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.

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

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

As of ~~July 27,~~November 2, 2022, the registrant had ~~48,007,301~~48,307,880 shares of common stock, $0.001 par value per share, outstanding.


	June 30,			December 31,			September 30,			December 31,
	2022			2021			2022			2021
	(Unaudited)						(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	75,497		$	182,348		$	63,877		$	182,348
Short-term investments		186,565			157,140			163,640			157,140
Accounts receivable, net		24,627			25,600			22,512			25,600
Inventories		53,689			39,185			55,260			39,185
Prepaid expenses and other current assets		5,399			5,529			4,714			5,529
Total current assets		345,777			409,802			310,003			409,802
Restricted cash		33,311			33,311			33,311			33,311
Property and equipment, net		15,245			12,964			15,617			12,964
Operating lease right-of-use assets		6,687			7,231			6,405			7,231
Other assets		216			156			386			156
Total assets	$	401,236		$	463,464		$	365,722		$	463,464
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	2,753		$	1,763		$	1,444		$	1,763
Accrued compensation and related benefits		15,795			24,948			19,273			24,948
Accrued expenses and other current liabilities		23,261			13,789			16,370			13,789
Accrued warranty liability		3,444			3,704			3,456			3,704
Deferred revenue, current		7,752			6,340			7,825			6,340
Operating lease liabilities, current		1,235			1,151			1,276			1,151
Term loan, current		1,000			0
Total current liabilities		55,240			51,695			49,644			51,695
Accrued interest, noncurrent		960			721			1,081			721
Deferred revenue, noncurrent		205			312			142			312
Operating lease liabilities, noncurrent		6,261			6,893			5,924			6,893
Term loan, noncurrent		28,806			29,762			29,828			29,762
Total liabilities		91,472			89,383			86,619			89,383
Commitments and contingencies (Note 6)
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000 shares authorized, and 0 shares issued and outstanding as of June 30, 2022 and December 31, 2021		0			0
Common stock, $0.001 par value; 300,000 shares authorized as of June 30, 2022 and December 31, 2021; 47,997 and 47,241 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively		48			47
Preferred stock, $0.001 par value; 5,000 shares authorized, and no shares issued and outstanding as of September 30, 2022 and December 31, 2021								—			—
Common stock, $0.001 par value; 300,000 shares authorized as of September 30, 2022 and December 31, 2021; 48,295 and 47,241 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively								48			47
Additional paid-in capital		1,017,396			1,000,212			1,027,495			1,000,212
Accumulated other comprehensive loss		(955	)		(184	)		(934	)		(184	)
Accumulated deficit		(706,725	)		(625,994	)		(747,506	)		(625,994	)
Total stockholders' equity		309,764			374,081			279,103			374,081
Total liabilities and stockholders' equity	$	401,236		$	463,464		$	365,722		$	463,464

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


	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,						June 30,						September 30,						September 30,
	2022			2021			2022			2021			2022			2021			2022			2021
Revenue:
Product revenue	$	19,621		$	20,628		$	45,285		$	38,838		$	21,739		$	21,824		$	67,024		$	60,662
Service and other revenue		5,436			4,588			10,322			9,294			6,022			4,494			16,344			13,788
Total revenue		25,057			25,216			55,607			48,132			27,761			26,318			83,368			74,450
Cost of revenue:
Cost of product revenue		17,718			22,077			40,828			42,654			19,632			20,526			60,460			63,180
Cost of service and other revenue		3,557			2,087			6,555			4,137			3,793			2,846			10,348			6,983
Total cost of revenue		21,275			24,164			47,383			46,791			23,425			23,372			70,808			70,163
Gross profit		3,782			1,052			8,224			1,341			4,336			2,946			12,560			4,287
Operating expenses:
Research and development		13,521			8,032			24,352			15,602			13,059			9,729			37,411			25,331
Sales and marketing		23,198			13,204			43,575			26,353			22,276			15,726			65,851			42,079
General and administrative		10,784			9,722			20,493			18,968			10,000			7,629			30,493			26,597
Total operating expenses		47,503			30,958			88,420			60,923			45,335			33,084			133,755			94,007
Loss from operations		(43,721	)		(29,906	)		(80,196	)		(59,582	)		(40,999	)		(30,138	)		(121,195	)		(89,720	)
Interest income and other income, net		459			164			579			276			805			99			1,384			375
Interest expense		(481	)		(431	)		(903	)		(853	)		(567	)		(431	)		(1,470	)		(1,284	)
Loss before provision for income taxes		(43,743	)		(30,173	)		(80,520	)		(60,159	)		(40,761	)		(30,470	)		(121,281	)		(90,629	)
Provision for income taxes		96			35			211			74			20			—			231			74
Net loss	$	(43,839	)	$	(30,208	)	$	(80,731	)	$	(60,233	)	$	(40,781	)	$	(30,470	)	$	(121,512	)	$	(90,703	)

Net loss per share, basic and diluted	$	(0.92	)	$	(0.66	)	$	(1.69	)	$	(1.36	)	$	(0.85	)	$	(0.65	)	$	(2.54	)	$	(1.96	)
Shares used in computing net loss per share, basic and diluted		47,882			45,680			47,686			44,228			48,129			46,588			47,835			46,252

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


	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,						June 30,						September 30,						September 30,
	2022			2021			2022			2021			2022			2021			2022			2021
Net loss	$	(43,839	)	$	(30,208	)	$	(80,731	)	$	(60,233	)	$	(40,781	)	$	(30,470	)	$	(121,512	)	$	(90,703	)
Other comprehensive loss:
Unrealized loss on available-for-sale securities		(306	)		(20	)		(771	)		(29	)
Other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale securities														21			8			(750	)		(21	)
Comprehensive loss	$	(44,145	)	$	(30,228	)	$	(81,502	)	$	(60,262	)	$	(40,760	)	$	(30,462	)	$	(122,262	)	$	(90,724	)

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


	Common Stock				Additional Paid-in		Accumulated Other Comprehensive			Accumulated			Total Stockholders			Common Stock				Additional Paid-in		Accumulated Other Comprehensive			Accumulated			Total Stockholders
	Shares		Amount		Capital		Income (Loss)			Deficit			Equity			Shares		Amount		Capital		Income (Loss)			Deficit			Equity
Balance as of December 31, 2021		47,241	$	47	$	1,000,212	$	(184	)	$	(625,994	)	$	374,081			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			55		—		2,063		—			—			2,063
Issuance of common stock for settlement of RSUs		88		—		—		—			—			—			88		—		—		—			—			—
Stock option exercises		328		1		1,659		—			—			1,660			328		1		1,659		—			—			1,660
Stock-based compensation expense		—		—		5,006		—			—			5,006			—		—		5,006		—			—			5,006
Unrealized loss on available-for-sale securities		—		—		—		(465	)		—			(465	)		—		—		—		(465	)		—			(465	)
Net loss		—		—		—		—			(36,892	)		(36,892	)		—		—		—		—			(36,892	)		(36,892	)
Balance as of March 31, 2022		47,712	$	48	$	1,008,940	$	(649	)	$	(662,886	)	$	345,453			47,712	$	48	$	1,008,940	$	(649	)	$	(662,886	)	$	345,453
Issuance of common stock for settlement of RSUs		52		—		—		—			—			—			52		—		—		—			—			—
Stock option exercises		233		—		1,042		—			—			1,042			233		—		1,042		—			—			1,042
Stock-based compensation expense		—		—		7,414		—			—			7,414			—		—		7,414		—			—			7,414
Unrealized loss on available-for-sale securities		—		—		—		(306	)		—			(306	)		—		—		—		(306	)		—			(306	)
Net loss		—		—		—		—			(43,839	)		(43,839	)		—		—		—		—			(43,839	)		(43,839	)
Balance as of June 30, 2022		47,997	$	48	$	1,017,396	$	(955	)	$	(706,725	)	$	309,764			47,997	$	48	$	1,017,396	$	(955	)	$	(706,725	)	$	309,764
Issuance of common stock through employee stock purchase plan																	138		—		2,139		—			—			2,139
Issuance of common stock for settlement of RSUs																	49		—		—		—			—			—
Stock option exercises																	111		—		530		—			—			530
Stock-based compensation expense																	—		—		7,430		—			—			7,430
Unrealized gain on available-for-sale securities																	—		—		—		21			—			21
Net loss																	—		—		—		—			(40,781	)		(40,781	)
Balance as of September 30, 2022																	48,295	$	48	$	1,027,495	$	(934	)	$	(747,506	)	$	279,103

