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Outset Medical Reports Third Quarter 2020 Financial Results

·14 min read

Strong Quarter Driven by Accelerating Acute Market Penetration and Significant Margin Expansion

Outset Medical, Inc. (Nasdaq: OM) ("Outset"), a medical technology company pioneering a first-of-its-kind technology to reduce the cost and complexity of dialysis, today reported financial results for the third quarter ended September 30, 2020.

Third Quarter 2020 & Recent Highlights

  • Recorded net revenue of $13.8 million in the third quarter of 2020, a 423% increase compared to $2.6 million in the third quarter of 2019

  • Awarded a second contract from the U.S. Department of Health and Human Services to deploy Tablo for preparedness, and response to, disasters and public health emergencies

  • Sent the first patient home on Tablo since receiving FDA approval on March 31, 2020

  • Appointed Steve Williamson as Chief Commercial Officer

  • Completed initial public offering of approximately 10.3 million shares, raising $254.8 million in net proceeds

"Our commercial momentum continued to accelerate in the third quarter as we signed new contracts with some of the largest national and regional health systems in the country," said Leslie Trigg, President and Chief Executive Officer. "While the acute market is expected to drive our near-term revenue growth, we also reached an exciting milestone in successfully supporting Tablo patients at home for the first time. In addition to our commercial progress, we have continued to significantly expand gross margins through the successful execution of our cost reduction initiatives."

Third Quarter 2020 Financial Results

Revenue for the third quarter of 2020 was $13.8 million, representing an increase of 423% compared to $2.6 million in the third quarter of 2019. Product revenue for the third quarter of 2020 was $10.8 million, representing an increase of 349% compared to $2.4 million in the third quarter of 2019. Service and other revenue for the third quarter of 2020 was $2.9 million, representing an increase of 1,232% compared to $0.2 million in the third quarter of 2019.

Total gross loss for the third quarter of 2020 was ($5.1) million, compared to a gross loss of ($5.3) million for the third quarter of 2019. Total gross margin for the third quarter of 2020 was (37.3%), compared to (201.3%) in the third quarter of 2019. Product gross loss for the third quarter of 2020 was ($6.5) million, compared to ($3.9) million of product gross loss in the third quarter of 2019. Product gross margin for the third quarter of 2020 was (59.7%), compared to (163.6%) in the third quarter of 2019. Service and other gross profit for the third quarter of 2020 was $1.3 million, compared to ($1.4) million of service and other gross loss in the third quarter of 2019. Service and other gross margin for the third quarter of 2020 was 45.1%, compared to (612.2%) in the third quarter of 2019.

Operating expenses for the third quarter of 2020 were $35.6 million, including research and development (R&D) expenses of $9.2 million, sales and marketing (S&M) expenses of $13.3 million, and general and administrative (G&A) expenses of $13.1 million. This compared to operating expenses of $13.2 million, including R&D expenses of $5.7 million, S&M expenses of $5.0 million, and G&A expenses of $2.4 million in the third quarter of 2019.

Excluding stock-based compensation expense, non-GAAP operating expenses for the third quarter 2020 were $21.8 million, including R&D expenses of $6.1 million, S&M expenses of $10.7 million, and G&A expenses of $5.0 million.

Third quarter net loss was ($42.3) million, or ($3.44) per share, compared to a net loss of ($16.7) million, or ($18.93) per share, for the same period in 2019. On a non-GAAP basis, net loss for the third quarter 2020 was ($28.4) million, or ($2.31) per share, compared to a non-GAAP net loss of ($16.4) million, or ($18.67) per share for the same period in 2019.

Total cash, including restricted cash, cash equivalents and short-term investments, as of September 30, 2020 was $377.5 million including $254.8 million of net proceeds from the Company’s initial public offering.

Webcast and Conference Call Details

Outset will host a conference call today, November 11, 2020, at 2:00 p.m. PT / 5:00 p.m. ET to discuss its third quarter 2020 financial results. The dial-in numbers are (833) 614-1409 for domestic callers and (914) 987-7130 for international callers. The conference ID is 1960049. A live webcast of the conference call will be available on the Investor Relations section of the Company's website at https://investors.outsetmedical.com. The webcast will be archived on the website following the completion of the call.

