10-Q 1 om-20240331.htm 10-Q 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 March 31, 2024

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 May 3, 2024, the registrant had 51,722,375 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

 

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

21

Item 4.

Controls and Procedures

 

22

PART II.

OTHER INFORMATION

 

22

Item 1.

Legal Proceedings

 

22

Item 1A.

Risk Factors

 

22

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

25

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

(Unaudited)

(in thousands, except per share amounts)

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

32,176

 

 

$

68,509

 

Short-term investments

 

 

194,743

 

 

 

134,815

 

Accounts receivable, net

 

 

36,478

 

 

 

32,980

 

Inventories

 

 

55,839

 

 

 

49,215

 

Prepaid expenses and other current assets

 

 

6,155

 

 

 

5,700

 

Total current assets

 

 

325,391

 

 

 

291,219

 

Restricted cash

 

 

3,329

 

 

 

3,329

 

Property and equipment, net

 

 

11,953

 

 

 

13,273

 

Operating lease right-of-use assets

 

 

5,029

 

 

 

5,375

 

Other assets

 

 

540

 

 

 

605

 

Total assets

 

$

346,242

 

 

$

313,801

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

6,773

 

 

$

5,827

 

Accrued compensation and related benefits

 

 

14,248

 

 

 

19,005

 

Accrued expenses and other current liabilities

 

 

11,968

 

 

 

13,459

 

Accrued warranty liability

 

 

3,200

 

 

 

3,712

 

Deferred revenue, current

 

 

12,839

 

 

 

11,727

 

Operating lease liabilities, current

 

 

1,642

 

 

 

1,593

 

Total current liabilities

 

 

50,670

 

 

 

55,323

 

Accrued interest

 

 

1,319

 

 

 

896

 

Deferred revenue

 

 

186

 

 

 

101

 

Operating lease liabilities

 

 

4,054

 

 

 

4,482

 

Term loans

 

 

196,813

 

 

 

130,113

 

Total liabilities

 

 

253,042

 

 

 

190,915

 

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 March 31, 2024 and December 31, 2023

 

 

 

 

 

 

Common stock, $0.001 par value; 300,000 shares authorized as of March 31, 2024 and December 31, 2023; 51,702 and 50,317 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively

 

 

52

 

 

 

50

 

Additional paid-in capital

 

 

1,095,097

 

 

 

1,084,515

 

Accumulated other comprehensive income (loss)

 

 

(258

)

 

 

68

 

Accumulated deficit

 

 

(1,001,691

)

 

 

(961,747

)

Total stockholders' equity

 

 

93,200

 

 

 

122,886

 

Total liabilities and stockholders' equity

 

$

346,242

 

 

$

313,801

 

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

 

 

 

 

March 31,

 

 

 

 

2024

 

 

2023

 

 

Revenue:

 

 

 

 

 

 

 

Product revenue

 

$

20,428

 

 

$

27,779

 

 

Service and other revenue

 

 

7,740

 

 

 

5,688

 

 

Total revenue

 

 

28,168

 

 

 

33,467

 

 

Cost of revenue:

 

 

 

 

 

 

 

Cost of product revenue

 

 

12,581

 

 

 

20,817

 

 

Cost of service and other revenue

 

 

7,372

 

 

 

6,222

 

 

Total cost of revenue

 

 

19,953

 

 

 

27,039

 

 

Gross profit

 

 

8,215

 

 

 

6,428

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

 

12,635

 

 

 

13,793

 

 

Sales and marketing

 

 

21,048

 

 

 

24,333

 

 

General and administrative

 

 

11,444

 

 

 

11,787

 

 

Total operating expenses

 

 

45,127

 

 

 

49,913

 

 

Loss from operations

 

 

(36,912

)

 

 

(43,485

)

 

Interest income and other income, net

 

 

3,098

 

 

 

2,648

 

 

Interest expense

 

 

(5,968

)

 

 

(2,942

)

 

Loss before provision for income taxes

 

 

(39,782

)

 

 

(43,779

)

 

Provision for income taxes

 

 

162

 

 

 

192

 

 

Net loss

 

$

(39,944

)

 