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


	Common Stock				Additional Paid-in		Accumulated Other Comprehensive			Accumulated			Total Stockholders			Common Stock				Additional Paid-in		Accumulated Other Comprehensive			Accumulated			Total Stockholders
	Shares		Amount		Capital		Income (Loss)			Deficit			Equity			Shares		Amount		Capital		Income (Loss)			Deficit			Equity
Balance as of December 31, 2020		42,722	$	43	$	822,624	$	1		$	(494,059	)	$	328,609			42,722	$	43	$	822,624	$	1		$	(494,059	)	$	328,609
Issuance of common stock through employee stock purchase plan		80		—		1,838		—			—			1,838			80		—		1,838		—			—			1,838
Stock option exercises		86		—		380		—			—			380			86		—		380		—			—			380
Stock-based compensation expense		—		—		5,852		—			—			5,852			—		—		5,852		—			—			5,852
Unrealized loss on available-for-sale securities		—		—		—		(9	)		—			(9	)		—		—		—		(9	)		—			(9	)
Net loss		—		—		—		—			(30,025	)		(30,025	)		—		—		—		—			(30,025	)		(30,025	)
Balance as of March 31, 2021		42,888	$	43	$	830,694	$	(8	)	$	(524,084	)	$	306,645			42,888	$	43	$	830,694	$	(8	)	$	(524,084	)	$	306,645
Issuance of common stock upon follow-on public offering, net of issuance costs		2,946		3		149,082		—			—			149,085			2,946		3		149,082		—			—			149,085
Issuance of common stock for settlement of RSUs		1		—		—		—			—			—			1		—		—		—			—			—
Stock option exercises		390		—		1,723		—			—			1,723			390		—		1,723		—			—			1,723
Stock-based compensation expense		—		—		3,937		—			—			3,937			—		—		3,937		—			—			3,937
Unrealized loss on available-for-sale securities		—		—		—		(20	)		—			(20	)		—		—		—		(20	)		—			(20	)
Net loss		—		—		—		—			(30,208	)		(30,208	)		—		—		—		—			(30,208	)		(30,208	)
Balance as of June 30, 2021		46,225	$	46	$	985,436	$	(28	)	$	(554,292	)	$	431,162			46,225	$	46	$	985,436	$	(28	)	$	(554,292	)	$	431,162
Issuance of common stock through employee stock purchase plan																	36		—		1,596	—			—				1,596
Issuance of common stock for settlement of RSUs																	1		—		—		—			—			—
Stock option exercises																	756		1		4,590		—			—			4,591
Stock-based compensation expense																	—		—		2,864		—			—			2,864
Unrealized gain on available-for-sale securities																	—		—		—		8						8
Net loss																	—		—		—		—			(30,470	)		(30,470	)
Balance as of September 30, 2021																	47,018	$	47	$	994,486	$	(20	)	$	(584,762	)	$	409,751

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


	Six Months Ended June 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Cash flows from operating activities:
Net loss	$	(80,731	)	$	(60,233	)	$	(121,512	)	$	(90,703	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		12,420			9,789			19,850			12,653
Depreciation and amortization		2,586			2,553			3,900			3,866
Non-cash lease expense		544			501			826			759
Non-cash interest expense		282			282			426			426
Accretion of discount on investments, net		1,035			435			1,081			1,173
Provision for inventories		808			325			1,617			766
Other non-cash items		29			5			26			5
Changes in operating assets and liabilities:
Accounts receivable		964			(9,946	)		3,079			(12,838	)
Inventories		(15,311	)		(12,116	)		(17,692	)		(17,925	)
Prepaid expenses and other assets		70			570			728			718
Accounts payable		684			(2,509	)		(575	)		(2,151	)
Accrued payroll and related benefits		(9,153	)		(1,538	)		(5,675	)		913
Accrued expenses and other current liabilities		8,366			1,508			2,476			3,496
Accrued warranty liability		(260	)		160			(248	)		321
Deferred revenue		1,305			1,117			1,315			1,550
Operating lease liabilities		(548	)		(360	)		(844	)		(617	)
Net cash used in operating activities		(76,910	)		(69,457	)		(111,222	)		(97,588	)
Cash flows from investing activities:
Purchases of property and equipment		(3,475	)		(1,766	)		(6,216	)		(2,257	)
Purchases of investment securities		(133,015	)		(122,401	)		(168,615	)		(148,132	)
Sales and maturities of investment securities		101,784			19,900			160,284			24,300
Net cash used in investing activities		(34,706	)		(104,267	)		(14,547	)		(126,089	)
Cash flows from financing activities:
Proceeds from stock option exercises and employee stock purchase plan purchases		4,765			3,941			7,433			10,128
Proceeds from issuance of common stock upon follow-on public offerings, net of issuance costs		0			149,085			—			149,085
Payment of deferred financing costs								(135	)		—
Net cash provided by financing activities		4,765			153,026			7,298			159,213
Net decrease in cash, cash equivalents and restricted cash		(106,851	)		(20,698	)		(118,471	)		(64,464	)
Cash, cash equivalents and restricted cash as of beginning of period		215,659			328,283			215,659			328,283
Cash, cash equivalents and restricted cash as of end of period	$	108,808		$	307,585		$	97,188		$	263,819

Supplemental cash flow disclosures:
Cash paid for income taxes	$	283		$	42		$	334		$	72
Cash paid for interest	$	621		$	149		$	1,044		$	858
Cash paid for amounts included in the measurement of operating lease liabilities	$	548		$	360		$	844		$	617
Supplemental non-cash investing and financing activities:
Capital expenditures included in accounts payable and accrued expenses	$	1,613		$	92		$	556		$	218
Transfer of inventories to property and equipment	$	0		$	1,294		$	—		$	1,392
Transfer of property and equipment to inventories							$	—		$	146

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

3. Revenue and Deferred Revenue

Disaggregation of Revenue

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


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021		2022		2021		2022		2021
Consoles	$	13,228	$	16,857	$	31,279	$	31,623	$	14,950	$	15,423	$	46,229	$	47,046
Consumables		6,393		3,771		14,006		7,215		6,789		6,401		20,795		13,616
Total product revenue		19,621		20,628		45,285		38,838		21,739		21,824		67,024		60,662
Service and other revenue		5,436		4,588		10,322		9,294		6,022		4,494		16,344		13,788
Total revenue	$	25,057	$	25,216	$	55,607	$	48,132	$	27,761	$	26,318	$	83,368	$	74,450

For the three and ~~six~~nine months ended ~~June~~September 30, 2022, $~~0.7~~0.6 million and $~~1.4~~1.9 million of consoles revenue were from console operating lease arrangements, compared to $1.3 million and $~~2.6~~3.9 million for the three and ~~six~~nine months ended ~~June~~September 30, 2021.

Remaining Performance Obligations and Contract Liabilities

As of ~~June~~September 30, 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 $~~8.0~~7.9 million, which is recorded as deferred revenue on the Company’s condensed balance sheets. Of that amount, $7.8 million will be recognized as revenue during the next 12 months and $~~0.2~~0.1 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 and ~~six~~nine months ended ~~June~~September 30, 2022, the Company recognized $~~1.7~~1.5 million and $~~4.2~~5.8 million of previously deferred revenue.

