The following tables summarize the Company’s financial assets measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):
|
|
|
|
March 31, 2023 |
|
|||||||||||||
|
|
Valuation |
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Aggregate |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
Level 1 |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury securities |
|
Level 1 |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
U.S. government-sponsored enterprises |
|
Level 2 |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Corporate debt |
|
Level 2 |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
Commercial paper |
|
Level 2 |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total cash equivalents and |
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
|
|
December 31, 2022 |
|
|||||||||||||
|
|
Valuation |
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Aggregate |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
Level 1 |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
U.S. government-sponsored enterprises |
|
Level 2 |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury securities |
|
Level 1 |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
U.S. government-sponsored enterprises |
|
Level 2 |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Corporate debt |
|
Level 2 |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
Commercial paper |
|
Level 2 |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total cash equivalents and |
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
As of March 31, 2023, the remaining contractual maturities for available-for-sale securities were
The following tables present the breakdown of the available-for-sale debt securities with unrealized losses as of March 31, 2023, and December 31, 2022 (in thousands):
|
|
March 31, 2023 |
|
|||||||||||||||||||||
|
|
Unrealized losses less than 12 months |
|
|
Unrealized losses 12 months or greater |
|
|
Total |
|
|||||||||||||||
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
||||||
U.S. Treasury securities |
|
$ |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
||
Corporate debt |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
||
9
|
|
December 31, 2022 |
|
|||||||||||||||||||||
|
|
Unrealized losses less than 12 months |
|
|
Unrealized losses 12 months or greater |
|
|
Total |
|
|||||||||||||||
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
||||||
U.S. Treasury securities |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|||
U.S. government-sponsored enterprises |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
||
Corporate debt |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|||
The unrealized losses on the Company’s available-for-sale debt securities were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. As of March 31, 2023, the Company does not intend to sell the investments, and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity. Additional factors considered in determining the treatment of unrealized losses include the financial condition and near-term prospects of the investee, the extent of the loss related to the credit of the issuer, and the expected cash flows from the security.
5. Balance Sheet Components
Cash, Cash Equivalents and Restricted Cash
As of March 31, 2023 and December 31, 2022, the restricted cash balance of $
The following table provides a reconciliation of cash, cash equivalents and restricted cash that sum to the total of the amounts shown in the accompanying condensed statements of cash flows (in thousands):
|
|
March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash |
|
|
|
|
|
|
||
Total cash, cash equivalents and restricted cash |
|
$ |
|
|
$ |
|
||
Inventories
Inventories consist of the following (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in process |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Total inventories |
|
$ |
|
|
$ |
|
||
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Inventory |
|
$ |
|
|
$ |
|
||
Research and development expenses |
|
|
|
|
|
|
||
Professional services |
|
|
|
|
|
|
||
Customer rebates |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total accrued expenses and other current liabilities |
|
$ |
|
|
$ |
|
||
10
6. Commitments and Contingencies
Litigation
From time to time, the Company may become involved in legal proceedings or investigations, which could have an adverse impact on its reputation, business and financial condition and divert the attention of the Company’s management from the operation of the Company’s business. The Company is not presently a party to any legal proceedings that, if determined adversely to the Company, would individually or taken together have a material adverse effect on its business, results of operations, financial condition or cash flows.
Indemnification
In the ordinary course of business, the Company often includes standard indemnification provisions in its arrangements with its partners, customers and suppliers. Pursuant to these provisions, the Company may be obligated to indemnify such parties for losses or claims suffered or incurred in connection with its service, breach of representations or covenants, intellectual property infringement or other claims made against such parties. These provisions may limit the time within which an indemnification claim can be made. It is not possible to determine the maximum potential amount under these indemnification obligations due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. To date, the Company has not incurred any material costs as a result of such indemnification obligations and has not accrued any liabilities related to such obligations in these financial statements.
7. Term Loan
Term loan consists of the following (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Principal of term loan |
|
$ |
|
|
$ |
|
||
Unamortized debt discount |
|
|
( |
) |
|
|
( |
) |
Term loan, noncurrent |
|
$ |
|
|
$ |
|
||
SLR Credit Facilities
On November 3, 2022 (the Closing Date), the Company entered into two senior secured credit facilities, which collectively provide for borrowings of up to $
The maximum amount the Company is permitted to borrow under the SLR Credit Facilities is subject to certain overall borrowing limitations. The Company is permitted to borrow up to $
SLR Term Loan Facility
Pursuant to the terms and conditions of the SLR Loan Agreement, the Term Loan Lenders agreed to extend term loans to the Company in an aggregate principal amount of up to $
Any principal amount outstanding under the Term Loans will accrue interest at a rate per annum equal to one-month term Secured Overnight Financing Rate (term SOFR) (subject to a
11
principal amounts outstanding under the Term Loans, if not repaid sooner, are due and payable on November 1, 2027 (the Maturity Date). The Company is obligated to pay Agent (i) a non-refundable facility fee in the amount of $
SLR Revolver
The SLR Revolving Credit Agreement provides for an asset-based revolving credit facility with aggregate revolving commitments of $
Any principal amount outstanding under the SLR Revolver will accrue interest at a rate per annum equal to one-month term SOFR (subject to a
Subject to customary exceptions and restrictions, the Company may borrow, repay and reborrow varying amounts under the SLR Revolver at any time. If at any time the outstanding amount under the SLR Revolver exceeds the lesser of (i) the aggregate revolving commitments then in effect and (ii) the Borrowing Base then in effect, the Company will be required to prepay outstanding amounts under the SLR Revolver.
