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, 2022,~~26, 2023, the registrant had ~~48,007,301~~49,790,212 shares of common stock, $0.001 par value per share, outstanding.


	June 30,			December 31,			June 30,			December 31,
	2022			2021			2023			2022
	(Unaudited)						(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	75,497		$	182,348		$	36,388		$	73,222
Short-term investments		186,565			157,140			186,403			214,280
Accounts receivable, net		24,627			25,600			36,902			28,070
Inventories		53,689			39,185			44,495			51,476
Prepaid expenses and other current assets		5,399			5,529			5,216			6,597
Total current assets		345,777			409,802			309,404			373,645
Restricted cash		33,311			33,311			3,329			3,311
Property and equipment, net		15,245			12,964			14,539			15,876
Operating lease right-of-use assets		6,687			7,231			6,042			6,117
Other assets		216			156			1,128			1,166
Total assets	$	401,236		$	463,464		$	334,442		$	400,115
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	2,753		$	1,763		$	2,217		$	603
Accrued compensation and related benefits		15,795			24,948			17,461			21,519
Accrued expenses and other current liabilities		23,261			13,789			12,650			16,227
Accrued warranty liability		3,444			3,704			4,168			3,620
Deferred revenue, current		7,752			6,340			10,854			8,662
Operating lease liabilities, current		1,235			1,151			1,474			1,318
Term loan, current		1,000			0
Total current liabilities		55,240			51,695			48,824			51,949
Accrued interest, noncurrent		960			721
Deferred revenue, noncurrent		205			312
Operating lease liabilities, noncurrent		6,261			6,893
Term loan, noncurrent		28,806			29,762
Accrued interest								484			113
Deferred revenue								89			151
Operating lease liabilities								5,308			5,576
Term loan								96,629			96,336
Total liabilities		91,472			89,383			151,334			154,125
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 June 30, 2023 and December 31, 2022								—			—
Common stock, $0.001 par value; 300,000 shares authorized as of June 30, 2023 and December 31, 2022; 49,629 and 48,465 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively								50			48
Additional paid-in capital		1,017,396			1,000,212			1,060,418			1,035,456
Accumulated other comprehensive loss		(955	)		(184	)		(393	)		(564	)
Accumulated deficit		(706,725	)		(625,994	)		(876,967	)		(788,950	)
Total stockholders' equity		309,764			374,081			183,108			245,990
Total liabilities and stockholders' equity	$	401,236		$	463,464		$	334,442		$	400,115

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


	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	June 30,						June 30,						June 30,						June 30,
	2022			2021			2022			2021			2023			2022			2023			2022
Revenue:
Product revenue	$	19,621		$	20,628		$	45,285		$	38,838		$	29,330		$	19,621		$	57,109		$	45,285
Service and other revenue		5,436			4,588			10,322			9,294			6,710			5,436			12,398			10,322
Total revenue		25,057			25,216			55,607			48,132			36,040			25,057			69,507			55,607
Cost of revenue:
Cost of product revenue		17,718			22,077			40,828			42,654			22,212			17,718			43,029			40,828
Cost of service and other revenue		3,557			2,087			6,555			4,137			6,125			3,557			12,347			6,555
Total cost of revenue		21,275			24,164			47,383			46,791			28,337			21,275			55,376			47,383
Gross profit		3,782			1,052			8,224			1,341			7,703			3,782			14,131			8,224
Operating expenses:
Research and development		13,521			8,032			24,352			15,602			14,906			13,521			28,699			24,352
Sales and marketing		23,198			13,204			43,575			26,353			24,985			23,198			49,318			43,575
General and administrative		10,784			9,722			20,493			18,968			11,290			10,784			23,077			20,493
Total operating expenses		47,503			30,958			88,420			60,923			51,181			47,503			101,094			88,420
Loss from operations		(43,721	)		(29,906	)		(80,196	)		(59,582	)		(43,478	)		(43,721	)		(86,963	)		(80,196	)
Interest income and other income, net		459			164			579			276			2,668			459			5,316			579
Interest expense		(481	)		(431	)		(903	)		(853	)		(3,103	)		(481	)		(6,045	)		(903	)
Loss before provision for income taxes		(43,743	)		(30,173	)		(80,520	)		(60,159	)		(43,913	)		(43,743	)		(87,692	)		(80,520	)
Provision for income taxes		96			35			211			74			133			96			325			211
Net loss	$	(43,839	)	$	(30,208	)	$	(80,731	)	$	(60,233	)	$	(44,046	)	$	(43,839	)	$	(88,017	)	$	(80,731	)

Net loss per share, basic and diluted	$	(0.92	)	$	(0.66	)	$	(1.69	)	$	(1.36	)	$	(0.90	)	$	(0.92	)	$	(1.79	)	$	(1.69	)
Shares used in computing net loss per share, basic and diluted		47,882			45,680			47,686			44,228			48,951			47,882			49,085			47,686