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):


		June 30, 2022										September 30, 2022
	Valuation Hierarchy	Amortized Costs		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Aggregate Fair Value		Valuation Hierarchy	Amortized Costs		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Aggregate Fair Value
Assets:
Cash equivalents:
Money market funds	Level 1	$	31,353	$	—	$	—		$	31,353	Level 1	$	30,120	$	—	$	—		$	30,120
Short-term investments:
U.S. Treasury securities	Level 1		76,950		—		(518	)		76,432	Level 1		92,588		2		(607	)		91,983
Corporate debt	Level 2		78,645		—		(437	)		78,208	Level 2		39,892		—		(329	)		39,563
Commercial paper	Level 2		31,925		—		—			31,925	Level 2		32,094		—		—			32,094
Total cash equivalents and short-term investments		$	218,873	$	—	$	(955	)	$	217,918		$	194,694	$	2	$	(936	)	$	193,760


		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 ~~June~~September 30, 2022, the remaining contractual maturities for available-for-sale securities were one month to ~~thirteen~~fourteen 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. As of ~~June~~September 30, 2022, there were three securities with a total fair value of $~~18.0~~16.0 million in an unrealized loss position for more than 12 months. The unrealized losses totaling $~~89,000~~0.2 million as of ~~June~~September 30, 2022 were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities, and not related to the underlying credit of the issuers or the underlying collateral. These securities were issued by public reporting companies with an investment-grade rating by at least one bond credit rating agency. As a result, the Company did not consider these investments to be other-than-temporarily impaired as of ~~June~~September 30, 2022. During the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, the Company did 0not recognize other-than-temporary impairment losses related to its investment securities.

5. Balance Sheet Components

Cash, Cash Equivalents and Restricted Cash

As of ~~June~~September 30, 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):


	June 30,				September 30,
	2022		2021		2022		2021
Cash and cash equivalents	$	75,497	$	274,274	$	63,877	$	230,508
Restricted cash		33,311		33,311		33,311		33,311
Total cash, cash equivalents and restricted cash	$	108,808	$	307,585	$	97,188	$	263,819

Inventories

Inventories consist of the following (in thousands):


	June 30,		December 31,		September 30,		December 31,
	2022		2021		2022		2021
Raw materials	$	20,731	$	18,114	$	19,603	$	18,114
Work in process		9,434		6,054		12,068		6,054
Finished goods		23,524		15,017		23,589		15,017
Total inventories	$	53,689	$	39,185	$	55,260	$	39,185

Accrued Expenses and Other Current Liabilities

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


	June 30,		December 31,		September 30,		December 31,
	2022		2021		2022		2021
Accrued inventory	$	9,904	$	4,808	$	5,728	$	4,808
Accrued research and development expenses		1,113		574		883		574
Accrued professional services		1,745		1,269		2,220		1,269
Accrued rebate		3,737		3,121		1,205		3,121
Other		6,762		4,017		6,334		4,017
Total accrued expenses and other current liabilities	$	23,261	$	13,789	$	16,370	$	13,789

8. Equity Incentive Plan

Equity Incentive Plans

On January 1, 2022, the number of shares of common stock reserved for the issuance of awards under the Company’s 2020 Equity Incentive Plan (the 2020 Plan) was increased by 1,890,000 shares as a result of the automatic increase pursuant to the 2020 Plan. As of ~~June~~September 30, 2022, ~~5,022,000~~5,032,000 shares were reserved for future issuance under the 2020 Plan.

~~Employees~~Employee Share Purchase Plan (ESPP)

On January 1, 2022, the number of shares of common stock reserved for purchase under the Company’s ESPP was increased by 472,000 shares as a result of the automatic increase pursuant to the ESPP. As of ~~June~~September 30, 2022, ~~1,416,000~~1,278,000 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. 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.

In 2022, the Company issued 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. These PSUs are earned and vest over performance and vesting periods extending through 2024 based on achievement against two metrics: (1) an operational metric tied to the number of patients treating at home on Tablo as of the end of 2023, with 50% of earned units vesting after certification of the achievement level following the end of 2023 and the remaining 50% of earned units vesting at the end of 2024 (performance-based vesting conditions, referred to as the Home PSUs) and (2) the Company's relative total stockholder return (relative TSR) over a two-year performance period as compared to companies in a pre-determined index of medical device companies, with 100% of earned units vesting at the end of 2024 (market-based vesting conditions, referred to as the Relative TSR PSUs).

The 2023 target for the Home PSUs is expected to be determined and approved by the Compensation Committee in ~~late 2022 or~~ early 2023. Given such target has not yet been established, the grant date for these 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 Home PSUs until the grant date is established.

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				Six Months Ended				Three Months Ended				Nine Months Ended
	June 30,				June 30,				September 30,				September 30,
	2022		2021		2022		2021		2022		2021		2022		2021
Cost of revenue	$	190	$	62	$	283	$	137	$	210	$	64	$	493	$	201
Research and development		1,808		643		2,966		1,808		1,919		760		4,885		2,568
Sales and marketing		2,864		1,052		4,570		2,794		2,870		1,207		7,440		4,001
General and administrative		2,552		2,180		4,601		5,050		2,431		833		7,032		5,883
Total stock-based compensation expense	$	7,414	$	3,937	$	12,420	$	9,789	$	7,430	$	2,864	$	19,850	$	12,653

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 June 30,				Six Months Ended June 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021		2022		2021		2022		2021
Stock options to purchase common stock		2,900		4,653		2,900		4,653		2,739		3,728		2,739		3,728
Restricted stock units		1,513		473		1,513		473		1,511		542		1,511		542
Performance stock units		31		—		31		—		30		—		30		—
Shares committed under ESPP		101		27		101		27		32		10		32		10
Warrant to purchase common stock		63		63		63		63		63		63		63		63
Total		4,608		5,216		4,608		5,216		4,375		4,343		4,375		4,343

11. Subsequent ~~Event~~Events

On ~~July 8,~~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: (i) a ~~purported stockholder class action lawsuit~~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) an 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. The Company is permitted to borrow up to $200.0 million under the SLR Credit Facilities on the Closing Date. 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 $250.0 million under the SLR Credit Facilities. 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 borrow up to $300.0 million under the SLR Credit Facilities.

The Company repaid in full all amounts due under the SVB Loan and Security Agreement, including the early repayment fee of $0.3 million and the final payment of $2.0 million, using a portion of the proceeds of the SLR Credit Facilities.

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 $250.0 million, comprised of (i) a term loan of $100.0 million (the Term A Loan), (ii) one or more term loans (in minimum increments of $20.0 million each) in the aggregate of up to $100.0 million (each, a Term B Loan) and (iii) one or more term loans in the aggregate of up to $50.0 million (each, a Term C Loan). 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 A Loan was ~~filed~~funded on the Closing Date. The Term B Loan(s) are available for funding until August 22, 2024. The Term C Loan(s) are available subject to the lenders’ credit approval and the achievement of the Second Revenue Milestone on or before June 30, 2025. The Term C Loan 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%, payable monthly in arrears. The Company is permitted to make interest-only payments on the Term Loans through November 30, 2026, which 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 fee in the amount of $750,000 in respect of the Term B Loan(s), to be due and payable upon the earliest to occur of (a) the funding of the first Term B Loan, (b) December 20, 2023 and (c) the prepayment of the Term 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.

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 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 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 (or maintain gross profit margins) in excess of specified amounts (or percentages) for applicable measuring periods.

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 ~~its officers and a former officer (see Note 6).~~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.

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 2021 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.

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 new 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 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 we have conducted, patients have reported experiencing fewer symptoms and better quality sleep while on Tablo. We believe Tablo empowers patients, who have traditionally been passive recipients of care, to regain agency and ownership of their treatment.

Tablo is cleared by the FDA for use in the hospital, clinic, or home setting. 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, ~~the~~ 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

~~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 ~~have~~ resumed marketing and shipping Tablo for home use.

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 well suited for home-based dialysis. 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 rapid 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.