$

(43,971

)

 

 

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(0.78

)

 

$

(0.90

)

 

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

 

 

50,901

 

 

 

48,783

 

 

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

 

 

 

 

2024

 

 

2023

 

 

Net loss

 

$

(39,944

)

 

$

(43,971

)

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

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

 

 

(326

)

 

 

451

 

 

Comprehensive loss

 

$

(40,270

)

 

$

(43,520

)

 

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, 2023

 

50,317

 

 

$

50

 

 

$

1,084,515

 

 

$

68

 

 

$

(961,747

)

 

$

122,886

 

Issuance of common stock through employee stock
  purchase plan

 

776

 

 

 

1

 

 

 

2,079

 

 

 

 

 

 

 

 

 

2,080

 

Issuance of common stock for settlement of RSUs

 

607

 

 

 

1

 

 

 

294

 

 

 

 

 

 

 

 

 

295

 

Stock option exercises

 

2

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

6

 

Stock-based compensation expense

 

 

 

 

 

 

 

8,203

 

 

 

 

 

 

 

 

 

8,203

 

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

(326

)

 

 

 

 

 

(326

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(39,944

)

 

 

(39,944

)

Balance as of March 31, 2024

 

51,702

 

 

$

52

 

 

$

1,095,097

 

 

$

(258

)

 

$

(1,001,691

)

 

$

93,200

 

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, 2022

 

48,465

 

 

$

48

 

 

$

1,035,456

 

 

$

(564

)

 

$

(788,950

)

 

$

245,990

 

Issuance of common stock through employee stock
  purchase plan

 

307

 

 

 

1

 

 

 

4,593

 

 

 

 

 

 

 

 

 

4,594

 

Issuance of common stock for settlement of RSUs

 

282

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock option exercises

 

162

 

 

 

 

 

 

684

 

 

 

 

 

 

 

 

 

684

 

Stock-based compensation expense

 

 

 

 

 

 

 

8,538

 

 

 

 

 

 

 

 

 

8,538

 

Unrealized gain on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

451

 

 

 

 

 

 

451

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(43,971

)

 

 

(43,971

)

Balance as of March 31, 2023

 

49,216

 

 

$

49

 

 

$

1,049,271

 

 

$

(113

)

 

$

(832,921

)

 

$

216,286

 

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)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(39,944

)

 

$

(43,971

)

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

 

 

 

 

 

 

Stock-based compensation expense

 

 

8,203

 

 

 

8,538

 

Depreciation and amortization

 

 

1,460

 

 

 

1,384

 

Non-cash lease expense

 

 

346

 

 

 

295

 

Non-cash interest expense

 

 

607

 

 

 

463

 

Accretion (amortization) of discount (premium) on investments, net

 

 

(1,577

)

 

 

(1,550

)

Provision for inventories

 

 

450

 

 

 

870

 

Other non-cash items

 

 

(1

)

 

 

(18

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(3,497

)

 

 

(6,224

)

Inventories

 

 

(6,981

)

 

 

2,873

 

Prepaid expenses and other assets

 

 

(400

)

 

 

569

 

Accounts payable

 

 

945

 

 

 

1,475

 

Accrued compensation and related benefits

 

 

(4,462

)

 

 

(7,100

)

Accrued expenses and other current liabilities

 

 

(1,367

)

 

 

(2,337

)

Accrued warranty liability

 

 

(512

)

 

 

(51

)

Deferred revenue

 

 

1,197

 

 

 

341

 

Operating lease liabilities

 

 

(379

)

 

 

(313

)

Net cash used in operating activities

 

 

(45,912

)

 

 

(44,756

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(354

)

 

 

(810

)

Purchases of investment securities

 

 

(98,652

)

 

 

(68,147

)

Maturities of investment securities

 

 

39,975

 

 

 

71,600

 

Net cash (used in) provided by investing activities

 

 

(59,031

)

 

 

2,643

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from stock option exercises and ESPP purchases

 

 

2,086

 

 

 

5,277

 

Proceeds from issuance of term loans, net of issuance costs

 

 

66,524

 

 

 

 

Net cash provided by financing activities

 

 