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		Loss			Deficit			Equity
Balance as of December 31, 2021		47,241	$	47	$	1,000,212	$	(184	)	$	(625,994	)	$	374,081
Balance as of December 31, 2022																	48,465	$	48	$	1,035,456	$	(564	)	$	(788,950	)	$	245,990
Issuance of common stock through employee stock purchase plan		55		—		2,063		—			—			2,063			307		1		4,593		—			—			4,594
Issuance of common stock for settlement of RSUs																	282		—		—		—			—			—
Stock option exercises																	162		—		684		—			—			684
Stock-based compensation expense																	—		—		8,538		—			—			8,538
Unrealized gain on available-for-sale securities																	—		—		—		451			—			451
Net loss																	—		—		—		—			(43,971	)		(43,971	)
Balance as of March 31, 2023																	49,216	$	49	$	1,049,271	$	(113	)	$	(832,921	)	$	216,286
Issuance of common stock for settlement of RSUs		88		—		—		—			—			—			165		—		—		—			—			—
Stock option exercises		328		1		1,659		—			—			1,660			248		1		1,042		—			—			1,043
Stock-based compensation expense		—		—		5,006		—			—			5,006			—		—		10,105		—			—			10,105
Unrealized loss on available-for-sale securities		—		—		—		(465	)		—			(465	)		—		—		—		(280	)		—			(280	)
Net loss		—		—		—		—			(36,892	)		(36,892	)		—		—		—		—			(44,046	)		(44,046	)
Balance as of March 31, 2022		47,712	$	48	$	1,008,940	$	(649	)	$	(662,886	)	$	345,453
Issuance of common stock for settlement of RSUs		52		—		—		—			—			—
Stock option exercises		233		—		1,042		—			—			1,042
Stock-based compensation expense		—		—		7,414		—			—			7,414
Unrealized loss on available-for-sale securities		—		—		—		(306	)		—			(306	)
Net loss		—		—		—		—			(43,839	)		(43,839	)
Balance as of June 30, 2022		47,997	$	48	$	1,017,396	$	(955	)	$	(706,725	)	$	309,764
Balance as of June 30, 2023																	49,629	$	50	$	1,060,418	$	(393	)	$	(876,967	)	$	183,108

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		Loss			Deficit			Equity
Balance as of December 31, 2020		42,722	$	43	$	822,624	$	1		$	(494,059	)	$	328,609
Balance as of December 31, 2021																	47,241	$	47	$	1,000,212	$	(184	)	$	(625,994	)	$	374,081
Issuance of common stock through employee stock purchase plan		80		—		1,838		—			—			1,838			55		—		2,063		—			—			2,063
Stock option exercises		86		—		380		—			—			380
Stock-based compensation expense		—		—		5,852		—			—			5,852
Unrealized loss on available-for-sale securities		—		—		—		(9	)		—			(9	)
Net loss		—		—		—		—			(30,025	)		(30,025	)
Balance as of March 31, 2021		42,888	$	43	$	830,694	$	(8	)	$	(524,084	)	$	306,645
Issuance of common stock upon follow-on public offering, net of issuance costs		2,946		3		149,082		—			—			149,085
Issuance of common stock for settlement of RSUs		1		—		—		—			—			—			88		—		—		—			—			—
Stock option exercises		390		—		1,723		—			—			1,723			328		1		1,659		—			—			1,660
Stock-based compensation expense		—		—		3,937		—			—			3,937			—		—		5,006		—			—			5,006
Unrealized loss on available-for-sale securities		—		—		—		(20	)		—			(20	)		—		—		—		(465	)		—			(465	)
Net loss		—		—		—		—			(30,208	)		(30,208	)		—		—		—		—			(36,892	)		(36,892	)
Balance as of June 30, 2021		46,225	$	46	$	985,436	$	(28	)	$	(554,292	)	$	431,162
Balance as of March 31, 2022																	47,712	$	48	$	1,008,940	$	(649	)	$	(662,886	)	$	345,453
Issuance of common stock for settlement of RSUs																	52		—		—		—			—			—
Stock option exercises																	233		—		1,042		—			—			1,042
Stock-based compensation expense																	—		—		7,414		—			—			7,414
Unrealized loss on available-for-sale securities																	—		—		—		(306	)		—			(306	)
Net loss																	—		—		—		—			(43,839	)		(43,839	)
Balance as of June 30, 2022																	47,997	$	48	$	1,017,396	$	(955	)	$	(706,725	)	$	309,764