The SLR Revolver shall expire on
Other Terms of the SLR Credit Facilities
As security for its obligations under the SLR Credit Facilities, the Company granted Agent, for the benefit of the Term Loan Lenders, and ABL Lender a continuing security interest in substantially all of the assets of the Company, including the Company’s intellectual property, subject to certain exceptions.
The SLR Credit Facility Agreements contain customary representations and warranties and customary affirmative and negative covenants, including, among others, requirements as to financial reporting and insurance and restrictions on the Company’s ability to dispose of its business or property, to change its line of business, to liquidate or dissolve, to enter into any change in control transaction, to merge or consolidate with any other entity or to acquire all or substantially all the capital stock or property of another entity, to incur additional indebtedness, to incur liens on its property or to pay any dividends or other distributions on capital stock, in each case with certain exceptions. The Company has also agreed to a financial covenant whereby, beginning with the fiscal quarter ending December 31, 2023, the Company must either (i) maintain certain levels of cash and cash equivalents in accounts subject to control agreements in favor of Agent and ABL Lender of at least
12
In addition, the SLR Credit Facility Agreements contain customary events of default that entitle Agent, under the SLR Loan Agreement, and ABL Lender, under the SLR Revolving Credit Agreement, to cause the Company’s indebtedness under the SLR Loan Agreement or SLR Revolving Credit Agreement, as applicable, to become immediately due and payable, and to exercise remedies against the Company and the collateral securing the obligations owed under the applicable SLR Credit Facility Agreement. Under the SLR Credit Facility Agreements, an event of default will occur if, among other things, the Company fails to make payments under either SLR Credit Facility Agreement, the Company breaches certain covenants under either SLR Credit Facility Agreement, subject to specified cure periods with respect to certain breaches, the Agent or ABL Lender, as applicable, determine that a material adverse change has occurred under the SLR Loan Agreement or SLR Revolving Credit Agreement, as applicable, or the Company or its assets become subject to certain legal proceedings, such as bankruptcy proceedings. Upon the occurrence and for the duration of an event of default, an additional default interest rate equal to
In November 2022, the Company borrowed $
8. Equity Incentive Plan
Equity Incentive Plans
As of March 31, 2023,
Employee Share Purchase Plan (ESPP)
As of March 31, 2023,
Restricted Stock
The Company issues restricted stock units (RSUs) and performance stock units (PSUs), both of which are considered restricted stock. The Company grants restricted stock pursuant to the 2020 Plan and satisfies such grants through the issuance of new shares. RSUs are share awards that, upon vesting, will deliver to the holder shares of our common stock.
RSUs with a service-based vesting condition granted to a grantee, beginning in February 2022, generally vest over a three-year period as follows either: (i)
In 2022, the Company issued a mix of
The 2023 target for the 2022 Home PSUs was approved by the Compensation Committee in early 2023. Therefore, the grant date and the fair value for these 2022 Home PSUs were established and the associated expense is being recognized over the remaining service period.
The 2024 target for the 2023 Home PSUs is expected to be determined and approved by the Compensation Committee in late 2023 or early 2024. Given such target has not yet been established, the grant date for these 2023 Home PSUs will only be established when the Compensation Committee approves and the Company communicates the target to the award recipients, which will then trigger the service inception date, the fair value of the awards, and the associated expense recognition period. Therefore, no expense is expected to be recognized for these 2023 Home PSUs until the grant date is established.
13
Stock-Based Compensation Expense
The following table sets forth stock-based compensation expense included in the accompanying condensed statements of operations (in thousands):
|
|
Three Months Ended |
|
|
|||||
|
|
March 31, |
|
|
|||||
|
|
2023 |
|
|
2022 |
|
|
||
Cost of revenue |
|
$ |
|
|
$ |
|
|
||
Research and development |
|
|
|
|
|
|
|
||
Sales and marketing |
|
|
|
|
|
|
|
||
General and administrative |
|
|
|
|
|
|
|
||
Total stock-based compensation expense |
|
$ |
|
|
$ |
|
|
||
9. Income Taxes
For each of the three months ended March 31, 2023 and 2022, the Company incurred an income tax provision of an insignificant amount, which primarily related to foreign income taxes related to the Company’s Mexico operations. The U.S. federal and state net deferred tax assets have been fully offset by a valuation allowance, as the Company believes it is not more likely than not that the deferred tax assets will be realized.