We sell our solutions through our direct sales organization, which covers most major metropolitan markets in the United States. As of ~~June~~September 30, 2022, our sales organization was comprised of 3637 capital sales team members, responsible for generating new customer demand for Tablo, and 9793 clinical sales team members, responsible for driving utilization and fleet expansion of Tablo consoles at existing customer sites. In addition, our field service team, comprised of 117 members, provides maintenance services and product support to Tablo customers. The same sales organization and field service team have driven Tablo penetration in both the acute and home care 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 per-treatment 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 revenue from shipping and handling charged to customers. Our total revenue was ~~$25.1~~$27.8 million and ~~$25.2~~$26.3 million for the three months ended ~~June~~September 30, 2022 and 2021, respectively, and ~~$55.6~~$83.4 million and ~~$48.1~~$74.5 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, 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 ~~June~~September 30, 2022 and 2021, we incurred net losses of ~~$43.8~~$40.8 million and ~~$30.2~~$30.5 million, respectively, and for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, we incurred net losses of ~~$80.7~~$121.5 million and ~~$60.2~~$90.7 million, respectively. As of ~~June~~September 30, 2022, we had an accumulated deficit of ~~$706.7~~$747.5 million. We expect to continue to incur significant expenses for the foreseeable future and to incur operating losses in the near term.

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.”

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.

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 ~~recover from the interruption to, and loss of~~continue regaining momentum in our home commercialization and marketing ~~as we re-engage with~~and rebuilding our home ~~provider customers, rebuild our~~ patient pipeline ~~and resume supporting new patients in the home~~ 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.

We are continuing to execute a well-defined strategy designed to expand gross margins. First, in the first quarter of 2021, we successfully began production at our own console manufacturing facility in Tijuana, Mexico which we operate in collaboration with our outsourced business administration service provider, TACNA. Second, following our receipt of 510(k) clearance from the FDA for the new cartridge sterilization method in the fourth quarter of 2021, we have qualified a second source to increase Tablo cartridge production through a new manufacturing partner in Mexico, which we anticipate will result in cost reductions from lower freight costs. Third, we will continue to drive scale across our console platform to leverage our supply base and help improve our manufacturing efficiency. 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.

Our business may be impacted by an escalation or a continuation of the ongoing COVID-19 pandemic. 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 pandemic, the possibility that such disruption may occur remains. Additionally, the 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 the fourth quarter of 2021, these supply chain disruptions escalated, and we are facing 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 associated with delivering adequate supply of Tablo treatments to our customers. In the fourth quarter of 2021, we qualified a second source to increase Tablo cartridge production through a new manufacturing partner in Mexico. While we anticipate that this second source will help mitigate supply chain challenges and reduce the need for costly and capacity-constrained air freight delivery of the cartridges, there is no assurance that we will not continue to face supply chain constraints. Continued escalation of these supply chain disruptions ~~and a sustained rise in freight costs~~ 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 full impacts 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 also remains 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 the pandemic, the associated containment measures, and the current supply chain disruptions will ultimately have on our business and results 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 ~~have been~~were exacerbated by the 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 resulting from the pandemic.~~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 ~~also~~ 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 the second ~~quarter~~and third quarters of 2022, our existing and potential customers ~~began to face~~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. ~~Toward the end of the quarter, we began to see early indications of the impact these~~These factors ~~had across~~have negatively impacted our customer base on pipeline development and installation schedules, which, in turn, have negatively impacted our bookings, delayed our shipments and adversely impacted our revenues for the second ~~quarter~~and third quarters of 2022. If our customers continue to face prolonged staffing shortages, volatility, uncertainty, rising costs and financial pressures, whether due to the pandemic, general macroeconomic conditions or otherwise, it could ultimately adversely 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.

The following table summarizes our results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 (in thousands):


	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,						June 30,						September 30,						September 30,
	2022			2021			2022			2021			2022			2021			2022			2021
Revenue:
Product revenue	$	19,621		$	20,628		$	45,285		$	38,838		$	21,739		$	21,824		$	67,024		$	60,662
Service and other revenue		5,436			4,588			10,322			9,294			6,022			4,494			16,344			13,788
Total revenue		25,057			25,216			55,607			48,132			27,761			26,318			83,368			74,450
Cost of revenue:
Cost of product revenue		17,718			22,077			40,828			42,654			19,632			20,526			60,460			63,180
Cost of service and other revenue		3,557			2,087			6,555			4,137			3,793			2,846			10,348			6,983
Total cost of revenue		21,275			24,164			47,383			46,791			23,425			23,372			70,808			70,163
Gross profit		3,782			1,052			8,224			1,341			4,336			2,946			12,560			4,287
Operating expenses:
Research and development		13,521			8,032			24,352			15,602			13,059			9,729			37,411			25,331
Sales and marketing		23,198			13,204			43,575			26,353			22,276			15,726			65,851			42,079
General and administrative		10,784			9,722			20,493			18,968			10,000			7,629			30,493			26,597
Total operating expenses		47,503			30,958			88,420			60,923			45,335			33,084			133,755			94,007
Loss from operations		(43,721	)		(29,906	)		(80,196	)		(59,582	)		(40,999	)		(30,138	)		(121,195	)		(89,720	)
Interest income and other income, net		459			164			579			276			805			99			1,384			375
Interest expense		(481	)		(431	)		(903	)		(853	)		(567	)		(431	)		(1,470	)		(1,284	)
Loss before provision for income taxes		(43,743	)		(30,173	)		(80,520	)		(60,159	)		(40,761	)		(30,470	)		(121,281	)		(90,629	)
Provision for income taxes		96			35			211			74			20			—			231			74
Net loss	$	(43,839	)	$	(30,208	)	$	(80,731	)	$	(60,233	)	$	(40,781	)	$	(30,470	)	$	(121,512	)	$	(90,703	)

Comparison of the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021


	Three Months Ended June 30,				Change						Six Months Ended June 30,				Change						Three Months Ended September 30,				Change						Nine Months Ended September 30,				Change
(dollars in thousands)	2022		2021		$			%			2022		2021		$		%				2022		2021		$			%			2022		2021		$		%
Revenue:
Product revenue	$	19,621	$	20,628	$	(1,007	)		(5	)%	$	45,285	$	38,838	$	6,447		17	%		$	21,739	$	21,824	$	(85	)	*			$	67,024	$	60,662	$	6,362		10	%
Service and other revenue		5,436		4,588		848			18	%		10,322		9,294		1,028		11	%			6,022		4,494		1,528			34	%		16,344		13,788		2,556		19	%
Total revenue	$	25,057	$	25,216		(159	)		(1	)%	$	55,607	$	48,132		7,475		16	%		$	27,761	$	26,318		1,443			5	%	$	83,368	$	74,450		8,918		12	%
* Not meaningful																				* Not meaningful

Product revenue decreased by ~~$1.0~~$0.1 million ~~or 5%~~ for the three months ended ~~June~~September 30, 2022 as compared to the same quarter in the prior year. This decrease was driven by a ~~$3.6~~$0.5 million decrease in consoles revenue, primarily due to the lengthening of sales and installation cycles in the acute care market as a result of staffing challenges and, potentially, other macroeconomic factors highlighted above, impacting our customers, as well as disruption from the home shipment hold due in part to customer uncertainty around the hold, and a $0.6 million decrease in console leasing revenue. This decrease was partially offset by a ~~$2.6~~$0.4 million increase in consumables revenue driven by the growth in our console installed base.

Product revenue increased by $6.4 million, or ~~17%~~10% for the ~~six~~nine months ended ~~June~~September 30, 2022 as compared to the same period in the prior year, driven by a ~~$6.8~~$7.2 million increase in consumables revenue attributable to the growth in our console installed ~~base and higher average selling price for consumables.~~base. This increase was partially offset by a net ~~$0.3~~$0.8 million decrease in consoles revenue which, in turn, was primarily comprised of a ~~$1.2~~$2.0 million decrease in console leasing revenue, partially offset by a ~~$0.9 million increase resulting from a higher volume of consoles sold at~~ higher average selling ~~price.~~price for consoles.

Service and other revenue increased for the three and ~~six~~nine months ended ~~June~~September 30, 2022 as compared to the same periods in the prior year. The increase was primarily due to services associated with the growth in our console installed base, which was offset by a decrease in service revenue from leased ~~consoles.~~consoles due to the expiration of certain lease agreements.

