10-Q 1 om-20220331.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, 2022

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-39513

 

Outset Medical, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

20-0514392

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

3052 Orchard Dr.

San Jose, California

95134

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (669) 231-8200

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.001 per share

 

OM

 

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

As of April 22, 2022, the registrant had 47,794,265 shares of common stock, $0.001 par value per share, outstanding.

 


Table of Contents

 

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

1

Item 1.

Financial Statements (Unaudited)

 

1

 

Condensed Balance Sheets

 

1

 

Condensed Statements of Operations

 

2

 

Condensed Statements of Comprehensive Loss

 

3

 

Condensed Statements of Stockholders’ Equity

 

4

 

Condensed Statements of Cash Flows

 

6

 

Notes to Condensed Financial Statements

 

7

Item 2.

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

 

13

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

20

Item 4.

Controls and Procedures

 

20

PART II.

OTHER INFORMATION

 

21

Item 1.

Legal Proceedings

 

21

Item 1A.

Risk Factors

 

21

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

22

Item 3.

Defaults Upon Senior Securities

 

22

Item 4.

Mine Safety Disclosures

 

22

Item 5.

Other Information

 

23

Item 6.

Exhibits

 

24

Signatures

 

25

 

 

 


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Outset Medical, Inc.

Condensed Balance Sheets

(in thousands, except per share amounts)

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

114,346

 

 

$

182,348

 

Short-term investments

 

 

187,921

 

 

 

157,140

 

Accounts receivable, net

 

 

26,899

 

 

 

25,600

 

Inventories

 

 

42,873

 

 

 

39,185

 

Prepaid expenses and other current assets

 

 

5,387

 

 

 

5,529

 

Total current assets

 

 

377,426

 

 

 

409,802

 

Restricted cash

 

 

33,311

 

 

 

33,311

 

Property and equipment, net

 

 

13,882

 

 

 

12,964

 

Operating lease right-of-use assets

 

 

6,962

 

 

 

7,231

 

Other assets

 

 

161

 

 

 

156

 

Total assets

 

$

431,742

 

 

$

463,464

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

5,149

 

 

$

1,763

 

Accrued compensation and related benefits

 

 

13,478

 

 

 

24,948

 

Accrued expenses and other current liabilities

 

 

18,610

 

 

 

13,789

 

Accrued warranty liability

 

 

3,628

 

 

 

3,704

 

Deferred revenue, current

 

 

6,833

 

 

 

6,340

 

Operating lease liabilities, current

 

 

1,192

 

 

 

1,151

 

Total current liabilities

 

 

48,890

 

 

 

51,695

 

Accrued interest, noncurrent

 

 

840

 

 

 

721

 

Deferred revenue, noncurrent

 

 

194

 

 

 

312

 

Operating lease liabilities, noncurrent

 

 

6,581

 

 

 

6,893

 

Term loan, noncurrent

 

 

29,784

 

 

 

29,762

 

Total liabilities

 

 

86,289

 

 

 

89,383

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value; 5,000 shares authorized, and no shares issued and outstanding as of March 31, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock, $0.001 par value; 300,000 shares authorized as of March 31, 2022 and December 31, 2021; 47,712 and 47,241 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

 

 

48

 

 

 

47

 

Additional paid-in capital

 

 

1,008,940

 

 

 

1,000,212

 

Accumulated other comprehensive loss

 

 

(649

)

 

 

(184

)

Accumulated deficit

 

 

(662,886

)

 

 

(625,994

)

Total stockholders' equity

 

 

345,453

 

 

 

374,081

 

Total liabilities and stockholders' equity

 

$

431,742

 

 

$

463,464

 

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

1


Outset Medical, Inc.

Condensed Statements of Operations

(Unaudited)

(in thousands, except per share amounts)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Revenue:

 

 

 

 

 

 

Product revenue

 

$

25,664

 

 

$

18,210

 

Service and other revenue

 

 

4,886

 

 

 

4,706

 

Total revenue

 

 

30,550

 

 

 

22,916

 

Cost of revenue:

 

 

 

 

 

 

Cost of product revenue

 

 

23,110

 

 

 

20,577

 

Cost of service and other revenue

 

 

2,998

 

 

 

2,050

 

Total cost of revenue

 

 

26,108

 

 

 

22,627

 

Gross profit

 

 

4,442

 

 

 

289

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

10,831

 

 

 

7,570

 

Sales and marketing

 

 

20,377

 

 

 

13,149

 

General and administrative

 

 

9,709

 

 

 

9,246

 

Total operating expenses

 

 

40,917

 

 

 

29,965

 

Loss from operations

 

 

(36,475

)

 

 

(29,676

)

Interest income and other income, net

 

 

120

 

 

 

112

 

Interest expense

 

 

(422

)

 

 

(422

)

Loss before provision for income taxes

 

 

(36,777

)

 

 

(29,986

)

Provision for income taxes

 

 

115

 

 

 

39

 

Net loss

 

$

(36,892

)

 

$

(30,025

)

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(0.78

)

 

$

(0.70

)

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

 

 

47,487

 

 

 

42,760

 

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 March 31,

 

 

 

2022

 

 

2021

 

Net loss

 

$

(36,892

)

 

$

(30,025

)

Other comprehensive loss:

 

 

 

 

 

 

Unrealized loss on available-for-sale securities

 

 

(465

)

 

 

(9

)

Comprehensive loss

 

$

(37,357

)

 

$

(30,034

)

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

3


Outset Medical, Inc.