68,610

 

 

 

5,277

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(36,333

)

 

 

(36,836

)

Cash, cash equivalents and restricted cash as of beginning of period

 

 

71,838

 

 

 

76,533

 

Cash, cash equivalents and restricted cash as of end of period

 

$

35,505

 

 

$

39,697

 

 

 

 

 

 

 

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

Cash paid for income taxes

 

$

256

 

 

$

201

 

Cash paid for interest

 

$

4,924

 

 

$

2,479

 

Cash paid for amounts included in the measurement of operating lease liabilities

 

$

379

 

 

$

313

 

Supplemental non-cash investing and financing activities:

 

 

 

 

 

 

Capital expenditures included in accounts payable and accrued expenses

 

$

37

 

 

$

55

 

Transfer of inventories to property and equipment

 

$

93

 

 

$

 

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. 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, 2024 and 2023, the Company incurred a net loss of $39.9 million and $44.0 million, respectively. As of March 31, 2024, the Company had an accumulated deficit of $1.0 billion.

As of March 31, 2024, the Company had cash, cash equivalents, restricted cash, and short-term investments of $230.2 million. The Company is subject to certain covenants limiting or restricting its ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Management expects to continue to incur significant expenses for the foreseeable future and to incur operating losses in the near term while the Company makes investments to support its anticipated growth. Management believes that the Company’s existing cash, cash equivalents, short-term investments, cash generated from sales, and proceeds received from the debt financing described in Note 7, will be sufficient to meet its anticipated needs for at least the next 12 months from the issuance date of the accompanying condensed financial statements.

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, 2024 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, 2023 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, 2023, which are included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the Securities and Exchange Commission (SEC) on February 21, 2024 (2023 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 Issued Accounting Pronouncements

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires that an entity disclose significant segment expenses impacting profit and loss that are regularly provided to the chief operating decision maker. The update is required to be applied retrospectively to prior periods presented, based on the significant segment expense categories identified and disclosed in the period of adoption. This ASU guidance is effective for our Annual Report on Form 10-K for the year ended December 31, 2024, and subsequent interim periods, with early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2023-07 on its financial statements and disclosures.

7


 

In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (ASU 2023-09), which requires that an entity disclose specific categories in the effective tax rate reconciliation as well as provide additional information for reconciling items that meet a quantitative threshold. Further, the ASU requires certain disclosures of state versus federal income tax expense and taxes paid. This ASU is effective for our Annual Report on Form 10-K for the year ended December 31, 2025, with early adoption is permitted. The Company does not expect the adoption of ASU 2023-09 to have a material impact on its financial statements.

In March 2024, the SEC adopted rules intended to enhance and standardize climate-related disclosures in registration statements and annual reports. The new rules will require disclosure of material climate-related risks, including the material impacts of these risks to the Company, the quantification of material impacts to the Company as a result of severe weather events and other natural conditions and Board of Directors' oversight and risk management activities. The new rules follow a compliance phase-in timeline based on a company's filing status. Large accelerated filers and accelerated filers (other than smaller reporting companies) are required to first incorporate such disclosures for fiscal years 2025 and 2026, respectively, followed by greenhouse gas-related disclosures, if material, for fiscal years 2026 and 2027, respectively. Smaller reporting companies are required to first incorporate such disclosures for fiscal year 2027 and are not required to report greenhouse gas emissions data. In April 2024, the SEC determined to voluntarily stay the final rules pending certain legal challenges. The Company is currently evaluating the impact of these new rules on its financial statements and disclosures.

Significant Accounting Policies

There have been no new or material changes to the Company’s significant accounting policies as described in its 2023 Annual Report that have had a material impact on the Company’s condensed financial statements and related notes.

3. Revenue and Deferred Revenue

Disaggregation of Revenue

Revenue by source consists of the following (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Consoles

 

$

9,210

 

 

$

18,863

 

Consumables

 

 

11,218

 

 

 

8,916

 

Total product revenue

 

 

20,428

 

 

 

27,779

 

Service and other revenue

 

 

7,740

 

 

 

5,688

 

Total revenue

 

$

28,168

 

 

$

33,467

 

Remaining Performance Obligations and Contract Liabilities

As of March 31, 2024, 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 $13.0 million, which is recorded as deferred revenue on the Company’s condensed balance sheets. Of that amount, $12.8 million will be recognized as revenue during the next 12 months and $0.2 million thereafter.