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. In late July 2022, the FDA cleared this 510(k) application of Tablo for patient use in the home and we ~~have~~ resumed marketing and shipping Tablo for home use. The shipment hold on Tablo for home use had a significant negative impact on our bookings and revenue for the second ~~quarter~~and third quarters of 2022, as well as on our pipeline of potential new deals. While we ~~have resumed~~

~~marketing~~continue to regain momentum in our home commercialization and ~~shipping Tablo for~~rebuild our home ~~use,~~patient pipeline following our release of the shipment hold, we may continue to experience related disruptions to our home and acute business and operations that could materially and adversely impact our revenue as we recover from the interruption to, and loss of momentum in, our home commercialization and marketing, as well as related disruptions to our acute business due in part to customer uncertainty around the hold.revenue. In addition, we anticipate that our revenues may continue to be negatively impacted by the customer staffing

challenges and, potentially, other macroeconomic factors highlighted above, affecting our customers. While we ~~plan to take~~are taking steps to further evolve our commercial infrastructure and sales processes to support our future growth in both the home and acute markets, we expect these factors may continue to moderate our revenue growth over the next several quarters.


	Three Months Ended June 30,						Change					Six Months Ended June 30,						Change					Three Months Ended September 30,						Change					Nine Months Ended September 30,						Change
(dollars in thousands)	2022			2021			$		%			2022			2021			$		%			2022			2021			$		%			2022			2021			$		%
Gross profit and gross margin:
Gross profit		3,782			1,052			2,730		260	%		8,224			1,341			6,883		513	%		4,336			2,946			1,390		47	%		12,560			4,287			8,273		193	%
Gross margin		15.1	%		4.2	%							14.8	%		2.8	%							15.6	%		11.2	%							15.1	%		5.8	%

Gross profit increased by ~~$2.7~~$1.4 million, or ~~260%~~47% for the three months ended ~~June~~September 30, 2022 as compared to the same quarter in the prior year. The gross margin percentage improved by ~~10.9~~4.4 percentage points for the three months ended ~~June~~September 30, 2022, as compared to the same quarter in the prior year. This improvement in gross profit and gross margin was primarily driven by the impact of our cost reduction activities and higher average selling price for consoles. Such improvement was partially offset by the lower gross margin of consumables revenue due to an increase in freight costs and materials costs.

Gross profit increased by $8.3 million, or 193% for the nine months ended September 30, 2022 as compared to the same period in the prior year. The gross margin percentage improved by 9.3 percentage points for the nine months ended September 30, 2022, as compared to the same period in the prior year. This improvement in gross profit and gross margin was primarily driven by the impact of our cost reduction activities and the product revenue mix. Such improvement was partially offset by the lower gross margin of ~~service and other~~consumables revenue due to ~~the planned expiration of a component of a customer lease agreement.~~

~~Gross profit increased by $6.9 million, or 513% for the six months ended June 30, 2022 as compared to the same period~~an increase in the prior year. The gross margin percentage improved by 12.0 percentage points for the six months ended June 30, 2022, as compared to the same period in the prior year. This improvement in gross profitfreight and ~~gross margin was primarily driven by the impact of our cost reduction activities~~materials costs and ~~the product revenue mix and. Such improvement was partially offset by~~ the lower gross margin of service and other revenue due to the ~~planned~~ expiration of ~~a component of a customer~~certain lease ~~agreement.~~agreements.


	Three Months Ended June 30,				Change					Six Months Ended June 30,				Change					Three Months Ended September 30,				Change					Nine Months Ended September 30,				Change
(dollars in thousands)	2022		2021		$		%			2022		2021		$		%			2022		2021		$		%			2022		2021		$		%
Operating expenses:
Research and development	$	13,521	$	8,032	$	5,489		68	%	$	24,352	$	15,602	$	8,750		56	%	$	13,059	$	9,729	$	3,330		34	%	$	37,411	$	25,331	$	12,080		48	%
Sales and marketing		23,198		13,204		9,994		76	%		43,575		26,353		17,222		65	%		22,276		15,726		6,550		42	%		65,851		42,079		23,772		56	%
General and administrative		10,784		9,722		1,062		11	%		20,493		18,968		1,525		8	%		10,000		7,629		2,371		31	%		30,493		26,597		3,896		15	%
Total operating expenses	$	47,503	$	30,958		16,545		53	%	$	88,420	$	60,923		27,497		45	%	$	45,335	$	33,084		12,251		37	%	$	133,755	$	94,007		39,748		42	%

Research and development expenses increased by ~~$5.5~~$3.3 million, or ~~68%~~34% for the three months ended June 30, 2022, and by $8.8 million or 56% for the six months ended June 30, 2022, in each case, as compared to the same periods in the prior year. These increases were primarily due to higher headcount and higher consulting services to support our product development activities. In addition, there were increased infrastructure costs to support our growth.

~~Sales and marketing expenses increased by $10.0 million, or 76% for the three months ended June~~September 30, 2022, as compared to the same quarter in the prior year. The increase was primarily driven by higher headcount, resulting in increased fixed and share-based compensation expense, increased infrastructure costs, and increased supplies and materials costs to support our product development activities. This increase was slightly offset by lower consulting expenses.

Research and development expenses increased by $12.1 million or 48% for the nine months ended September 30, 2022, as compared to the same periods in the prior year. These increases were primarily due to higher headcount, resulting in increased fixed and share-based compensation expense, higher consulting expenses, increased infrastructure costs, increased supplies and materials costs, and higher travel costs to support our product development activities.

Sales and marketing expenses increased by $6.6 million, or 42% for the three months ended September 30, 2022 as compared to the same quarter in the prior year. The increase was primarily driven by higher headcount, resulting in increased fixed and share-based compensation expense, and increased infrastructure costs to support our growth. In addition, there were higher freight and travel ~~and freight~~ expenses ~~for the three months ended June 30, 2022, as compared with the same quarter~~due to an increase in ~~the prior year.~~sales activities. This increase was slightly offset by lower consulting expenses.

Sales and marketing expenses increased by ~~$17.2~~$23.8 million or ~~65%~~56% for the ~~six~~nine months ended ~~June~~September 30, 2022 as compared to the same period in the prior year. The increase was primarily driven by higher headcount, resulting in increased fixed and share-based compensation expense, higher commissions due to higher sales, and increased infrastructure costs to support our growth. In addition, there were higher freight and travel ~~and freight~~ expenses ~~for the six months ended June 30, 2022, as compared with the same quarter~~due to an increase in ~~the prior year.~~sales activities. This increase was partially offset by lower consulting expenses.

General and administrative expenses increased by ~~$1.1~~$2.4 million or ~~11%~~31% for the three months ended ~~June~~September 30, 2022 as compared to the same quarter in the prior year. The increase was primarily driven ~~by higher headcount and higher travel expenses to support our growth. The increase was partially offset by a decrease in outside services costs.~~increased share-based compensation expense.

General and administrative expenses increased by ~~$1.5~~$3.9 million or 8%15% for the ~~six~~nine months ended ~~June~~September 30, 2022 as compared to the same period in the prior year. The increase was primarily driven by higher headcount, resulting in increased fixed and share-based compensation expense, increased infrastructure costs, and higher travel costs to support our growth. In addition, there were higher travel and insurance expenses for the six months ended June 30, 2022 as compared with the same quarter in the prior year. The increase was partially offset by a decrease in outside services costs and a decrease in stock-based

~~compensation expense due to the expense related to stock options with performance and market-based vesting conditions in 2020, which was fully recognized as of the end of the third quarter of 2021.~~


	Three Months Ended June 30,						Change						Six Months Ended June 30,						Change						Three Months Ended September 30,						Change						Nine Months Ended September 30,						Change
(dollars in thousands)	2022			2021			$			%			2022			2021			$			%			2022			2021			$			%			2022			2021			$			%
Other income (expenses), net:
Interest income and other income, net	$	459		$	164		$	295			180	%	$	579		$	276		$	303			110	%	$	805		$	99		$	706			713	%	$	1,384		$	375		$	1,009			269	%
Interest expense		(481	)		(431	)		(50	)		12	%		(903	)		(853	)		(50	)		6	%		(567	)		(431	)		(136	)		32	%		(1,470	)		(1,284	)		(186	)		14	%
Total other expenses, net	$	(22	)	$	(267	)		245			(92	)%	$	(324	)	$	(577	)		253			(44	)%
Total other income (expenses), net																									$	238		$	(332	)		570			(172	)%	$	(86	)	$	(909	)		823			(91	)%

The increase in interest income and other income, net for the three and ~~six~~nine months ended ~~June~~September 30, 2022 as compared to the same periods in the prior year was driven by higher interest ~~rates.~~rates and higher average short-term investments balance in 2022.