Use of Non-GAAP Financial Measures

The Company may report non‐GAAP results for gross profit/loss, gross margin, operating expenses, operating margins, net income/loss, basic and diluted net income/loss per share, other income/loss, and cash flow in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. The Company’s financial measures under GAAP include substantial charges such as stock-based compensation, as listed in the itemized reconciliations between GAAP and non‐GAAP financial measures included in this press release. Management has excluded the effects of this item in non‐GAAP measures to assist investors in analyzing and assessing past and future operating performance. The Company encourages investors to carefully consider its results under GAAP, as well as its supplemental non‐GAAP information and the reconciliation between these presentations, to more fully understand its business. Reconciliations between GAAP and non‐GAAP results are presented in the Appendix A of this release.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on management’s current assumptions and expectations of future events and trends, which affect or may affect the Company’s business, strategy, operations or financial performance, and actual results may differ materially from those expressed or implied in such statements due to numerous risks and uncertainties. Forward-looking statements may include information concerning the impact of the COVID-19 pandemic on the Company and its operations, the Company’s possible or assumed future results of operations, including descriptions of the Company’s revenues, profitability, outlook and overall business strategy. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Factors that could cause actual results to differ materially from those contemplated in this press release can be found in the Risk Factors section of Outset’s public filings with the Securities and Exchange Commission, including Outset’s 424(B)(4) filed on September 16, 2020 in connection with the company’s initial public offering. Because forward-looking statements are inherently subject to risks and uncertainties, you should not rely on these forward-looking statements as predictions of future events. All statements other than statements of historical fact are forward-looking statements. Except to the extent required by law, the Company undertakes no obligation to update or review any estimate, projection, or forward-looking statement. Actual results may differ from those set forth in this press release due to the risks and uncertainties inherent in the Company’s business.

About Outset Medical, Inc.

Outset is a medical technology company pioneering a first-of-its-kind technology to reduce the cost and complexity of dialysis. The Tablo Hemodialysis System, FDA cleared for use from the hospital to the home, represents a significant technological advancement that transforms the dialysis experience for patients and operationally simplifies it for providers. Tablo serves as a single enterprise solution that can be utilized across the continuum of care, allowing dialysis to be delivered anytime, anywhere and by anyone. The integration of water purification and on-demand dialysate production enables Tablo to serve as a dialysis clinic on wheels, with 2-way wireless data transmission and a proprietary data analytics platform powering a new holistic approach to dialysis care. Tablo is a registered trademark of Outset Medical, Inc.

Outset Medical, Inc.

Condensed Statements of Operations

(in thousands, except per share amounts)

(unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

Revenue:

Product revenue

$

10,812

$

2,409

$

26,435

$

7,501

Service and other revenue

2,944

221

6,253

492

Total revenue

13,756

2,630

32,688

7,993

Cost of revenue:

Cost of product revenue (1)

17,265

6,350

42,118

18,950

Cost of service and other revenue (1)

1,617

1,574

4,024

4,065

Total cost of revenue

18,882

7,924

46,142

23,015

Gross profit

(5,126

)

(5,294

)

(13,454

)

(15,022

)

Gross margin

(37.3

)

%

(201.3

)

%

(41.2

)

%

(187.9

)

%

Operating expenses:

Research and development (1)

9,175

5,708

21,066

16,698

Sales and marketing (1)

13,344

5,009

29,870

13,376

General and administrative (1)

13,088

2,439

21,462

6,641

Total operating expenses

35,607

13,156

72,398

36,715

Loss from operations

(40,733

)

(18,450

)

(85,852

)

(51,737

)

Other income (expense):

Interest income and other income, net

(3

)

569

524

2,111

Interest expense

(428

)

(1,047

)

(2,461

)

(3,237

)

Change in fair value of redeemable convertible preferred stock warrant liability

437

3,546

(93

)

4,030

Loss on extinguishment of term loan

(1,567

)

(1,567

)

Loss before provision for income taxes

(42,294

)

(15,382

)

(89,449

)

(48,833

)

Provision for income taxes

20

20

Net loss

$

(42,294

)

$

(15,402

)

$

(89,449

)

$

(48,853

)

Net loss attributable to common stockholders, basic and diluted

$

(42,294

)

$

(16,666

)

$

(47,281

)

$

(66,015

)

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

$

(3.44

)

$

(18.93

)

$

(6.30

)

$

(78.77

)

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

12,299

880

7,508

838

(1) Include stock-based compensation expenses as follows:

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

Cost of revenue

$

142

$

1

$

181

$

3

Research and development

3,074

43

3,326

266

Sales and marketing

2,645

44

2,828

119

General and administrative

8,047

148

8,836

248

Total stock-based compensation expenses

$

13,908

$

236

$

15,171

$

636

Outset Medical, Inc.

Condensed Balance Sheets

(in thousands, except per share amounts)

September 30,

2020

December 31,

2019

(Unaudited)

Assets

Current assets:

Cash and cash equivalents

$

311,327

$

36,926

Short-term investments

32,888

33,152

Accounts receivable, net

7,082

3,914

Inventories

11,810

4,596

Prepaid expenses and other current assets

4,717

1,058

Total current assets

$

367,824

$

79,646

Restricted cash

33,311

743

Property and equipment, net

14,412

7,895

Operating lease right-of-use assets

8,498

Other assets

1,977

82

Total assets

$

426,022

$

88,366

Labilities, redeemable convertible preferred stock and stockholders' equity (deficit)

Current liabilities:

Accounts payable

$

5,062

$

4,960

Accrued compensation and related benefits

10,850

6,956

Accrued expenses and other current liabilities

8,959

2,909

Accrued warranty liability

3,258

1,702

Deferred revenue, current

4,132

883

Operating lease liabilities, current

782

Term loan, current

7,500

Total current liabilities

33,043

24,910

Accrued interest, noncurrent

119

217

Deferred revenue, noncurrent

566

134

Operating lease liabilities, noncurrent

8,309

Redeemable convertible preferred stock warrant liability

4,285

Term loan, noncurrent

29,652

21,561

Total liabilities

71,689

51,107

Commitments and contingencies

Redeemable convertible preferred stock, $0.001 par value; no shares authorized and no shares issued and outstanding as of September 30, 2020; 154,592 shares authorized and 147,214 shares issued and outstanding as of December 31, 2019