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, 2024, the Company recognized $5.6 million of previously deferred revenue.

8


 

4. Fair Value Measurements

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, 2024

 

 

 

Valuation
Hierarchy

 

Amortized
Costs

 

 

Gross
Unrealized
Holding
Gains

 

 

Gross
Unrealized
Holding
Losses

 

 

Aggregate
Fair Value

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

Level 1

 

$

12,303

 

 

$

 

 

$

 

 

$

12,303

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

Level 1

 

 

120,584

 

 

 

9

 

 

 

(236

)

 

 

120,357

 

U.S. government-sponsored enterprises
   debt securities

 

Level 2

 

 

20,226

 

 

 

8

 

 

 

(33

)

 

 

20,201

 

Corporate debt

 

Level 2

 

 

38,850

 

 

 

21

 

 

 

(24

)

 

 

38,847

 

Commercial paper

 

Level 2

 

 

15,341

 

 

 

 

 

 

(3

)

 

 

15,338

 

Total cash equivalents and
   short-term investments

 

 

 

$

207,304

 

 

$

38

 

 

$

(296

)

 

$

207,046

 

 

 

 

 

 

December 31, 2023

 

 

 

Valuation
Hierarchy

 

Amortized
Costs

 

 

Gross
Unrealized
Holding
Gains

 

 

Gross
Unrealized
Holding
Losses

 

 

Aggregate
Fair Value

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

Level 1

 

$

44,883

 

 

$

 

 

$

 

 

$

44,883

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

Level 1

 

 

53,790

 

 

 

58

 

 

 

(32

)

 

 

53,816

 

U.S. government-sponsored enterprises
   debt securities

 

Level 2

 

 

29,645

 

 

 

24

 

 

 

(38

)

 

 

29,631

 

Corporate debt

 

Level 2

 

 

33,214

 

 

 

56

 

 

 

 

 

 

33,270

 

Commercial paper

 

Level 2

 

 

18,097

 

 

 

5

 

 

 

(4

)

 

 

18,098

 

Total cash equivalents and
   short-term investments

 

 

 

$

179,629

 

 

$

143

 

 

$

(74

)

 

$

179,698

 

 

As of March 31, 2024, the remaining contractual maturities for available-for-sale securities were one month to fifteen months.

The following tables present the breakdown of the available-for-sale debt securities with unrealized losses as of March 31, 2024, and December 31, 2023 (in thousands):

 

 

March 31, 2024

 

 

 

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

 

$

104,003

 

 

$

(225

)

 

$

4,971

 

 

$

(10

)

 

$

108,974

 

 

$

(235

)

U.S. government-sponsored enterprises

 

 

7,910

 

 

 

(22

)

 

 

9,917

 

 

 

(11

)

 

 

17,827

 

 

 

(33

)

Corporate debt

 

 

31,089

 

 

 

(28

)

 

 

 

 

 

 

 

 

31,089

 

 

 

(28

)

Total

 

$

143,002

 

 

$

(275

)

 

$

14,888

 

 

$

(21

)

 

$

157,890

 

 

$

(296

)

 

9


 

 

 

December 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

 

$

8,416

 

 

$

(16

)

 

$

17,925

 

 

$

(16

)

 

$

26,341

 

 

$

(32

)

U.S. government-sponsored enterprises

 

 

18,757

 

 

 

(22

)

 

 

8,488

 

 

 

(16

)

 

 

27,245

 

 

 

(38

)

Corporate debt

 

 

11,291

 

 

 

(4

)

 

 

 

 

 

 

 

 

11,291

 

 

 

(4

)

Total

 

$

38,464

 

 

$

(42

)

 

$

26,413

 

 

$

(32

)

 

$

64,877

 

 

$

(74

)

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, 2024, 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. For the three months ended March 31, 2024 and 2023, the Company did not recognize credit loss related to available-for-sales debt securities.