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


	Six Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2023			2022
Cash flows from operating activities:
Net loss	$	(80,731	)	$	(60,233	)	$	(88,017	)	$	(80,731	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		12,420			9,789			18,643			12,420
Depreciation and amortization		2,586			2,553			2,898			2,586
Non-cash lease expense		544			501			603			544
Non-cash interest expense		282			282			914			282
Accretion of discount on investments, net		1,035			435
Accretion (amortization) of discount (premium) on investments, net								(3,353	)		1,035
Provision for inventories		808			325			868			808
Other non-cash items		29			5			180			29
Changes in operating assets and liabilities:
Accounts receivable		964			(9,946	)		(8,919	)		964
Inventories		(15,311	)		(12,116	)		6,114			(15,311	)
Prepaid expenses and other assets		70			570			1,196			70
Accounts payable		684			(2,509	)		1,682			684
Accrued payroll and related benefits		(9,153	)		(1,538	)
Accrued compensation and related benefits								(4,058	)		(9,153	)
Accrued expenses and other current liabilities		8,366			1,508			(3,720	)		8,366
Accrued warranty liability		(260	)		160			547			(260	)
Deferred revenue		1,305			1,117			2,130			1,305
Operating lease liabilities		(548	)		(360	)		(640	)		(548	)
Net cash used in operating activities		(76,910	)		(69,457	)		(72,932	)		(76,910	)
Cash flows from investing activities:
Purchases of property and equipment		(3,475	)		(1,766	)		(1,605	)		(3,475	)
Purchases of investment securities		(133,015	)		(122,401	)		(97,849	)		(133,015	)
Sales and maturities of investment securities		101,784			19,900
Net cash used in investing activities		(34,706	)		(104,267	)
Maturities of investment securities								129,250			101,784
Net cash provided by (used in) investing activities								29,796			(34,706	)
Cash flows from financing activities:
Proceeds from stock option exercises and employee stock purchase plan purchases		4,765			3,941			6,320			4,765
Proceeds from issuance of common stock upon follow-on public offerings, net of issuance costs		0			149,085
Net cash provided by financing activities		4,765			153,026			6,320			4,765
Net decrease in cash, cash equivalents and restricted cash		(106,851	)		(20,698	)		(36,816	)		(106,851	)
Cash, cash equivalents and restricted cash as of beginning of period		215,659			328,283			76,533			215,659
Cash, cash equivalents and restricted cash as of end of period	$	108,808		$	307,585		$	39,717		$	108,808

Supplemental cash flow disclosures:
Cash paid for income taxes	$	283		$	42		$	311		$	283
Cash paid for interest	$	621		$	149		$	5,131		$	621
Cash paid for amounts included in the measurement of operating lease liabilities	$	548		$	360		$	640		$	548
Supplemental non-cash investing and financing activities:
Capital expenditures included in accounts payable and accrued expenses	$	1,613		$	92		$	216		$	1,613
Transfer of inventories to property and equipment	$	0		$	1,294
Right-of-use assets obtained in exchange for operating lease liabilities							$	528		$	—

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

1. Description of Business

Outset Medical, Inc. (the Company) is a medical technology company pioneering a first-of-its-kind technology to reduce the cost and complexity of dialysis. The Tablo® Hemodialysis System (Tablo), cleared by the U.S. Food and Drug Administration (FDA) for use from the hospital to the home, represents a significant technological advancement designed to transform the dialysis experience for patients and operationally simplify it for providers. Tablo serves as a single enterprise solution designed to be utilized across the continuum of care, allowing dialysis to be delivered anytime, anywhere, and by virtually anyone. The integration of water purification and on-demand dialysate production in a single 35-inch compact console enables Tablo to serve as a dialysis clinic on wheels. With a simple-to-use touchscreen interface, two-way wireless data transmission and a proprietary data analytics platform, Tablo is a new holistic approach to dialysis care. The Company’s headquarters are located in San Jose, ~~CA.~~California.

Liquidity

Since inception, the Company has incurred net losses and negative cash flows from operations. During the six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, the Company incurred a net loss of $~~80.7~~88.0 million and $~~60.2~~80.7 million, respectively. As of June 30, ~~2022,~~2023, the Company had an accumulated deficit of $~~706.7~~877.0 million.

As of June 30, ~~2022,~~2023, the Company had cash, cash equivalents, and short-term investments of $~~262.1~~222.8 million, which are available to fund future operations, and restricted cash of $~~33.3~~3.3 million, for a total cash, cash equivalents, restricted cash, and short-term investments balance of $~~295.4~~226.1 million. Management expects to continue to incur significant expenses for the foreseeable future and to incur operating losses in the near term while the Company makes investments to support its anticipated growth. Management believes that the Company’s existing cash, cash equivalents, short-term investments, ~~and~~ cash generated from sales, and proceeds received and currently available from the debt financing described in Note 7, will be sufficient to meet its anticipated needs for at least the next 12 months from the issuance date of the accompanying condensed financial statements.

Basis of Presentation

The accompanying condensed financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, that are necessary for the fair statement of the Company’s financial position, results of operations, comprehensive loss, and cash flows for the interim periods presented. The financial data and the other financial information disclosed in these notes to the condensed financial statements related to the three- and six-month periods are also unaudited. The results of operations for the three and six months ended June 30, ~~2022~~2023 are not necessarily indicative of the results of operations to be anticipated for any other future annual or interim period. The condensed balance sheet as of December 31, ~~2021~~2022 included herein was derived from the audited financial statements as of that date.

These unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements and related notes for the year ended December 31, ~~2021,~~2022, which are included in the Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021~~2022 filed with the Securities and Exchange Commission (SEC) on February ~~23, 2022 (2021~~13, 2023 (2022 Annual Report).

All share amounts disclosed in the notes to the condensed financial statements are rounded to the nearest thousand except for per share data.

2. Summary of Significant Accounting Policies

During the six months ended June 30, 2022, there have been no material changes to the Company’s significant accounting policies as described in its 2021 Annual Report that have had a material impact on the Company’s condensed financial statements and related notes.