10. Net Loss Per Share
The following outstanding potentially dilutive shares were excluded from the calculation of diluted net loss per share due to their anti-dilutive effect (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Stock options to purchase common stock |
|
|
|
|
|
|
||
Restricted stock units |
|
|
|
|
|
|
||
Performance stock units |
|
|
|
|
|
|
||
Shares committed under ESPP |
|
|
|
|
|
|
||
Warrant to purchase common stock |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
14
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial condition and results of operations should be read together with our unaudited condensed financial statements and related notes and other financial information included elsewhere in this Quarterly Report, as well as our audited financial statements and notes thereto and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2022 Annual Report. As used in this Quarterly Report, references to the “Company,” “we,” “us,” “our,” or similar terms refer to Outset Medical, Inc.
In addition to historical financial information, this discussion and other parts of this report contain forward-looking statements within the meaning of the federal securities laws. All statements other than statements of historical fact contained in this Quarterly Report are forward-looking statements. The forward-looking statements in this report are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Such risks and uncertainties include those described throughout this Quarterly Report, including in this discussion as well as in the section titled “Risk Factors” under Part II, Item 1A below. The forward-looking statements in this Quarterly Report are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements, like all statements in this report, speak only as of their date, and, except as required by law we undertake no obligation to update or revise these statements, whether as a result of any new information, future developments or otherwise. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.
Overview
Our technology is designed to elevate the dialysis experience for patients and help providers overcome traditional care delivery challenges. Requiring only an electrical outlet and tap water to operate, the Tablo® Hemodialysis System frees patients and providers from the burdensome infrastructure required to operate traditional dialysis machines. The integration of water purification and on-demand dialysate production in a single 35-inch compact console enables Tablo to serve as a dialysis clinic on wheels. With a simple-to-use touchscreen interface, two-way wireless data transmission and a proprietary data analytics platform, Tablo is a holistic approach to dialysis care. Unlike existing hemodialysis machines, which have limited clinical versatility across care settings, Tablo can be used seamlessly across multiple care settings and a wide range of clinical applications. Tablo is cleared by the FDA for use in the hospital, clinic, or home setting.
Tablo leverages cloud technology, making it possible for providers to monitor devices and treatments remotely, perform patient and population analytics, and automate clinical recordkeeping, while also enabling us to release features and enhancements through over-the-air updates. Tablo’s connectedness also allows it to continually stream more than 500,000 device performance data points after every treatment. We use this data, in conjunction with our diagnostic and predictive algorithms, to determine failure types and, in some instances, predict failures before they occur. In effect, this contributes to a reduction in service hours and an increase in device uptime.
We have generated meaningful evidence to demonstrate that providers can realize significant operational efficiencies, including reducing the cost of their dialysis programs by up to 80% in the intensive care unit. In addition, Tablo has been shown to deliver robust clinical care. In studies and surveys we have conducted, patients have reported quality of life benefits on Tablo compared to other dialysis machines. We believe Tablo empowers patients, who have traditionally been passive recipients of care, to regain agency and ownership of their treatment.
Driving adoption of Tablo in the acute care setting has been our primary focus to date. We have invested in growing our economic and clinical evidence, built a veteran sales and clinical support team with significant expertise, and implemented a comprehensive training and customer experience program. Our experience in the acute care market has demonstrated Tablo’s clinical flexibility and operational versatility, while also delivering meaningful cost savings to the providers. We plan to continue leveraging our commercial infrastructure to broaden our installed base in the acute care market, as well as driving utilization and fleet expansion with our existing customers.
Tablo is also utilized for home-based dialysis. We believe our ability to reduce training time, patient dropout, and the supplies and infrastructure required to deliver dialysis in the home can drive efficiency and economic improvements to the home care model. In our home investigational device exemption (IDE) trial, patients reported specific quality of life improvements compared to their experience on the incumbent home dialysis machine. To penetrate this market successfully, we continue to focus on refining our home distribution, logistics and support systems to help ensure they are ready for scale. We are also working with providers, patients, and payors to increase awareness and adoption of transitional care units (TCUs) as a bridge to home-based therapy. To demonstrate the cost advantages of Tablo in the home setting, we are continuing to collect additional patient clinical experience and outcomes data.
15
In May 2022, we implemented a shipment hold on the distribution and marketing of Tablo for use in the home environment pending the FDA’s review and clearance of a 510(k) application we submitted for changes made since the device’s original March 2020 clearance. During the hold, we continued to market and ship Tablo for use by healthcare professionals in chronic and acute care settings. In addition, devices that were already distributed to home users at the time the hold was implemented were not removed and current users were able to continue working with their healthcare providers on appropriate treatment. In late July 2022, the FDA cleared our 510(k) application of Tablo for patient use in the home and we resumed marketing and shipping Tablo for home use.