5. Balance Sheet Components

Cash, Cash Equivalents and Restricted Cash

As of March 31, 2024 and December 31, 2023, the restricted cash balance of $3.3 million was related to collateral for the Company's building leases in San Jose, CA and Tijuana, Mexico.

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,

 

 

 

2024

 

 

2023

 

Cash and cash equivalents

 

$

32,176

 

 

$

36,386

 

Restricted cash

 

 

3,329

 

 

 

3,311

 

Total cash, cash equivalents and restricted cash

 

$

35,505

 

 

$

39,697

 

Inventories

Inventories consist of the following (in thousands):

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Raw materials

 

$

22,322

 

 

$

18,706

 

Work in process

 

 

11,693

 

 

 

8,728

 

Finished goods

 

 

21,824

 

 

 

21,781

 

Total inventories

 

$

55,839

 

 

$

49,215

 

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Inventory

 

$

3,400

 

 

$

3,395

 

Research and development expenses

 

 

530

 

 

 

1,050

 

Professional services

 

 

1,257

 

 

 

1,153

 

Customer rebates

 

 

1,555

 

 

 

2,100

 

 Other

 

 

5,226

 

 

 

5,761

 

Total accrued expenses and other current liabilities

 

$

11,968

 

 

$

13,459

 

 

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,

 

 

 

2024

 

 

2023

 

Principal of term loans

 

$

200,000

 

 

$

133,476

 

Unamortized debt discount

 

 

(3,187

)

 

 

(3,363

)

Term loans, noncurrent

 

$

196,813

 

 

$

130,113

 

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 $300.0 million as follows: (i) up to a $250.0 million term loan facility pursuant to a loan and security agreement (the SLR Loan Agreement) among SLR Investment Corp., as collateral agent (Agent), the lenders from time to time party thereto (the Term Loan Lenders) and the Company (the SLR Term Loan Facility), and (ii) up to a $50.0 million asset-based revolving credit facility pursuant to a credit agreement (the SLR Revolving Credit Agreement, together with the SLR Loan Agreement, the SLR Credit Facility Agreements) among Gemino Healthcare Finance, LLC d/b/a SLR Healthcare ABL, as lender (ABL Lender), and the Company (the SLR Revolver, together with the SLR Term Loan Facility, the SLR Credit Facilities).

The maximum amount the Company is permitted to borrow under the SLR Credit Facilities is subject to certain overall borrowing limitations. As of March 31, 2024, the Company borrowed an aggregate principal amount of $200.0 million under the SLR Term Loan Facility. If the Company achieves a certain net revenue milestone, calculated on a trailing six-month basis (First Revenue Milestone), on or before June 30, 2024 and the Additional Tranche (as defined below) under the SLR Revolver has been approved, the Company will be permitted to borrow up to an additional $50.0 million under the SLR Credit Facilities (i.e., a maximum amount of $250.0 million). If the Company achieves a subsequent additional net revenue milestone, calculated on a trailing six-month basis (Second Revenue Milestone), on or before June 30, 2025 and obtains lenders' credit approval, the Company will be permitted to further borrow up to an additional $50.0 million under the SLR Credit Facilities (i.e., a maximum amount of $300.0 million).

SLR Term Loan Facility

Under the SLR Loan Agreement, as subsequently amended on December 11, 2023, the Term Loan Lenders agreed to extend term loans to the Company in an aggregate principal amount of up to $250.0 million, comprised of (i) a term loan of $100.0 million (the Term A Loan), (ii) term loans in an aggregate principal amount of up to $100.0 million that was provided for in two increments, one of $33.5 million (the Term B-1 Loan) and one of $66.5 million (the Term B-2 Loan) and (iii) one or more term loans in an aggregate principal amount of up to $50.0 million (Term C Loans). Each Term A Loan, Term B Loan and Term C Loan is referred to single as a Term Loan and are referred to collectively as the Term Loans. The Term C Loans are available subject to lenders’ credit approval and the achievement of the Second Revenue Milestone on or before June 30, 2025. The Term C Loans will remain available for funding until one business day prior to November 1, 2027.