Recently ~~Issued~~Adopted Accounting Pronouncements ~~Not Yet Adopted~~

In June 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires an entity to utilize a new impairment model known as the current expected credit loss (CECL) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial assets and certain other instruments, including but not limited to available-for-sale debt securities. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security. ASU 2016-13 requires a cumulative effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective. ~~In November 2019, the FASB issued ASU 2019-10,~~ ~~Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates, which defers the effective date of~~The Company adopted ASU 2016-13 toduring the first quarter of fiscal ~~years beginning after December 15, 2022 for all entities except SEC reporting companies that are not smaller reporting companies. ASU 2016-13 will be effective for the Company beginning January 1,~~year 2023. The ~~Company is currently evaluating~~adoption did not have a material impact on the ~~impact~~Company's financial statements. Please see the description of the Company’s "Credit Losses” accounting policy in the “Significant Accounting Policies” section below.

Significant Accounting Policies

With the exception of the change from accounting for credit losses as a result of the adoption of ASU 2016-13, there have been no new or material changes to the Company’s significant accounting policies as described in its 2022 Annual Report that have had a material impact on the Company’s condensed financial statements and related notes.

Credit Losses

Accounts receivable. The allowance for doubtful accounts is based on the Company’s assessment of the Company’s best estimate of the amount of credit losses in customer accounts. The Company regularly reviews the allowance by considering factors such as existing contractual payment terms, historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. The allowance for doubtful accounts was not significant as of June 30, 2023 and December 31, 2022.

Available-for-sale debt securities. The Company primarily holds U.S. government-sponsored enterprises debt securities, corporate debt securities, commercial paper, U.S. Treasury securities and money market funds. The Company regularly reviews the securities in an unrealized loss position and evaluates the current expected credit loss by considering factors such as historical experience, market data, financial condition and near-term prospects of the investee, the extent of the loss related to the credit of the issuer, and the expected cash flows from the security. The Company segments its ~~financial statements.~~portfolio based on the underlying risk profiles of the securities and has a zero-loss expectation for U.S. treasury and U.S. government-sponsored enterprises debt securities. The basis for this assumption is that these securities have consistently high credit ratings by rating agencies, have a long history with no credit losses, are explicitly guaranteed by a sovereign entity, which can print its own currency, and are denominated in a currency that is routinely held by central banks, used in international commerce, and commonly viewed as a reserve currency. Additionally, all of the Company’s investments in corporate debt securities are in securities with high-quality credit ratings, which have historically experienced low rates of default.

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 June 30,				Six Months Ended June 30,
	2022		2021		2022		2021		2023		2022		2023		2022
Consoles	$	13,228	$	16,857	$	31,279	$	31,623	$	19,684	$	13,228	$	38,547	$	31,279
Consumables		6,393		3,771		14,006		7,215		9,646		6,393		18,562		14,006
Total product revenue		19,621		20,628		45,285		38,838		29,330		19,621		57,109		45,285
Service and other revenue		5,436		4,588		10,322		9,294		6,710		5,436		12,398		10,322
Total revenue	$	25,057	$	25,216	$	55,607	$	48,132	$	36,040	$	25,057	$	69,507	$	55,607

For the three and six months ended June 30, ~~2022,~~2023, $~~0.7~~0.1 million and $~~1.4~~0.2 million of consoles revenue were from console operating lease arrangements, compared to $~~1.3~~0.7 million and $~~2.6~~1.4 million for the three and six months ended June 30, ~~2021.~~2022.

Remaining Performance Obligations and Contract Liabilities

As of June 30, ~~2022,~~2023, the aggregate amount of the transaction price allocated to the remaining performance obligations related to customer service contracts that are unsatisfied or partially unsatisfied was $~~8.0~~11.0 million, which is recorded as deferred revenue on the Company’s condensed balance sheets. Of that amount, $~~7.8~~10.9 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 months ended June 30, ~~2022,~~2023, the Company recognized $~~1.7~~2.4 million and $~~4.2~~6.2 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										June 30, 2023
	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	$	26,535	$	—	$	—		$	26,535
U.S. Treasury securities											Level 1		2,998		1		—			2,999
Short-term investments:
U.S. Treasury securities	Level 1		76,950		—		(518	)		76,432	Level 1		89,475		—		(242	)		89,233
U.S. government-sponsored enterprises debt securities											Level 2		53,110		10		(158	)		52,962
Corporate debt	Level 2		78,645		—		(437	)		78,208	Level 2		4,450		—		(4	)		4,446
Commercial paper	Level 2		31,925		—		—			31,925	Level 2		39,762		—		—			39,762
Total cash equivalents and short-term investments		$	218,873	$	—	$	(955	)	$	217,918		$	216,330	$	11	$	(404	)	$	215,937


		December 31, 2021										December 31, 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	$	60,844	$	—	$	—		$	60,844	Level 1	$	42,834	$	—	$	—		$	42,834
U.S. government-sponsored enterprises debt securities											Level 2		7,965		—		—			7,965
Short-term investments:
U.S. Treasury securities	Level 1		18,064		—		(60	)		18,004	Level 1		133,473		9		(447	)		133,035
U.S. government-sponsored enterprises debt securities											Level 2		26,404		42		(14	)		26,432
Corporate debt	Level 2		124,178		2		(125	)		124,055	Level 2		29,831		—		(154	)		29,677
Commercial paper	Level 2		15,081		—		—			15,081	Level 2		25,136		—		—			25,136
Total cash equivalents and short-term investments		$	218,167	$	2	$	(185	)	$	217,984		$	265,643	$	51	$	(615	)	$	265,079

As of June 30, ~~2022,~~2023, the remaining contractual maturities for available-for-sale securities were one month to ~~thirteen~~fourteen months.