~~Interest~~The increase in interest expense for the three and ~~six~~nine months ended ~~June~~September 30, 2022 were ~~relatively consistent with~~due to higher Prime Rate in 2022, which was the ~~amounts~~base interest rate used for the ~~same periods in the prior year.~~SVB Term Loan.

As of ~~June~~September 30, 2022, we had cash, cash equivalents and short-term investments of ~~$262.1~~$227.5 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 ~~$295.4~~$260.8 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 financings, and proceeds from stock option exercises and employee stock 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 financings, 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. ~~If we raise additional capital through debt financing, we may be~~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, ~~and~~ cash generated from sales, ~~of our products~~ and ~~services,~~proceeds received and currently available from the recent debt financing described below under “Debt Obligations ‒ SLR Debt Financing”, will be sufficient to meet our anticipated needs for at least the next 12 months from the issuance date of this Quarterly Report.

The following table summarizes the cash flows for each of the periods indicated (in thousands):


	Six Months Ended June 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Net cash (used in) provided by:
Operating activities	$	(76,910	)	$	(69,457	)	$	(111,222	)	$	(97,588	)
Investing activities		(34,706	)		(104,267	)		(14,547	)		(126,089	)
Financing activities		4,765			153,026			7,298			159,213
Net decrease in cash, cash equivalents and restricted cash	$	(106,851	)	$	(20,698	)	$	(118,471	)	$	(64,464	)

The net cash used in operating activities of ~~$76.9~~$111.2 million for the ~~six~~nine months ended ~~June~~September 30, 2022 was due to a net loss of ~~$80.7~~$121.5 million and a net cash outflow from the change in our operating assets and liabilities of ~~$13.9~~$17.4 million, which were partially offset by adjustments for stock-based compensation expense of ~~$12.4~~$19.9 million, depreciation and amortization of ~~$2.6~~$3.9 million, provision for inventories of $1.6 million, accretion of discount on investments of ~~$1.0 million, provision for inventories of $0.8~~$1.1 million, non-cash lease expense of ~~$0.5~~$0.8 million, and non-cash interest expense of ~~$0.3~~$0.4 million. The net cash outflow from operating assets and liabilities was primarily driven by an increase in inventories as a result of the timing of inventory purchases, ~~including advance purchases of inventory due to anticipated demand and to mitigate supply chain disruptions,~~ a decrease in accrued payroll and related benefits, ~~a decrease in~~ operating lease liabilities, accounts payable, and accrued warranty liability. The net cash outflow from operating assets and liabilities was partially offset by a decrease in accounts receivable resulting from the timing of collections, an increase in ~~accounts payable and~~ accrued expenses and other current liabilities due to timing of vendor payments, an increase in deferred revenue as a result of the growth of our business, ~~a decrease in accounts receivable resulting from the timing of collections,~~ and a decrease in prepaid expenses and other assets.

The net cash used in operating activities of $69.5 million for the six months ended June 30, 2021 was due to a net loss of $60.2 million and a net cash outflow from the change in our operating assets and liabilities of $23.1 million, which were partially offset by adjustments for stock-based compensation expense of $9.8 million, depreciation and amortization of $2.6 million, non-cash lease expense of $0.5 million, accretion of discount on investments of $0.4 million, non-cash interest expense of $0.3 million, and provision for inventories of $0.3 million. The net cash outflow from operating assets and liabilities was primarily driven by an increase in inventories as a result of the timing of inventory purchases including advance purchases of inventory for the transition to our own manufacturing facility, anticipated demand and to mitigate supply chain disruptions, which partially related to COVID-19, an increase in accounts receivable due to timing of collections, a net decrease in account payable, accrued expenses and other current liabilities resulting from the timing of vendor payments and a decrease in accrued payroll and related benefits, and a decrease in operating lease liabilities. The net cash outflow from operating assets and liabilities was partially offset by an increase in deferred revenue as a result of the growth of our business, an increase in prepaid expenses and other assets, and an increase in accrued warranty liability.21

The net cash used in investing activities of ~~$34.7~~$14.5 million for the ~~six~~nine months ended ~~June~~September 30, 2022 was due ~~primarily~~ to the purchases of short-term investment securities of ~~$133.0~~$168.6 million and the purchases of property and equipment of ~~$3.5~~$6.2 million, partially offset by the sales and maturities of short-term investment securities of ~~$101.8 million.~~

The net cash used in investing activities of $104.3 million for the six months ended June 30, 2021 was due primarily to the purchases of investment securities of $122.4 million and the purchases of property and equipment of $1.8 million, partially offset by the sales and maturities of investment securities of $19.9$160.3 million.

The net cash provided by financing activities of ~~$4.8~~$7.3 million for the ~~six~~nine months ended ~~June~~September 30, 2022 was primarily due to proceeds of ~~$4.8~~$7.4 million from employee exercises of stock options and ESPP purchases.

On November 3, 2022 (the Closing Date), we entered into two senior secured credit facilities, which collectively provide for borrowings of up to $300.0 million: (i) a 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 us (the SLR Term Loan Facility), and (ii) an 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 us (the SLR Revolver, together with the SLR Term Loan Facility, the SLR Credit Facilities).

The maximum amount we are permitted to borrow under the SLR Credit Facilities is subject to certain overall borrowing limitations. We are permitted to borrow up to $200.0 million under the SLR Credit Facilities on the Closing Date. If we achieve a certain net ~~cash provided by financing activities of $153.0 million for the~~revenue milestone, calculated on a trailing six ~~months ended~~month basis (First Revenue Milestone), on or before June 30, ~~2021 was due primarily~~2024 and the Additional Tranche (as defined below) under the SLR Revolver has been approved, we will be permitted to borrow up to $250.0 million under the SLR Credit Facilities. If we achieve a subsequent additional net revenue milestone, calculated on a trailing six month basis (Second Revenue Milestone), on or before June 30, 2025 and obtain lenders' credit approval, we will be permitted to borrow up to $300.0 million under the SLR Credit Facilities.

Pursuant to the ~~net proceeds~~terms and conditions of ~~$149.1~~the SLR Loan Agreement, the Term Loan Lenders agreed to extend term loans to us in an aggregate principal amount of up to $250.0 million, ~~from~~comprised of (i) a term loan of $100.0 million (the Term A Loan), (ii) one or more term loans (in minimum increments of $20.0 million each) in the ~~issuance~~aggregate of up to $100.0 million (each, a Term B Loan) and (iii) one or more term loans in the aggregate of up to $50.0 million (each, a Term C Loan). 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 A Loan was funded on the Closing Date. The Term B Loan(s) are available for funding until August 22, 2024. The Term C Loan(s) are available subject to the lenders’ credit approval and the achievement of the Second Revenue Milestone on or before June 30, 2025. The Term C Loan will remain available for funding until one business day prior to November 1, 2027.

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). We 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.

For additional information regarding the SLR Credit Facilities, see Note 11, Subsequent Events, to our ~~common stock upon~~unaudited condensed financial statements included elsewhere in this Quarterly Report.

Copies of the ~~follow-on offering~~SLR Credit Facility Agreements are attached hereto as Exhibits 10.1 and 10.2. The summary of the SLR Credit Facilities is qualified entirely by reference to the SLR Credit Facility Agreements filed as Exhibits 10.1 and 10.2.

We repaid in full all amounts due under the SVB Loan and Security Agreement, including the early repayment fee of $0.3 million and the final payment of $2.0 million, using a portion of the proceeds of ~~$3.9 million from employee exercises of stock options and ESPP purchases.~~

~~During~~ the ~~six months ended June 30, 2022, there have been no material changes to our contractual obligations from those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2021 Annual Report.~~

~~During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.~~SLR Credit Facilities.