We primarily sell our solutions through our direct sales organization, which covers most major metropolitan markets in the United States. Our sales organization is comprised of our capital sales team, responsible for generating new customer demand for Tablo, and our clinical sales team, responsible for driving utilization and fleet expansion of Tablo consoles at existing customer sites. In addition, our field service team provides maintenance services and product support to Tablo customers. Our field sales and service teams represent 46% of our total full-time employees as of March 31, 2023. The same sales organization and field service team drive Tablo penetration in both the acute and home markets. We believe the ability to leverage one team to serve both markets will result in significant productivity and cost optimization as we continue to scale our business.
We generate revenue primarily from the initial sale of Tablo consoles, and recurring sales of consumables, including the Tablo cartridge, which generates significant total revenue over the life of the console. We generate additional recurring revenue via annual service contracts and shipping and handling charged to customers. Our total revenue was $33.5 million and $30.6 million for the three months ended March 31, 2023 and 2022, respectively.
Historically, we have financed our operations and capital expenditures primarily through sales of redeemable convertible preferred stock and common stock, revenue from sales, and debt financing. Since our inception, we have incurred net losses in each year. For the three months ended March 31, 2023 and 2022, we incurred net losses of $44.0 million and $36.9 million, respectively. As of March 31, 2023, we had an accumulated deficit of $832.9 million. We expect to continue to incur significant expenses for the foreseeable future and to incur operating losses in the near term.
Key Factors Affecting Our Performance
We believe that our financial performance has been and in the foreseeable future will continue to be primarily driven by the following factors. While we believe each of these factors presents significant opportunities for our business, they also pose important challenges that we must successfully address in order to sustain our growth and improve our results of operations. Our ability to successfully address the factors below is subject to various risks and uncertainties, including those described in the section titled “Risk Factors.”
Market Acceptance of Tablo in Acute Setting
We plan to further broaden our installed base by continuing to target national and regional Integrated Delivery Networks (IDNs) and health systems, sub-acute long-term acute care hospitals (LTACHs) and skilled nursing facilities (SNFs). In addition, we focus on driving utilization and fleet expansion with existing customers by providing an exceptional user experience delivered through our commercial team and a steady release of software enhancements that amplify Tablo’s operational reliability and clinical versatility. Our ability to successfully execute on this strategy, and thereby increase our revenue in the acute market, will depend in part on the success of our efforts to further evolve our commercial infrastructure and sales processes to support the growth of our business in the acute care market.
Expansion of Tablo within the Home Setting
We believe that a significant growth opportunity exists within the home hemodialysis market. We are partnering with innovative dialysis clinic providers and health systems who are motivated to grow their home hemodialysis population, and who share our vision of creating a seamless and supported transition to the home. We are also investing in market development over the longer term to expand the home hemodialysis market itself. The expansion of the home hemodialysis market and our ability to penetrate this market will be an important factor in driving the future growth of our business. In addition, the success of our efforts to expand within the home market, help grow new home programs and increase our revenue generated from home-based dialysis on the timeline that we anticipate will depend on several factors. These factors include our ability to continue regaining momentum in our home commercialization and marketing and rebuilding our home patient pipeline following the release of our prior home shipment hold, as well as our ability to further evolve our commercial infrastructure and sales processes as we scale our business in the home market.
Gross Margin
We are continuing to execute a well-defined strategy designed to expand gross margins. First, during 2021, we fully insourced console manufacturing at our own manufacturing facility in Tijuana, Mexico which we operate in collaboration with our outsourced business administration service provider, TACNA Services (TACNA). Second, during 2022, we moved production of a majority of Tablo cartridges from our contract manufacturer in Southeast Asia to a contract manufacturer in Mexico, which helped us achieve cost reductions through lower freight costs and mitigate against global supply chain challenges. Recently, we initiated production of Tablo cartridges in-house at our manufacturing facility in Mexico which we operate in collaboration with TACNA in an effort to help further
16
our long-term gross margin expansion and supply continuity strategies and improve the flexibility of our operations. Third, we will continue to use our design, engineering and manufacturing capabilities to help further advance and improve the efficiency of our manufacturing processes and lower our costs of production. Fourth, we will continue to utilize our cloud-based data system, as well as enhanced product performance, to help drive down the cost of service. Our ability to grow our business will depend in part on these and other measures to control the costs of our products being successful. Likewise, it will be important that we effectively manage the costs of generating our service revenue.