~~Impairment assessments are made~~The following tables present the breakdown of the available-for-sale debt securities with unrealized losses as of June 30, 2023, and December 31, 2022 (in thousands):


	June 30, 2023
	Unrealized losses less than 12 months					Unrealized losses 12 months or greater					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasury securities	$	86,246	$	(242	)	$	—	$	—		$	86,246	$	(242	)
U.S. government-sponsored enterprises		48,126		(158	)		—		—			48,126		(158	)
Corporate debt		2,945		(3	)		1,499		(1	)		4,444		(4	)
Total	$	137,317	$	(403	)	$	1,499	$	(1	)	$	138,816	$	(404	)


	December 31, 2022
	Unrealized losses less than 12 months					Unrealized losses 12 months or greater					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasury securities	$	95,499	$	(343	)	$	12,895	$	(103	)	$	108,394	$	(446	)
U.S. government-sponsored enterprises		16,464		(14	)		—		—			16,464		(14	)
Corporate debt		21,480		(142	)		8,196		(13	)		29,676		(155	)
Total	$	133,443	$	(499	)	$	21,091	$	(116	)	$	154,534	$	(615	)

The unrealized losses on the Company’s available-for-sale debt securities were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at ~~the individual security level at each reporting period. When the fair value of an available-for-sale security is~~a price 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.~~basis of the investments. As of June 30, ~~2022, there were three securities with a total fair value~~2023, the Company does not intend to sell the investments, and it is not more likely than not that the Company will be required to sell the investments before recovery of $~~18.0~~ ~~million~~their amortized cost basis, which may be at maturity. Additional factors considered in ~~an unrealized loss position for more than 12 months. The~~determining the treatment of unrealized losses ~~totaling $89,000~~ asinclude the financial condition and near-term prospects of ~~June 30, 2022 were caused by changes in market interest rates or~~ the ~~widening~~investee, the extent of ~~market spreads subsequent to~~ the ~~initial purchase of these securities, and not~~loss related to the ~~underlying~~ credit of the ~~issuers or~~issuer, and 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,~~expected cash flows from the ~~Company did not consider these investments to be other-than-temporarily impaired as of June 30, 2022. During~~security. For the three and six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, the Company did 0not recognize ~~other-than-temporary impairment losses~~credit loss related to ~~its investment~~available-for-sales debt securities.

5. Balance Sheet Components

Cash, Cash Equivalents and Restricted Cash

As of June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the restricted cash balance of $~~33.3~~3.3 million, ~~primarily relates~~respectively, was related to ~~contractual obligations under~~collateral for the ~~SVB Loan and Security Agreement (see Note 7) and collateral for~~Company’s building leases in San Jose, CA and Tijuana, Mexico.

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


	June 30,				June 30,
	2022		2021		2023		2022
Cash and cash equivalents	$	75,497	$	274,274	$	36,388	$	75,497
Restricted cash		33,311		33,311		3,329		33,311
Total cash, cash equivalents and restricted cash	$	108,808	$	307,585	$	39,717	$	108,808

Inventories

Inventories consist of the following (in thousands):


	June 30,		December 31,		June 30,		December 31,
	2022		2021		2023		2022
Raw materials	$	20,731	$	18,114	$	20,771	$	20,623
Work in process		9,434		6,054		11,062		9,086
Finished goods		23,524		15,017		12,662		21,767
Total inventories	$	53,689	$	39,185	$	44,495	$	51,476

Accrued Expenses and Other Current Liabilities

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

June 30,

December 31,

2022

2021

Accrued inventory

$
9,904

$
4,808

Accrued research and development expenses

1,113

574

Accrued professional services

1,745

1,269

Accrued rebate

3,737

3,121

Other

6,762

4,017

Total accrued expenses and other current liabilities

$
23,261

$
13,789


	June 30,		December 31,
	2023		2022
Inventory	$	3,404	$	5,585
Research and development expenses		868		908
Professional services		1,345		1,261
Customer rebates		2,126		1,364
Other		4,907		7,109
Total accrued expenses and other current liabilities	$	12,650	$	16,227

6. Commitments and Contingencies

Litigation

On July 8, 2022, a purported stockholder class action lawsuit was filed in the U.S. District Court for the Northern District of California, naming the Company, its Chief Executive Officer, Chief Financial Officer, and former Chief Financial Officer as defendants. The complaint alleges that between September 15, 2020 and June 13, 2022, the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (Exchange Act) 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. The Company intends to vigorously defend against this litigation. The case is at a very early stage and there can be no assurance that the Company will be successful in its defense. For this same reason, the Company cannot currently estimate the loss or the range of possible losses it may experience in connection with this litigation.

~~In addition, from~~From time to time, the Company may become involved in ~~other~~ legal proceedings or investigations, which could have an adverse impact on its reputation, business and financial condition and divert the attention of the Company’s management from the operation of the Company’s business.
The Company is not presently a party to any legal proceedings that, if determined adversely to the Company, would individually or taken together have a material adverse effect on its business, results of operations, financial condition or cash flows.