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 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 2021 Annual Report. ~~For additional information, please refer to Note 2 to our unaudited condensed financial statements in this Quarterly Report.~~

See Note 2, Summary of Significant Accounting Policies, to our unaudited condensed financial statements included elsewhere in this Quarterly Report for more information.

There has been no material change in the nature of the Company’s ~~interest rate risks or~~ foreign currency exchange risks from those described in Part II Item 7A of our 2021 Annual Report.

We are exposed to interest rate risk through our borrowing activities. As of September 30, 2022, we had total debt under the SVB Loan and Security Agreement of $29.8 million, which was subsequently repaid in November 2022.

Upon the closing of the SLR Credit Facilities in November 2022, we have $100.0 million in variable rate debt outstanding under the SLR Term Loan Facility. The SLR Term Loan Facility bears interest at a rate per annum equal to one-month term SOFR (subject to a 2.75% floor), plus 5.15%. For additional information regarding the SLR Credit Facilities, see Note 11, Subsequent Events, to our unaudited condensed financial statements included elsewhere in this Quarterly Report.

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.

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.

The information set forth under “Litigation” in Note 6, Commitments and Contingencies, of the notes accompanying our unaudited condensed financial statements in this Quarterly Report is incorporated herein by reference.

You should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our 2021 Annual Report, as updated by the risk factors discussed in Part II, “Item 1A. Risk Factors” in our Quarterly ~~Report~~Reports on Form 10-Q for the fiscal ~~quarter~~quarters ended Mach 31, 2022 ~~(“Q1~~(Q1 2022 Quarterly ~~Report”)~~Report) and June 30, 2022 (Q2 2022 Quarterly 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 2021 Annual Report, as updated by our Q1 2022 Quarterly Report and Q2 2022 Quarterly Report, except as set forth below. The risks described in our 2021 Annual Report, Q1 2022 Quarterly Report and ~~our Q1~~Q2 2022 Quarterly Report as updated below 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.

~~While we recently resumed marketing and shipping the Tablo System for home use following the FDA’s clearance~~The terms of our ~~most recent 510(k) submission,~~credit agreement require us to meet certain operating and financial covenants, place restrictions on our ~~business~~operating and ~~operations may continue~~financial flexibility and subject us to ~~experience disruptions~~interest rate risk.

We entered into two senior secured credit facilities (the SLR Credit Facilities) on November 3, 2022 (the Closing Date) which provide for up to a $250.0 million term loan (the SLR Term Loan Facility) pursuant to a loan and security agreement with certain lenders and SLR Investment Corp., as agent (the SLR Loan Agreement) and up to a ~~result~~$50.0 million asset-based revolving credit facility (the SLR Revolver, together with the SLR Term Loan Facility, the SLR Credit Facilities) pursuant to a credit agreement with Gemino Healthcare Finance, LLC d/b/a SLR Healthcare ABL, as lender (the SLR Revolving Credit Agreement, together with the SLR Loan Agreement, the SLR Credit Facility Agreements). While the SLR Credit Facilities provide for borrowings of up to $300.0 million, we only have access to $200.0 million of such borrowings as of the ~~prior shipment hold. In addition, as~~Closing Date and the additional $100.0 million of such borrowings is subject to us achieving certain net revenue milestones and obtaining lenders’ credit approval. If we ~~continue~~achieve 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 under the SLR Revolver has been approved, we will be permitted to ~~modify Tablo from time~~borrow up to ~~time, such modifications may require new 510(k) clearances from~~$250.0 million under the ~~FDA, which~~SLR Credit Facilities. If we ~~may~~achieve a subsequent additional net revenue milestone, calculated on a trailing six month basis (Second Revenue Milestone, and together with First Revenue Milestone, the Revenue Milestones), on or before June 30, 2025 and obtain lenders’ credit approval, we will be permitted to borrow up to $300.0 million under the SLR Credit Facilities. If we fail to achieve either or both of these Revenue Milestones or obtain lenders’ credit approval, we will not be able to ~~obtain~~access the full $300.0 million borrowing amounts under the SLR Credit Facilities. The SLR Credit Facilities are secured by substantially all of our assets, including all of the capital stock held by us, if any, (subject to a 65% limitation on pledges of voting capital stock of foreign subsidiaries), and all of our intellectual property, subject to certain exceptions. The SLR Credit Facility Agreements contain a ~~timely basis or at all.~~

~~Since Tablo’s original clearance by~~number of restrictive covenants, and the ~~FDA for home use in March 2020, we have made~~terms may restrict our current and future operations, particularly our ability to respond to certain changes in our business or industry or take future actions. In addition, as principal amounts outstanding under each of the SLR Term Loan Facility and the SLR Revolver accrue interest at variable interest rates tied to SOFR, any borrowings under the ~~device over time. In May 2021, we submitted a “catch-up” 510(k) application~~facilities will be subject to interest rate risk. An adverse change in interest rates for our borrowings could adversely affect our financial condition and results of operations. See the ~~FDA covering the design changes for patient use in the home. In May 2022, after further discussions with the FDA~~section titled “Management’s Discussion and ~~receiving indications that the clearance~~Analysis of ~~this 510(k) application would be delayed beyond our original expectations, we implemented a shipment hold on the distribution~~Financial Condition and ~~marketing~~Results of ~~Tablo for use in the home environment pending the FDA’s review~~Operations ‒ Liquidity and ~~clearance of this 510(k) application. In late July 2022, the FDA cleared this 510(k) application of Tablo for patient use in the home and we have resumed marketing and shipping Tablo for home use.~~
Capital Resources ‒ Debt Obligations ‒ SLR Debt Financing.”

The ~~shipment hold~~SLR Credit Facility Agreements contain customary representations and warranties and affirmative covenants and also contain certain restrictive covenants, including, among others, limitations on: the incurrence of additional debt, liens on ~~Tablo~~property, acquisitions and investments, loans and guarantees, mergers, consolidations, liquidations and dissolutions, asset sales, dividends and other payments in respect of our capital stock, prepayments of certain debt, transactions with affiliates and changes to our type of business, management of the business, control of the business or business locations. The SLR Credit Facility Agreements also include a financial covenant that, beginning with the fiscal quarter ending December 31, 2023, requires us to 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 SLR Term Loan Facility 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 (or maintain gross profit margins) in excess of specified amounts (or percentages) for ~~home use had a significant negative impact on~~applicable measuring periods. The SLR Credit Facility Agreements also contain customary events of default. If we fail to comply with such covenants, payments or other terms of either SLR Credit Facility Agreement, our ~~bookings~~agent or lender, as applicable, could declare an event of default, which would give it the right to declare all borrowings outstanding, together with accrued and ~~revenue for~~unpaid interest and fees, to be immediately due and payable. In addition, our agent or lender, as applicable, would have the ~~second quarter of 2022,~~right to proceed against the assets we provided as ~~well~~collateral pursuant to the SLR Loan Agreement or SLR Revolving Credit Agreement, as ~~on our pipeline of potential new deals. Following~~applicable. If the ~~most recent 510(k) clearance, we have resumed marketing and shipping Tablo for home use. However,~~debt under either SLR Credit Facility Agreement was

accelerated, we may ~~continue~~not have sufficient cash or be able to ~~experience disruptions~~sell sufficient assets to our home and acute business and operations that could materially and adversely impact our results of operations, financial condition and growth prospects as we recover from the interruption to, and loss of momentum in, our home commercialization and marketing, related disruptions to our acute business, and any negative effects to our reputation as a result of the hold.