Impacts of the COVID-19 Pandemic and Other Macroeconomic Factors
Our business may be impacted by a resurgence of the recent COVID-19 pandemic or emergence of new variants of COVID-19. While the operations at our contract manufacturing partners’ facilities and our outsourced business administration service provider, TACNA, for our facility in Tijuana, Mexico, have not yet experienced significant disruption as a result of the recent pandemic, the possibility that such disruption may occur remains. Additionally, the recent COVID-19 pandemic has at various times since its onset disrupted the operations of certain of our third-party suppliers, resulting in increased lead-times, higher component costs, and lower allocations for our purchase of some components (including certain critical components) and, in certain cases, requiring us to procure materials from alternative sources, procure higher quantities of materials when they become available, or incur higher logistical expenses. We have worked closely with our manufacturing partners and suppliers to enable us to source key components and maintain appropriate inventory levels to meet customer demand, and have not experienced material disruptions in our supply chain to date.
Additionally, surges and shifts in consumer demand as the economy reopens, further exacerbated by COVID-19 outbreaks and protocols, have strained the global freight network and placed significant stress on air, ocean, and ground freight carriers. This has resulted in labor shortages, container and chassis shortages, reduced carrier capacity, carrier delays and longer lead times, shipment receiving and unloading backlogs at many U.S. ports, and escalating freight costs. During late 2021, these supply chain disruptions escalated, and, as a result, we faced increased supply chain constraints, notably with the transportation of Tablo cartridges from our contract manufacturing partner in Southeast Asia. As a result, we have faced, and may continue to face, increased transportation and related costs, and potentially delays, associated with delivering adequate supply of Tablo treatments to our customers. We believe that transitioning production of a majority of Tablo cartridges during 2022 to a contract manufacturer in Mexico helped us achieve cost reductions through lower freight costs, and that our recent efforts to initiate production of cartridges in-house at our manufacturing facility in Mexico which we operate in collaboration with TACNA will help further our long-term gross margin expansion and supply continuity strategies and improve the flexibility of our operations. However, there is no assurance that we will not continue to face supply chain constraints. Continued escalation of these supply chain disruptions could negatively impact our ability to meet customer demand on a timely basis, result in customer dissatisfaction and adversely impact our operating margins and results of operations. Further, a sustained rise in material and freight costs could also unfavorably impact our operating margins and results of operations.
The extent, duration, and impact of the pandemic remain uncertain and depend on ongoing developments, including but not limited to any resurgences of the virus including emerging variant strains, actions taken to contain or mitigate its impact, as well as the direct and indirect economic effects of the pandemic and related containment measures. Additionally, the duration and severity of disruptions in the global supply chain, largely driven by high demand as the economy reopens and the ongoing impact of the pandemic, also remain uncertain and depend on various factors, including the effectiveness of government actions intended to mitigate these disruptions. As a result, we cannot predict what effect COVID-19, the associated containment measures, and the related supply chain disruptions will ultimately have on our business and result of operations, on our customers, or on our suppliers and vendors. There is no assurance that we will not experience more significant disruptions in our supply chain in the future, particularly if the operations of our contract manufacturing partners, our critical single-source component providers, or the facility we operate in Tijuana, Mexico in collaboration with TACNA, are more severely impacted by the pandemic and associated containment measures.
Moreover, healthcare providers (including our existing and prospective customers) are facing a nationwide shortage of qualified nurses and other clinical personnel due to long-term trends that were exacerbated by the recent COVID-19 pandemic. As competition for these healthcare professionals has intensified, providers are facing increased difficulties attracting and retaining skilled clinical personnel, resulting in increased costs, staffing shortages and other disruptions. These challenging labor market conditions in the healthcare industry have been heightened by the increased demand for, and demand upon, nurses and other staff. We believe Tablo offers automation and ease-of-use benefits over traditional machines that can enhance our existing and potential customers’ ability to support their patient populations despite staffing shortages. However, there is a risk that the increased costs and other disruptions caused by the shortage of dialysis nurses, technicians, other staff, and implementation resources could cause existing or prospective customers to delay continued investment in or adoption of new technologies and postpone purchasing decisions. For example, during 2022, our existing and potential customers faced increasing staffing shortages and increased labor costs, combined with economic pressures resulting from general economic and financial market conditions, primarily escalating inflation, tightening hospital operating budgets and increased scrutiny of capital purchase decisions, all of which generally have the effect of lengthening the average sales cycle and elongating the timing of installations. These factors negatively impacted our customer base on pipeline development and installation schedules, which, in turn, negatively impacted our bookings, delayed our shipments and adversely impacted our revenues for 2022. If our customers continue to face prolonged staffing shortages, volatility, uncertainty, rising costs and financial pressures, whether due to the ongoing effects of the pandemic, general macroeconomic conditions or otherwise, it could ultimately adversely
17
impact our ability to expand existing customer relationships or attract new customers of Tablo, and have a material adverse effect on our bookings, revenues, results of operations, and, ultimately, our future growth and profitability.