Indemnification

In the ordinary course of business, the Company often includes standard indemnification provisions in its arrangements with its partners, customers and suppliers. Pursuant to these provisions, the Company may be obligated to indemnify such parties for losses or claims suffered or incurred in connection with its service, breach of representations or covenants, intellectual property infringement or other claims made against such parties. These provisions may limit the time within which an indemnification claim can be made. It is not possible to determine the maximum potential amount under these indemnification obligations due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. To date, the Company has not incurred any material costs as a result of such indemnification obligations and has not accrued any liabilities related to such obligations in these financial statements.

7. Term Loan

Term loan consists of the following (in thousands):

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


	June 30,			December 31,
	2023			2022
Principal of term loan	$	100,000		$	100,000
Unamortized debt discount		(3,371	)		(3,664	)
Term loan, noncurrent	$	96,629		$	96,336

~~SVB Loan and Security Agreement~~SLR Credit Facilities

On ~~July 2, 2020,~~November 3, 2022 (the Closing Date), the Company entered into atwo 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 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 ~~Silicon Valley Bank (SVB)~~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 ~~SVB~~SLR Revolver, together with the SLR Term Loan ~~and Security Agreement), which provides for a $30.0~~ ~~million term loan (the SVB Term Loan)~~Facility, the SLR Credit Facilities).

The ~~SVB~~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.

SLR Term Loan ~~matures~~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 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, ~~2025~~2027.

. ~~Payments~~Any principal amount outstanding under the ~~SVB~~ Term ~~Loan are for interest only through~~ ~~May 2023, and then~~ 30 ~~monthly principal and interest payments from June 2023 until maturity.~~ ~~The SVB Term Loan bears~~Loans will accrue interest at ~~the greater of (A)~~a rate per annum equal to one-month term Secured Overnight Financing Rate (term SOFR) (subject to a ~~0.5~~2.75% ~~above the Prime Rate as reported in the Wall Street Journal and (B) 3.75%~~floor), plus 5.15% (~~5.25~~10.29% as of June 30, ~~2022)~~2023), 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 ~~maintain~~pay Agent (i) a ~~restricted cash balance greater~~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 ~~balance~~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 $~~30.0~~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 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.

In November 2022, the Company borrowed $100.0 million under the Term A Loan on the Closing Date and incurred debt issuance costs of $3.8 million which were recorded as a direct deduction from the Term A Loan on the balance sheets and are being recognized as non-cash interest expense over the term of the ~~SVB~~loan using the effective interest method, along with the final payment fee. The facility fees of $0.9 million related to the Term ~~Loan.~~B Loan and the Initial Revolver Commitment were recorded as deferred financing costs and are being recognized as non-cash interest expense over their respective commitment period using straight-line method.

8. Equity Incentive Plan

Equity Incentive Plans

~~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 30, ~~2022,~~2023, ~~5,022,000~~4,808,000 shares were reserved for future issuance under the 2020 ~~Plan.~~Equity Incentive Plan (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 30, ~~2022,~~2023, ~~1,416,000~~1,456,000 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 2022 Home PSUs) and (2) the ~~Company's~~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 2022 Relative TSR PSUs). In 2023, the Company issued additional PSUs (2023 Home PSUs and 2023 Relative TSR PSUs) and RSUs to its CEO, other executive officers and certain other senior leaders under terms that are substantially the same except that the performance and vesting periods extend through 2025.

The 2023 target for the 2022 Home PSUs was approved by the Compensation Committee in early 2023. Therefore, the grant date and the fair value for these 2022 Home PSUs were established and the associated expense is being recognized over the remaining service period.

The 2024 target for the 2023 Home PSUs is expected to be determined and approved by the Compensation Committee in late ~~2022~~2023 or early ~~2023.~~2024. Given such target has not yet been established, the grant date for these 2023 Home PSUs will only be established when the Compensation Committee approves and the Company communicates the target to the award recipients, which will then trigger the service inception date, the fair value of the awards, and the associated expense recognition period. Therefore, no expense is expected to be recognized for these 2023 Home PSUs until the grant date is established.

1113

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				Six Months Ended
	June 30,				June 30,				June 30,				June 30,
	2022		2021		2022		2021		2023		2022		2023		2022
Cost of revenue	$	190	$	62	$	283	$	137	$	403	$	190	$	761	$	283
Research and development		1,808		643		2,966		1,808		2,824		1,808		5,439		2,966
Sales and marketing		2,864		1,052		4,570		2,794		3,545		2,864		6,143		4,570
General and administrative		2,552		2,180		4,601		5,050		3,333		2,552		6,300		4,601
Total stock-based compensation expense	$	7,414	$	3,937	$	12,420	$	9,789	$	10,105	$	7,414	$	18,643	$	12,420

9. Income Taxes

For each of the three and six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, the Company incurred an income tax provision of an insignificant amount, which primarily related to foreign income ~~taxes.~~taxes related to the Company’s Mexico operations. The U.S. federal and state net deferred tax assets have been fully offset by a valuation allowance, as the Company believes it is not more likely than not that the deferred tax assets will be realized.