409,446

Stockholders' equity (deficit):

Preferred stock, $0.001 par value; 5,000 shares authorized, and no shares issued and outstanding as of September 30, 2020 and December 31, 2019

Common stock, $0.001 par value; 300,000 and 240,000 shares authorized as of September 30, 2020 and December 31, 2019, respectively; 42,701 and 922 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

42

1

Additional paid-in capital

816,306

357

Accumulated other comprehensive income

1

22

Accumulated deficit

(462,016

)

(372,567

)

Total stockholders' equity (deficit)

354,333

(372,187

)

Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit)

$

426,022

$

88,366

Outset Medical, Inc.

Condensed Statements of Cash Flows

(in thousands)

(unaudited)

Nine Months Ended

September 30,

2020

2019

Net cash used in operating activities

$

(73,175

)

$

(55,100

)

Net cash provided by (used in) investing activities

(6,411

)

61,501

Net cash provided by financing activities

386,555

143

Net increase in cash and cash equivalents

306,969

6,544

Cash, cash equivalents and restricted cash at beginning of the period

37,669

33,415

Cash, cash equivalents and restricted cash at end of the period (1)

$

344,638

$

39,959

(1) The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the accompanying condensed balance sheets that sum to the total of the amounts shown in the accompanying condensed statements of cash flows (in thousands):

September 30,

2020

2019

Cash and cash equivalents

$

311,327

$

39,216

Restricted cash

33,311

743

Total cash, cash equivalents and restricted cash*

$

344,638

$

39,959

* The total cash, including restricted cash, cash equivalents and short-term investments, as of September 30, 2020 was $377.5 million; compared to $86.4 million as of September 30, 2019.

Appendix A

Outset Medical, Inc.

Results of Operations – Non-GAAP

(in thousands, except per share amounts)

(unaudited)

Reconciliation between GAAP and non-GAAP net loss per share attributable to common stockholders:

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

GAAP net loss per share to common stockholders, diluted

$

(3.44

)

$

(18.93

)

$

(6.30

)

$

(78.77

)

Stock-based compensation expense

1.13

0.26

2.02

0.76

Non-GAAP net loss per share to common stockholders, diluted

$

(2.31

)

$

(18.67

)

$

(4.28

)

$

(78.01

)

Reconciliation between GAAP and non-GAAP net loss attributable to common stockholders:

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

GAAP net loss attributable to common stockholders, diluted

$

(42,294

)

$

(16,666

)

$

(47,281

)

$

(66,015

)

Stock-based compensation expense

13,908

236

15,171

636

Non-GAAP net loss per share attributable to common stockholders, diluted

$

(28,386

)

$

(16,430

)

$

(32,110

)

$

(65,379

)

Appendix A

Outset Medical, Inc.

Results of Operations – Non-GAAP (continued)

(in thousands, except per share amounts)

(unaudited)

Reconciliation between GAAP and non-GAAP results of operations:

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

GAAP gross profit

$

(5,126)

$

(5,294)

$

(13,454)

$

(15,022)

Stock-based compensation expense

142

1

181

3

Non-GAAP gross profit

$

(4,984)

$

(5,293)

$

(13,273)

$

(15,019)

GAAP gross margin

(37.3)

%

(201.3)

%

(41.2)

%

(187.9)

%

Stock-based compensation expense

1.0

0.0

0.6

0.0

Non-GAAP gross margin

(36.3)

%

(201.3)

%

(40.6)

%

(187.9)

%

GAAP research and development expense

$

9,175

$

5,708

$

21,066

$

16,698

Stock-based compensation expense

(3,074)

(43)

(3,326)

(266)

Non-GAAP research and development expense

$

6,101

$

5,665

$

17,740

$

16,432

GAAP sales and marketing expense

$

13,344

$

5,009

$

29,870

$

13,376

Stock-based compensation expense

(2,645)

(44)

(2,828)

(119)

Non-GAAP sales and marketing expense

$

10,699

$

4,965

$

27,042

$

13,257

GAAP general and administrative expense

$

13,088

$

2,439

$

21,462

$

6,641

Stock-based compensation expense

(8,047)

(148)

(8,836)

(248)

Non-GAAP general and administrative expense

$

5,041

$

2,291

$

12,626

$

6,393

GAAP total operating expense

$

35,607

$

13,156

$

72,398

$

36,715

Stock-based compensation expense

(13,766)

(235)

(14,990)

(633)

Non-GAAP total operating expense

$

21,841

$

12,921

$

57,408

$

36,082

View source version on businesswire.com: https://www.businesswire.com/news/home/20201111005854/en/

Contacts

Investor Contact
Lynn Lewis or Brian Johnston
Gilmartin Group
investors@outsetmedical.com