In 2022, we launched a pilot clinical and administrative services program designed to help bridge our healthcare provider customers, particularly those challenged by staffing shortages, as they transition from using an outsourced inpatient dialysis provider to offering on-site inpatient dialysis services on their own. In return for a fair market value service fee, we assign members of our own employed nurses on a temporary basis to support participating providers to launch and manage an inpatient dialysis program using Tablo and, as full-time staff is hired, to help train and onboard those nurses. This pilot program is in its early stages and may not be successful in achieving the objectives we intend and anticipate and ultimately, it may fail to meet our customers’ expectations, any of which could harm our reputation and customer relationships. In addition, the program may not generate sufficient returns to justify our investment, or may result in unanticipated costs, which could adversely impact our operating margins and results of operations.
18
Results of Operations
The following table summarizes our results of operations for the three months ended March 31, 2023 and 2022 (in thousands):
|
|
Three Months Ended |
|
|
|||||
|
|
March 31, |
|
|
|||||
|
|
2023 |
|
|
2022 |
|
|
||
Revenue: |
|
|
|
|
|
|
|
||
Product revenue |
|
$ |
27,779 |
|
|
$ |
25,664 |
|
|
Service and other revenue |
|
|
5,688 |
|
|
|
4,886 |
|
|
Total revenue |
|
|
33,467 |
|
|
|
30,550 |
|
|
Cost of revenue: |
|
|
|
|
|
|
|
||
Cost of product revenue |
|
|
20,817 |
|
|
|
23,110 |
|
|
Cost of service and other revenue |
|
|
6,222 |
|
|
|
2,998 |
|
|
Total cost of revenue |
|
|
27,039 |
|
|
|
26,108 |
|
|
Gross profit |
|
|
6,428 |
|
|
|
4,442 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
||
Research and development |
|
|
13,793 |
|
|
|
10,831 |
|
|
Sales and marketing |
|
|
24,333 |
|
|
|
20,377 |
|
|
General and administrative |
|
|
11,787 |
|
|
|
9,709 |
|
|
Total operating expenses |
|
|
49,913 |
|
|
|
40,917 |
|
|
Loss from operations |
|
|
(43,485 |
) |
|
|
(36,475 |
) |
|
Interest income and other income, net |
|
|
2,648 |
|
|
|
120 |
|
|
Interest expense |
|
|
(2,942 |
) |
|
|
(422 |
) |
|
Loss before provision for income taxes |
|
|
(43,779 |
) |
|
|
(36,777 |
) |
|
Provision for income taxes |
|
|
192 |
|
|
|
115 |
|
|
Net loss |
|
$ |
(43,971 |
) |
|
$ |
(36,892 |
) |
|
Comparison of the Three Months Ended March 31, 2023 and 2022
Revenue
|
|
Three Months Ended |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Product revenue |
|
$ |
27,779 |
|
|
$ |
25,664 |
|
|
$ |
2,115 |
|
|
|
8 |
% |
Service and other revenue |
|
|
5,688 |
|
|
|
4,886 |
|
|
|
802 |
|
|
|
16 |
% |
Total revenue |
|
$ |
33,467 |
|
|
$ |
30,550 |
|
|
|
2,917 |
|
|
|
10 |
% |
Product revenue increased by $2.1 million or 8% for the three months ended March 31, 2023 as compared to the same period in the prior year. This increase was driven by a $1.3 million increase in consumables revenue due to the growth in our console installed base and a $0.8 million increase in consoles revenue.
Service and other revenue increased by $0.8 million or 16% for the three months ended March 31, 2023 as compared to the same period in the prior year. This increase was primarily due to services associated with the growth in our console installed base, which was partially offset by the expiration of certain lease agreements.
Gross Profit and Gross Margin
|
|
Three Months Ended |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||
Gross profit and gross margin: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross profit |
|
|
6,428 |
|
|
|
4,442 |
|
|
|
1,986 |
|
|
|
45 |
% |
Gross margin |
|
|
19.2 |
|
% |
|
14.5 |
|
% |
|
|
|
|
|
||
Gross profit increased by $2.0 million or 45% for the three months ended March 31, 2023 as compared to the same period in the prior year. Gross margin improved by 4.7 percentage points for the three months ended March 31, 2023, as compared to the same period in the prior year. This improvement in gross profit and gross margin was primarily driven by a higher average selling price for consoles and the impact of cost reduction activities. Such improvement was partially offset by lower service gross margin mainly due to the expiration of certain lease agreements.