10. Net Loss Per Share

The following outstanding potentially dilutive shares were excluded from the calculation of diluted net loss per share due to their anti-dilutive effect (in thousands):


									Three Months Ended				Six Months Ended
	Three Months Ended June 30,				Six Months Ended June 30,				June 30,				June 30,
	2022		2021		2022		2021		2023		2022		2023		2022
Stock options to purchase common stock		2,900		4,653		2,900		4,653		2,162		2,900		2,162		2,900
Restricted stock units		1,513		473		1,513		473		2,707		1,513		2,707		1,513
Performance stock units		31		—		31		—		107		31		107		31
Shares committed under ESPP		101		27		101		27		65		101		65		101
Warrant to purchase common stock		63		63		63		63		63		63		63		63
Total		4,608		5,216		4,608		5,216		5,104		4,608		5,104		4,608

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~~2022 Annual Report. As used in this Quarterly Report, references to the “Company,” “we,” “us,” “our,” or similar terms refer to Outset Medical, Inc.

In addition to historical financial information, this discussion and other parts of this report contain forward-looking statements within the meaning of the federal securities laws. All statements other than statements of historical fact contained in this Quarterly Report are forward-looking statements. The forward-looking statements in this report are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Such risks and uncertainties include those described throughout this Quarterly Report, including in this discussion as well as in the section titled “Risk Factors” under Part II, Item 1A below. The forward-looking statements in this Quarterly Report are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements, like all statements in this report, speak only as of their date, and, except as required by law we undertake no obligation to update or revise these statements, whether as a result of any new information, future developments or otherwise. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

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

Tablo leverages cloud technology, making it possible for providers to monitor devices and treatments remotely, perform patient and population analytics, and automate clinical recordkeeping, while also enabling us to release features and enhancements through over-the-air updates. Tablo’s connectedness also allows it to continually stream more than 500,000 device performance data points after every treatment. We use this data, in conjunction with our diagnostic and predictive algorithms, to determine failure types and, in some instances, predict failures before they occur. In effect, this contributes to a reduction in service hours and an increase in device uptime.

We have generated meaningful evidence to demonstrate that providers can realize significant operational efficiencies, including reducing the cost of their dialysis programs by up to 80% in the intensive care unit. In addition, Tablo has been shown to deliver robust clinical care. In studies and surveys, we have conducted, patients have reported ~~experiencing fewer symptoms and better~~ quality ~~sleep while~~of life benefits on ~~Tablo.~~Tablo compared to other dialysis machines. We believe Tablo empowers patients, who have traditionally been passive recipients of care, to regain agency and ownership of their treatment.

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 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~~utilized for home-based dialysis. ~~Our~~We believe our ability to reduce training time, patient dropout, and the supplies and infrastructure required to deliver dialysis in the home can drive efficiency and economic improvements to the home care model. In our home investigational device exemption (IDE) trial, patients reported specific quality of life improvements compared to their experience on the incumbent home dialysis machine. To penetrate this market successfully, we continue to focus on refining our home distribution, logistics and support systems to help ensure they are ready for ~~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.

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 our 510(k) application of Tablo for patient use in the home and we resumed marketing and shipping Tablo for home use.

On July 6, 2023, we received a warning letter (the “Warning Letter”) from the FDA that raised two observations. The first observation asserts that certain content reviewed by the FDA and found on our website promotes continuous renal replacement therapy (CRRT), a modality outside of the current indications for the Tablo Hemodialysis System. The second observation asserts that TabloCart with Prefiltration requires prior 510(k) clearance for marketing authorization. TabloCart with Prefiltration is an accessory to the Tablo System launched in the third quarter of 2022. We timely submitted a response to the FDA in late July 2023. As communicated in our response, we believe we have taken or committed to take appropriate measures to resolve the matters raised in the Warning Letter. We believe the concern raised by the first observation regarding CRRT promotion has been effectively addressed through labeling and promotional changes that have already been completed. With regard to the second observation, we have agreed to submit a 510(k) application for TabloCart with Prefiltration. Although we evaluated TabloCart with Prefiltration prior to marketing and distributing the product and concluded that no marketing authorization was necessary, we have paused distribution of TabloCart with Prefiltration pending the FDA’s review and clearance of the 510(k) application we plan to submit. We have not identified any safety issues with TabloCart with Prefiltration. While we remain committed to fully cooperating with the FDA to expeditiously and completely resolve the Warning Letter, we cannot guarantee that the FDA will be satisfied with our response or the remedial measures we have taken or committed to take, nor can we give any assurances as to the timing of the resolution of such matters, including the clearance of the 510(k) application and our resumption of distribution of TabloCart with Prefiltration.

We primarily sell our solutions through our direct sales organization, which covers most major metropolitan markets in the United States. ~~As of June 30, 2022, our~~Our sales organization ~~was~~is comprised of 36our capital sales team, ~~members,~~ responsible for generating new customer demand for Tablo, and 97our 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. Our field sales and service teams represent 46% of our total full-time employees as of June 30, 2023. The same sales organization and field service team ~~have driven~~drive 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,~~cartridges, 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~~$36.0 million and ~~$25.2~~$25.1 million for the three months ended June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and ~~$55.6~~$69.5 million and ~~$48.1~~$55.6 million for the six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