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 2.75% floor), plus 5.15% (10.47% as of March 31, 2024), payable monthly in arrears. The Company is permitted to make interest-only payments on the Term Loans through November 30, 2026, which

11


 

may be extended at the Company's option to May 31, 2027; provided that the Company meets the First Revenue Milestone. Any 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 $750,000 in respect of the Term A Loan, (ii) a non-refundable facility fees in the aggregate amount of $750,000 in respect of the Term B-1 and B-2 Loans and (iii) a non-refundable facility fee in the amount of $375,000 in respect of the Term C Loan, to be due and payable upon the earliest to occur of (a) the funding of the first Term C Loan, (b) one day prior to the Maturity Date and (c) the prepayment of the Term Loans. In addition, the Company is obligated to pay a final fee equal to 4.75% of the aggregate amount of the Term Loans funded, such final fee to be due and payable upon the earliest to occur of (i) the Maturity Date, (ii) the acceleration of the Term Loans and (iii) the prepayment of the Term Loans. The Company may voluntarily prepay the outstanding Term Loans, subject to a prepayment premium of (i) 3.0% of the principal amount of the Term Loan, if prepaid prior to or on the first anniversary of the Closing Date, (ii) 2.0% of the principal amount of the Term Loan, if prepaid after the first anniversary of the Closing Date through and including the second anniversary of the Closing Date, or (iii) 1.0% of the principal amount of the Term Loan if prepaid after the second anniversary of the Closing Date and prior to the Maturity Date.

SLR Revolver

The SLR Revolving Credit Agreement provides for an asset-based revolving credit facility with aggregate revolving commitments of $25.0 million (the Initial Revolver Commitment). The Company may request to increase the aggregate revolving commitments by $25.0 million (the Additional Tranche) to an aggregate amount of $50.0 million, subject to ABL Lender’s approval. Amounts available to be drawn under the SLR Revolver are equal to the lesser of (i) outstanding revolving commitments under the SLR Revolving Credit Agreement and (ii) a borrowing base (the Borrowing Base) equal to the sum of (a) 85% of eligible accounts receivable, plus (b) 25% of eligible inventory (not to exceed the lesser of 50% of the Borrowing Base and $5.0 million), minus (c) customary reserves, minus (d) unposted cash. No amounts were outstanding under the SLR Revolver as of March 31, 2024.

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 2.75% floor), plus 3.20%, payable monthly in arrears. Interest on any borrowing is payable monthly. The Company is obligated to pay Lender (i) a non-refundable facility fee in the amount of $187,500 in respect of the Initial Revolver Commitment, (ii) a non-refundable facility fee in the amount of $187,500 in respect of the Additional Tranche, to be due and payable upon activation of the Additional Tranche, (iii) a commitment fee of 0.50% per annum of the average daily unused portion of the then commitment amount, payable monthly and (iv) a collateral monitoring fee of 0.10% per month of the average daily Borrowing Base during the prior month, payable monthly. The Company may terminate the SLR Revolver at any time, subject to a termination fee of (i) 2.0% of the aggregate revolving commitments then in effect, if terminated prior to or on the first anniversary of the Closing Date, (ii) 1.0% of the aggregate revolving commitments then in effect, if terminated after the first anniversary of the Closing Date through and including the second anniversary of the Closing Date, or (iii) 0.5% of the aggregate revolving commitments then in effect, if terminated after the second anniversary of the Closing Date through and including the third anniversary of the Closing Date. Such termination fee is waived if the SLR Revolver is terminated after the third anniversary of the Closing Date and prior to the Maturity Date.

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 November 1, 2027.

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 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 agreements also include a financial covenant that, 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 50% of the sum of (a) the outstanding obligations under the Term Loans (as defined below) and (b) the amount of the Company’s accounts payable that have not been paid within 120 days from the invoice date thereof or (ii) generate net product and product related revenue in excess of specified amounts and maintain gross profit margins in excess of specified percentages, in each case, for applicable measuring periods.

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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 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 4.0% per annum will apply to all obligations owed under the SLR Credit Facility Agreements.