19
Operating Expenses
|
|
Three Months Ended |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
$ |
13,793 |
|
|
$ |
10,831 |
|
|
$ |
2,962 |
|
|
|
27 |
% |
Sales and marketing |
|
|
24,333 |
|
|
|
20,377 |
|
|
|
3,956 |
|
|
|
19 |
% |
General and administrative |
|
|
11,787 |
|
|
|
9,709 |
|
|
|
2,078 |
|
|
|
21 |
% |
Total operating expenses |
|
$ |
49,913 |
|
|
$ |
40,917 |
|
|
|
8,996 |
|
|
|
22 |
% |
Research and development expenses increased by $3.0 million or 27% for the three months ended March 31, 2023, as compared to the same period in the prior year. This increase was primarily due to higher headcount, resulting in increased fixed and share-based compensation expense, increased supplies and materials costs, and increased infrastructure costs, partially offset by lower consulting expenses.
Sales and marketing expenses increased by $4.0 million or 19% for the three months ended March 31, 2023 as compared to the same period in the prior year. The increase was primarily driven by increased fixed and share-based compensation expense, higher freight expense, increased travel expense due to the timing of annual sales and service meetings which occurred in the first quarter of current year, and increased infrastructure costs to support our growth.
General and administrative expenses increased by $2.1 million or 21% for the three months ended March 31, 2023 as compared to the same period in the prior year. The increase was primarily driven by increased fixed and share-based compensation expense, infrastructure costs, and consulting expenses.
Other Income (Expense), Net
|
|
Three Months Ended |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||
Other income (expenses), net: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest income and other income, net |
|
$ |
2,648 |
|
|
$ |
120 |
|
|
$ |
2,528 |
|
|
|
2,107 |
% |
Interest expense |
|
|
(2,942 |
) |
|
|
(422 |
) |
|
|
(2,520 |
) |
|
|
597 |
% |
Total other expenses, net |
|
$ |
(294 |
) |
|
$ |
(302 |
) |
|
|
8 |
|
|
|
(3 |
)% |
The increase in interest income and other income, net for the three months ended March 31, 2023 as compared to the same period in the prior year was driven by higher interest rates and a higher average short-term investments balance in 2023.
The increase in interest expense for the three months ended March 31, 2023 was due to the higher interest expense and outstanding balance under the SLR Term Loan Facility in 2023 as compared to the lower interest expense and outstanding balance under the SVB Term Loan in 2022.
Liquidity and Capital Resources
Sources of Liquidity
As of March 31, 2023, we had cash, cash equivalents and short-term investments of $249.2 million, which are available to fund future operations, and restricted cash of $3.3 million, for a total cash, cash equivalents, restricted cash and short-term investments balance of $252.5 million.
Since our inception, we have incurred net losses and negative cash flows from operations. To date, we have financed our operations and capital expenditures primarily through sales of redeemable convertible preferred stock and common stock, revenue from sales, debt financing, and proceeds from employee exercise of stock options and ESPP purchases.
We expect to continue to incur significant expenses for the foreseeable future and to incur operating losses in the near term while we make investments to support our anticipated growth. We may raise additional capital through the issuance of additional equity financing, debt financing, including through refinancing our existing debt, or other sources. If this financing is not available to us at adequate levels or on acceptable terms, we may need to reevaluate our operating plans. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our existing stockholders’ rights. We are subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. We believe that our existing cash, cash equivalents and short-term investments, cash generated from sales, and proceeds received and currently available from the recent debt financing described in Note 7 of the accompanying condensed financial statements above, will be sufficient to meet our anticipated needs for at least the next 12 months from the issuance date of this Quarterly Report.
20
Cash Flows Summary
The following table summarizes the cash flows for each of the periods indicated (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Net cash (used in) provided by: |
|
|
|
|
|
|
||
Operating activities |
|
$ |
(44,756 |
) |
|
$ |
(38,335 |
) |
Investing activities |
|
|
2,643 |
|
|
|
(33,390 |
) |
Financing activities |
|
|
5,277 |
|
|
|
3,723 |
|
Net decrease in cash, cash equivalents and restricted cash |
|
$ |
(36,836 |
) |
|
$ |
(68,002 |
) |
Operating Activities
The net cash used in operating activities of $44.8 million for the three months ended March 31, 2023 was due to a net loss of $44.0 million, the amortization of premiums on investments of $1.6 million and a net cash outflow from the change in our operating assets and liabilities of $10.8 million, which were adjusted by stock-based compensation expense of $8.5 million, depreciation and amortization of $1.4 million, provision for inventories of $0.9 million, non-cash interest expense of $0.5 million, and non-cash lease expense of $0.3 million. The net cash outflow from operating assets and liabilities was primarily driven by a decrease in accrued compensation and related benefits primarily due to payments of 2022 annual bonus, an increase in accounts receivable resulting from the timing of collection, and a decrease in accrued expenses and other current liabilities due to timing of vendor payments. The net cash outflow from operating assets and liabilities was partially offset by a decrease in inventories as a result of the timing of inventory purchases, and a decrease in accounts payable due to timing of vendor payments.