Moreover, as we continue to modify Tablo from time to time, we may determine that such modifications could significantly affect safety and effectiveness of the device and thereby require new 510(k) clearances. Further, even in instances where we determine modifications to Tablo do not require a new 510(k) clearance, the FDA may disagree and we may ultimately be required to make additional changes to the Tablo System, we may need to submit a new 510(k) application and obtain clearance, we may be required to temporarily suspend shipment of, withdraw or recall Tablo until such clearance is obtained (which may not happen in a timely manner or at all), and/or we may be subject to other enforcement actions or proceedings and litigation, all ofrepay this debt, which would ~~materially and adversely disrupt and~~ harm our business and future growth. Where we determine that modifications to Tablo do require a new 510(k) clearance from the FDA, we may not be able to obtain such clearance in a timely manner, or at all. Obtaining clearances can be a time-consuming process, and delays in obtaining required future clearances could adversely affect our ability to make updates to Tablo in a timely manner, which in turn would harm our future growth.
financial condition.

Our customers are facing staffing shortages, increased costs and other financial pressures that have had, and may continue to have, a negative impact on our revenue.

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 have been exacerbated by the 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 resulting from the pandemic. There is a risk that the increased costs and other disruptions caused by the shortage of dialysis nurses, technicians and other staff could cause existing or prospective customers to delay continued investment in or adoption of new technologies and postponepurchasing decisions. For example, during the second quarter of 2022, our existing and potential customers began to face 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. Toward the end of the quarter, we began to see early indications of the impact these factors had across 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 the second quarter of 2022. If our customers continue to face prolonged volatility, uncertainty, staffing shortages, rising costs and financial pressures, whether due to the pandemic, general macroeconomic conditions or otherwise, it could ultimately adversely 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.

We recently launched a new 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 a dialysis program using Tablo and, as full-time staff is hired, to help train and onboard those nurses. This pilot program is in its very early stages and may not be successful in achieving the ~~future become subject~~objectives we intend and anticipate and ultimately, it may fail to ~~a post-market surveillance order issued by the FDA for~~meet our ~~Tablo System that could lead to making changes to or recalling or withdrawing the Tablo System from the field, or modifications to our labeling,~~customers’ expectations, all of which could harm our ~~business.~~

~~The FDA has previously notified us that~~reputation and customer relationships. In addition, the ~~Tablo System is subject~~program may not generate sufficient returns to a mandatory post-market surveillance order under Section 522 of the Federal Food Drug and Cosmetic Act (FDCA), requiring that we conduct a human factors study encompassing both summative and real-world data, as well as conduct a detailed analysis of adverse events and complaints from home users. Because the version of the Tablo System and software that was subject to the 510(k) application for home use submittedjustify our investment, or may result in May 2021 was the version we planned to use in the human factors study, we had intended to initiate the human factors study in accordance with our approved 522 study protocol upon FDA clearance of that 510(k) application. In July 2022, the FDA notified us that they have placed the 522 study requirement on hold because the original order specifically pertained to a prior version of Tablo. It currently remains uncertain whether the FDA will issue a new 522 order applicable to the current version of Tablo or extend the requirements of the prior 522 study order to apply to the version of Tablo that is the subject of the recently cleared 510(k). If the FDA does require us to run a 522 study with the version of Tablo that is the subject of the most recent clearance, we would need to submit and obtain the FDA’s approval of an updated 522 study protocol for the current version of Tablo before we could commence, conduct and complete the study. Should the FDA decide that the use of the Tablo System in the home environment identifies new concerns related to the safety and effectiveness of the product, or if the FDA determines that the requirements of the 522 order are otherwise unmet, we may be required to make changes to our Tablo System or its labeling for which we may need to submit new marketing authorization applications and obtain clearance, we may need to temporarily suspend shipment of Tablo, withdraw or recall the Tablo System from the market, and we may be subject to other enforcement actions, any ofunanticipated costs, which could ~~materially and~~ adversely ~~harm~~impact our ~~business.~~

From time to time we may become involved in legal proceedings relating to patent and other intellectual property matters, product liability claims, employee claims, tort or contract claims, federal regulatory investigations, securities class action and other 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. For example, on July 8, 2022, a purported stockholder class action lawsuit was filed against the Company, our Chief Executive Officer, Chief Financial Officer and former Chief Financial Officer, in the U.S. District Court for the Northern District of California alleging that the defendants violated federal securities laws by making false or misleading statements regarding the Company’s regulatory studies of the Tablo Hemodialysis System for at home use and the Company’s prospects related to the sale of the system for at home use. For further information, see the section entitled “Litigation” in Note 6, Commitments and Contingencies, to our unaudited condensed financial statements included in this Quarterly Report. Litigation is inherently unpredictable and can result in excessive or unanticipated verdicts and/or injunctive relief that affect how we operate our business. We could incur judgments or enter into settlements of claims for monetary damages or for agreements to change the way we operate our business, or both. There may be an increase in the scope of these matters or there may be additional lawsuits, claims, proceedings or investigations in the future, which could have a material adverse effect on our business, financial conditionoperating margins and results of operations. Adverse publicity about regulatory or legal action against us could damage our reputation and brand image, undermine our customers’ confidence and reduce long-term demand for Tablo, even if the regulatory or legal action is unfounded or not material to our operations.

The offer and sale of shares in our IPO was registered under the Securities Act pursuant to a registration statement on Form S-1 (File No.333-248225), which was declared effective by the SEC on September 17, 2020. The remainder of the information required by this item regarding the use of our IPO proceeds has been omitted pursuant to SEC rules because such information has not changed since our last periodic report was filed.

Incorporation by Reference

Exhibit

Number

Description

Form

File No.

Exhibit

Filing Date

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

Form of Amended and Restated Certificate of Incorporation of Outset Medical, Inc.

S-1/A

333-248225

3.1

September 9, 2020

3.2

Form of Amended and Restated Bylaws of Outset Medical, Inc.

S-1/A

333-248225

3.2

September 9, 2020

Form of Amended and Restated Bylaws of Outset Medical, Inc.

S-1/A

333-248225

3.2

September 9, 2020

4.1

Form of Common Stock Certificate

S-1/A

333-248225

4.1

September 9, 2020

Form of Common Stock Certificate

S-1/A

333-248225

4.1

September 9, 2020

4.2

Amended and Restated Registration Rights Agreement

S-1

333-248225

4.2

August 21, 2020

Amended and Restated Registration Rights Agreement

S-1

333-248225

4.2

August 21, 2020

4.3

Form of Series A Warrant Agreement #1

S-1

333-248225

4.3

August 21, 2020

Form of Series A Warrant Agreement #1

S-1

333-248225

4.3

August 21, 2020

4.4

Form of Series A Warrant Agreement #2

S-1

333-248225

4.4

August 21, 2020

Form of Series A Warrant Agreement #2

S-1

333-248225

4.4

August 21, 2020

10.1*#

Loan and Security Agreement by and between SLR Investment Corp., the lenders from time to time party thereto and Outset Medical, Inc. dated as of November 3, 2022

10.2*#

Credit Agreement by and between Gemino Healthcare Finance, LLC d/b/a SLR Healthcare ABL and Outset Medical, Inc. dated as of November 3, 2022

10.3†*

Outset Medical, Inc. 2020 Employee Stock Purchase Plan, as amended and restated

31.1*

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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)

# 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.

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.


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)


		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	1315
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2224
Item 4.	Controls and Procedures	2224
PART II.	OTHER INFORMATION	2325
Item 1.	Legal Proceedings	2325
Item 1A.	Risk Factors	2325
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2426
Item 3.	Defaults Upon Senior Securities	2526
Item 4.	Mine Safety Disclosures	2526
Item 5.	Other Information	2526
Item 6.	Exhibits	2627
Signatures		2729


	June 30,			December 31,
	2022			2021
Principal of term loan	$	30,000		$	30,000
Unamortized debt discount		(194	)		(238	)
Term loan, current and noncurrent		29,806			29,762
Less: term loan, current		(1,000	)		0
Total term loan, noncurrent	$	28,806		$	29,762


	Outset Medical, Inc.

Date: ~~August 2,~~November 8, 2022	By:	/s/ Leslie Trigg
		Leslie Trigg
		President and Chief Executive Officer (Principal Executive Officer)

Date: ~~August 2,~~November 8, 2022	By:	/s/ Nabeel Ahmed
		Nabeel Ahmed
		Chief Financial Officer (Principal Financial and Accounting Officer)


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


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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company