Condensed Statement of Stockholders’ Equity

(Unaudited)

(in thousands)

 

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2021

 

 

47,241

 

 

$

47

 

 

$

1,000,212

 

 

$

(184

)

 

$

(625,994

)

 

$

374,081

 

Issuance of common stock through employee stock purchase
  plan

 

 

55

 

 

 

 

 

 

2,063

 

 

 

 

 

 

 

 

 

2,063

 

Issuance of common stock for settlement of RSUs

 

 

88

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock option exercises

 

 

328

 

 

 

1

 

 

 

1,659

 

 

 

 

 

 

 

 

 

1,660

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

5,006

 

 

 

 

 

 

 

 

 

5,006

 

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

(465

)

 

 

 

 

 

(465

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(36,892

)

 

 

(36,892

)

Balance as of March 31, 2022

 

 

47,712

 

 

$

48

 

 

$

1,008,940

 

 

$

(649

)

 

$

(662,886

)

 

$

345,453

 

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

4


Outset Medical, Inc.

Condensed Statement of Stockholders’ Equity

(Unaudited)

(in thousands)

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2020

 

 

42,722

 

 

$

43

 

 

$

822,624

 

 

$

1

 

 

$

(494,059

)

 

$

328,609

 

Issuance of common stock through employee stock purchase
  plan

 

 

80

 

 

 

 

 

 

1,838

 

 

 

 

 

 

 

 

 

1,838

 

Stock option exercises

 

 

86

 

 

 

 

 

 

380

 

 

 

 

 

 

 

 

 

380

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

5,852

 

 

 

 

 

 

 

 

 

5,852

 

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

(9

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30,025

)

 

 

(30,025

)

Balance as of March 31, 2021

 

 

42,888

 

 

$

43

 

 

$

830,694

 

 

$

(8

)

 

$

(524,084

)

 

$

306,645

 

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,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(36,892

)

 

$

(30,025

)

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

 

 

 

 

 

 

Stock-based compensation expense

 

 

5,006

 

 

 

5,852

 

Depreciation and amortization

 

 

1,262

 

 

 

1,246

 

Non-cash lease expense

 

 

269

 

 

 

249

 

Non-cash interest expense

 

 

140

 

 

 

140

 

Accretion of discount on investments, net

 

 

667

 

 

 

60

 

Provision for inventories

 

 

496

 

 

 

115

 

Other non-cash items

 

 

3

 

 

 

5

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(1,299

)

 

 

(5,646

)

Inventories

 

 

(4,184

)

 

 

(7,247

)

Prepaid expenses and other assets

 

 

137

 

 

 

(981

)

Accounts payable

 

 

3,276

 

 

 

1,613

 

Accrued payroll and related benefits

 

 

(11,470

)

 

 

(4,244

)

Accrued expenses and other current liabilities

 

 

4,226

 

 

 

164

 

Accrued warranty liability

 

 

(76

)

 

 

(53

)

Deferred revenue

 

 

375

 

 

 

305

 

Operating lease liabilities

 

 

(271

)

 

 

(169

)

Net cash used in operating activities

 

 

(38,335

)

 

 

(38,616

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,478

)

 

 

(919

)

Purchases of investment securities

 

 

(64,712

)

 

 

(25,788

)

Sales and maturities of investment securities

 

 

32,800

 

 

 

19,900

 

Net cash used in investing activities

 

 

(33,390

)

 

 

(6,807

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from stock option exercises and employee stock purchase plan purchases

 

 

3,723

 

 

 

2,218

 

Net cash provided by financing activities

 

 

3,723

 

 

 

2,218

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(68,002

)

 

 

(43,205

)

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

 

 

215,659

 

 

 

328,283

 

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

 

$

147,657

 

 

$

285,078

 

 

 

 

 

 

 

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

Cash paid for income taxes

 

$

205

 

 

$

 

Cash paid for interest

 

$

282

 

 

$

282

 

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

 

$

271

 

 

$

169

 

Supplemental non-cash investing and financing activities:

 

 

 

 

 

 

Capital expenditures included in accounts payable and accrued expenses

 

$

907

 

 

$

238

 

Transfer of inventories to property and equipment

 

$

 

 

$

962

 

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, CA.