Investing Activities
The net cash provided by investing activities of $2.6 million for the three months ended March 31, 2023 was due to the maturities of short-term investment securities of $71.6 million, which was partially offset by the purchases of short-term investment securities of $68.1 million and the purchases of property and equipment of $0.8 million.
Financing Activities
The net cash provided by financing activities of $5.3 million for the three months ended March 31, 2023 was due to the proceeds from employee exercises of stock options and ESPP purchases.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of the financial condition and results of operations is based on the financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses incurred during the reporting periods. The estimates are based on historical experience and on various other factors that are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
There have been no new or significant changes in our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2022 Annual Report.
Recoupment Policy
In April 2023, we adopted a recoupment (or “clawback”) policy that applies to incentive compensation paid to current and certain former executive officers that was based on incorrect financial performance measures. Under the policy, if we are required to prepare an accounting restatement due to the material noncompliance of any financial reporting requirement under applicable securities laws, the Compensation Committee of our Board of Directors is required to cause us to recoup from each executive officer who was employed during the three preceding fiscal years the excess of the incentive compensation received by the executive officer during such three-year period, based on the erroneous financial information, over the incentive compensation that would have been received by the executive if it had been calculated based on the restated financial information. The policy is intended to comply with the requirements of Securities and Exchange Commission rules and Nasdaq Stock Market (Nasdaq) listing standards implementing Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and will be amended to the extent required to reflect the final Nasdaq listing standards once they are issued.
21
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our market risks related to interest rate and foreign currency exchange rates are described in Part II Item 7A of our 2022 Annual Report. Our exposure to market risks has not changed materially since December 31, 2022.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation and supervision of our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this Quarterly Report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
22
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time we may become involved in legal proceedings or investigations, which could have an adverse impact on our reputation, business and financial condition and divert the attention of our management from the operation of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, results of operations, financial condition or cash flows.
Item 1A. Risk Factors.
You should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our 2022 Annual Report, which could materially affect our business, financial position, or future results of operations. There have been no material changes to the risk factors described in our 2022 Annual Report. The risks described in our 2022 Annual Report 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 arise and materially impact our business. If any of these risks occur, our business, results of operations and financial condition could be materially and adversely affected and the trading price of our common stock could decline.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
23
Item 6. Exhibits.
|
|
|
|
Incorporation by Reference |
||||||
Exhibit Number |
|
Description |
|
Form |
|
File No. |
|
Exhibit |
|
Filing Date |
|
|
|
|
|
|
|
|
|
|
|
3.1 |
|
Form of Amended and Restated Certificate of Incorporation of Outset Medical, Inc. |
|
S-1/A |
|
333-248225 |
|
3.1 |
|
September 9, 2020 |
|
|
|
|
|
|
|
|
|
|
|
3.2 |
|
|
S-1/A |
|
333-248225 |
|
3.2 |
|
September 9, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
4.1 |
|
|
S-1/A |
|
333-248225 |
|
4.1 |
|
September 9, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
4.2 |
|
|
S-1 |
|
333-248225 |
|
4.2 |
|
August 21, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
4.3 |
|
|
S-1 |
|
333-248225 |
|
4.3 |
|
August 21, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
4.4 |
|
|
S-1 |
|
333-248225 |
|
4.4 |
|
August 21, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
31.1* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.2* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.1* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.INS* |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
|
|
|
|
|
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
|
|
|
|
101.CAL* |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
|
|
|
|
101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
|
|
|
|
101.LAB* |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
|
|
|
101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
|
|
|
104 |
|
Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101) |
|
|
|
|
|
|
|
|
* Filed herewith.
# Portions of the exhibit have been or will be excluded because it is both not material and is the type of information that the registrant treats as private or confidential.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
Outset Medical, Inc. |
|
|
|
|
|
Date: May 3, 2023 |
|
By: |
/s/ Leslie Trigg |
|
|
|
Leslie Trigg |
|
|
|
President and Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
Date: May 3, 2023 |
|
By: |
/s/ Nabeel Ahmed |
|
|
|
Nabeel Ahmed |
|
|
|
Chief Financial Officer (Principal Financial and Accounting Officer) |
25
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Leslie Trigg, certify that:
Date: May 3, 2023 |
By: |
/s/ Leslie Trigg |
|
|
Leslie Trigg |
|
|
Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Nabeel Ahmed, certify that:
Date: May 3, 2023 |
By: |
/s/ Nabeel Ahmed |
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Nabeel Ahmed |
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Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Outset Medical, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to her/his knowledge:
May 3, 2023 |
By: |
/s/ Leslie Trigg |
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Leslie Trigg |
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Chief Executive Officer |
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(Principal Executive Officer) |
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May 3, 2023 |
By: |
/s/ Nabeel Ahmed |
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Nabeel Ahmed |
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Chief Financial Officer |
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(Principal Financial Officer) |
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The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the Report and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and it is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.