The debt issuance costs and the facility fees related to the Term A and B Loans were recorded as a direct deduction from the term loans balance on the balance sheets and are being recognized as non-cash interest expense over the term of the loans using the effective interest method, along with the final payment fee. The facility fees related to the Initial Revolver Commitment were recorded as deferred financing costs and are being recognized as non-cash interest expense over their respective commitment period using straight-line method.

8. Equity Incentive Plan

Equity Incentive Plans

As of March 31, 2024, 2,476,000 shares were reserved for future issuance under the 2020 Equity Incentive Plan (2020 Plan).

Employee Share Purchase Plan (ESPP)

As of March 31, 2024, 931,000 shares of common stock were reserved for issuance in connection with the current and future offering periods under the ESPP.

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) 25% on the first anniversary of the original vesting date, 25% quarterly over the course of the second year, and 50% quarterly over the course of the third year, or (ii) 33% on the first anniversary of the original vesting date, with the balance vesting quarterly over the remaining two years. Annual RSUs granted to non-executive employees in 2024 vest over a two-year period at a rate of 50% on the first anniversary of the original vesting date, with the balance vesting quarterly over the remaining one year. Prior to February 2022, RSUs with a service-based vesting condition granted to a grantee generally vest at a rate of 25% on the first anniversary of the original vesting date, with the balance vesting quarterly over the remaining three years.

Since 2022, the Company has granted a mix of 50% PSUs and 50% RSUs to its CEO, and a mix of 20% PSUs and 80% RSUs to its other executive officers and certain other senior leaders on an annual basis. The PSUs are earned and vest based on achievement against two metrics:

The “Home PSUs” are earned based on the number of patients treating at home on Tablo as of the end of the second or third year following the grant date (Year 2 or Year 3), with earned units vesting either (i) 50% after certification of achievement following the end of Year 2 and 50% at the end of Year 3 or (ii) 100% after certification of achievement following the end of Year 3 (performance-based vesting conditions).
The “Relative TSR PSUs” are earned based on the Company's relative total stockholder return (relative TSR) at the end of a two-year or three-year performance period as compared to companies in a pre-determined index of medical device companies, in each case, with 100% of earned units vesting on, or after certification of achievement following, the third anniversary of the grant date (market-based vesting conditions).

The number of units earned varies based on actual performance as follows: (i) from 0% to 200% (250% for the CEO) of the target number of the Home PSUs granted, (ii) from 75% to 150% (250% for the CEO) of the target number of Relative TSR PSUs granted in 2022 and 2023 and (iii) from 0% to 200% (250% for the CEO) of the target number of Relative TSR PSUS granted in 2024.

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The grant date for the Home PSUs is not considered established until the Compensation Committee of the Board approves the target and it is communicated to the award recipients, which then triggers the service inception date, the fair value of the awards, and the associated expense recognition period. Once the grant date for the Home PSUs has been established, the related stock-based compensation expense is recorded based on the forecasted performance, which is reassessed each reporting period based on the probability of achieving the performance conditions.

In 2024, the Company also granted a new type PSU award to executive officers and certain other senior leaders which is earned and vests based on appreciation of the Company’s stock price above pre-determined stock price triggers or achievement of specified operating income targets over a performance period of up to three years.

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,

 

 

 

 

2024

 

 

2023

 

 

Cost of revenue

 

$

265

 

 

$

358

 

 

Research and development

 

 

2,332

 

 

 

2,615

 

 

Sales and marketing

 

 

1,459

 

 

 

2,598

 

 

General and administrative

 

 

4,147

 

 

 

2,967

 

 

Total stock-based compensation expense

 

$

8,203

 

 

$

8,538

 

 

 

9. Income Taxes

For each of the three months ended March 31, 2024 and 2023, 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,

 

 

 

2024

 

 

2023

 

Stock options to purchase common stock

 

 

1,841

 

 

 

2,427

 

Restricted stock units

 

 

4,461

 

 

 

2,645

 

Performance stock units

 

 

257

 

 

 

101

 

Shares committed under ESPP

 

 

26

 

 

 

22

 

Warrant to purchase common stock

 

 

63

 

 

 

63

 

Total

 

 

6,648

 

 

 

5,258