Liquidity

Since inception, the Company has incurred net losses and negative cash flows from operations. During the three months ended March 31, 2022 and 2021, the Company incurred a net loss of $36.9 million and $30.0 million, respectively. As of March 31, 2022, the Company had an accumulated deficit of $662.9 million.

As of March 31, 2022, the Company had cash, cash equivalents and short-term investments of $302.3 million, which are available to fund future operations, and restricted cash of $33.3 million, for a total cash, cash equivalents, restricted cash and short-term investments balance of $335.6 million. 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 and cash generated from sales, 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, 2022 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, 2021 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, 2021, which are included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission (SEC) on February 23, 2022 (2021 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

During the three months ended March 31, 2022, there have been no material changes to the Company’s significant accounting policies as described in its 2021 Annual Report that have had a material impact on the Company’s condensed financial statements and related notes.

7


 

Recently Issued Accounting Pronouncements Not Yet Adopted

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. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates, which defers the effective date of ASU 2016-13 to fiscal years beginning after December 15, 2022 for all entities except SEC reporting companies that are not smaller reporting companies. ASU 2016-13 will be effective for the Company beginning January 1, 2023. The Company is currently evaluating the impact of the adoption of ASU 2016-13 on its financial statements.

3. Revenue and Deferred Revenue

Disaggregation of Revenue

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

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Consoles

 

$

18,051

 

 

$

14,766

 

Consumables

 

 

7,613

 

 

 

3,444

 

Total product revenue

 

 

25,664

 

 

 

18,210

 

Service and other revenue

 

 

4,886

 

 

 

4,706

 

Total revenue

 

$

30,550

 

 

$

22,916

 

 

For the three months ended March 31, 2022, $0.7 million of consoles revenue was from console operating lease arrangements, compared to $1.3 million for the three months ended March 31, 2021.

Remaining Performance Obligations and Contract Liabilities

As of March 31, 2022, 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 $7.0 million, which is recorded as deferred revenue on the Company’s condensed balance sheets. Of that amount, $6.8 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, 2022, the Company recognized $2.5 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, 2022

 

 

 

Valuation
Hierarchy

 

Amortized
Costs

 

 

Gross
Unrealized
Holding
Gains

 

 

Gross
Unrealized
Holding
Losses

 

 

Aggregate
Fair Value

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

Level 1

 

$

32,747

 

 

$

 

 

$

 

 

$

32,747

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

Level 1

 

 

68,129

 

 

 

2

 

 

 

(275

)

 

 

67,856

 

Corporate debt

 

Level 2

 

 

109,752

 

 

 

2

 

 

 

(378

)

 

 

109,376

 

Commercial paper

 

Level 2

 

 

10,689

 

 

 

 

 

 

 

 

 

10,689

 

Total cash equivalents and
   short-term investments

 

 

 

$

221,317

 

 

$

4

 

 

$

(653

)

 

$

220,668

 

 

 

 

 

 

December 31, 2021

 

 

 

Valuation
Hierarchy

 

Amortized
Costs

 

 

Gross
Unrealized
Holding
Gains

 

 

Gross
Unrealized
Holding
Losses

 

 

Aggregate
Fair Value

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

Level 1

 

$

60,844

 

 

$

 

 

$

 

 

$

60,844

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

Level 1

 

 

18,064

 

 

 

 

 

 

(60

)

 

 

18,004

 

Corporate debt

 

Level 2

 

 

124,178

 

 

 

2

 

 

 

(125

)

 

 

124,055

 

Commercial paper

 

Level 2

 

 

15,081

 

 

 

 

 

 

 

 

 

15,081

 

Total cash equivalents and
   short-term investments

 

 

 

$

218,167

 

 

$

2

 

 

$

(185

)

 

$

217,984

 

 

As of March 31, 2022, the remaining contractual maturities for available-for-sale securities were between one month to twelve months.

Impairment assessments are made at the individual security level at each reporting period. When the fair value of an available-for-sale security is less than its cost at the balance sheet date, a determination is made as to whether the impairment is other-than-temporary and, if it is other-than-temporary, an impairment loss is recognized in earnings equal to the difference between the investment’s amortized cost and fair value at such date. There were no unrealized losses for securities in an unrealized loss position for more than 12 months as of March 31, 2022. During the three months ended March 31, 2022 and 2021, the Company did not recognize other-than-temporary impairment losses related to its investment securities.

5. Balance Sheet Components


Cash, Cash Equivalents and Restricted Cash

As of March 31, 2022 and December 31, 2021, the restricted cash balance of $33.3 million primarily relates to contractual obligations under the SVB Loan and Security Agreement (see Note 7) and collateral for 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,