Historically, we have financed our operations and capital expenditures primarily through sales of redeemable convertible preferred stock and common stock, revenue from sales, and debt financing. Since our inception, we have incurred net losses in each year. For the three months ended June 30, ~~2022~~2023 and ~~2021,~~2022, we incurred net losses of ~~$43.8~~$44.0 million and ~~$30.2~~$43.8 million, respectively, and for the six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, we incurred net losses of ~~$80.7~~$88.0 million and ~~$60.2~~$80.7 million, respectively. As of June 30, ~~2022,~~2023, we had an accumulated deficit of ~~$706.7~~$877.0 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 momentum in, our home commercialization and marketing as we re-engage with 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~~during 2021, we ~~successfully began production~~fully insourced console manufacturing at our own ~~console~~ manufacturing facility in Tijuana, Mexico which we operate in collaboration with our outsourced business administration service provider, ~~TACNA.~~TACNA Services (TACNA). Second, ~~following~~during 2022, we moved production of a majority of Tablo cartridges from our ~~receipt~~contract manufacturer in Southeast Asia to a contract manufacturer in Mexico, which helped us achieve cost reductions through lower freight costs and mitigate against global supply chain challenges. At the end of ~~510(k) clearance from the FDA for the new cartridge sterilization method in the fourth quarter~~2022, we initiated production of ~~2021, we have qualified a second source to increase~~ Tablo ~~cartridge production through a new~~cartridges in-house at our manufacturing ~~partner~~facility in Mexico which we ~~anticipate will result~~operate in ~~cost reductions from lower freight costs.~~collaboration with TACNA in an effort to help further our long-term gross margin expansion and supply continuity strategies and improve the flexibility of our operations. Third, we will continue to ~~drive scale across~~use our ~~console platform~~design, engineering and manufacturing capabilities to ~~leverage our supply base~~help further advance and ~~help~~ improve the efficiency of our manufacturing ~~efficiency.~~processes and lower our costs of production. Fourth, we will continue to utilize our cloud-based data system, as well as enhanced product performance, to help drive down the cost of service. Our ability to grow our business will depend in part on ~~these~~our ability to control the average selling prices of our products and services, including by selling higher-margin hardware and software accessories and consumables. In addition, our gross margin will further depend on the aforementioned and other measures to control the costs of our ~~products being successful.~~products. Likewise, it will be important that we effectively manage the costs of generating our service revenue.

~~Our~~Global macroeconomic conditions, including global supply chain disruptions, inflationary pressures, rising interest rates, increased labor costs and labor shortages, may impact our business ~~may be impacted by an escalation or a continuation~~and results 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 certainthose of our ~~third-party suppliers, resulting in increased lead-times, higher component costs,~~customers, manufacturing partners and ~~lower allocations for~~suppliers. As the duration and severity of these macroeconomic conditions remain uncertain and depend on various factors, we cannot predict what effects these macroeconomic conditions will ultimately have on our ~~purchase~~business and results 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,operations, on our customers, or ~~incur higher logistical expenses.~~ on our suppliers.

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,~~ However, macroeconomic factors such as rising inflation, increasing labor costs, and surges and shifts in consumer demand, ascontinue to disrupt 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 resultedoperations of certain of our third-party suppliers, resulting, in ~~labor shortages, container and chassis shortages, reduced carrier capacity, carrier delays and longer~~some cases, in increased lead times ~~shipment receiving~~ and ~~unloading backlogs at many U.S. ports, and escalating freight~~higher component costs. ~~During the fourth quarter of 2021, these supply chain disruptions escalated, and~~In addition, we ~~are facing~~faced increased supply chain constraints during late 2021, 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. InDuring the ~~fourth quarter~~first half of ~~2021,~~2023, we ~~qualified~~have seen moderation in these costs. Moreover, we believe that transitioning production of a ~~second source~~majority of Tablo cartridges during 2022 to ~~increase Tablo cartridge~~a Mexico-based manufacturer helped us achieve cost reductions through lower freight costs, and that our efforts to initiate production ~~through a new~~of cartridges in-house at our manufacturing ~~partner~~facility in ~~Mexico. While we anticipate that this second source~~Mexico at the end of 2022 will help ~~mitigate~~further our long-term gross margin expansion and supply ~~chain challenges~~continuity strategies and ~~reduce~~improve the ~~need for costly and capacity-constrained air freight delivery~~flexibility of ~~the cartridges,~~our operations. However, 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.

~~The extent, duration~~ Further, a sustained rise in material 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 itsfreight costs could also unfavorably 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~~operating margins 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.operations.

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 recent COVID-19 pandemic. As competition for these healthcare professionals has intensified, providers are facing increased difficulties attracting and retaining skilled clinical personnel, resulting in increased costs, staffing shortages and other disruptions. These challenging labor market conditions in the healthcare industry have been heightened by the increased demand for, and demand upon, nurses and other ~~staff 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 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~~negatively impacted our customer base on pipeline development and installation schedules, which, in turn, negatively impacted our bookings, delayed our shipments and adversely impacted our revenues for 2022. While we have seen stabilization in these challenging hospital staffing dynamics in the ~~second quarter~~first half of ~~2022. If~~2023 as compared to the prior year, 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.

In 2022, we launched a pilot clinical and administrative services program designed to help bridge our healthcare provider customers, particularly those challenged by staffing shortages, as they transition from using an outsourced inpatient dialysis provider to offering on-site inpatient dialysis services on their own. In return for a fair market value service fee, we assign members of our own employed nurses on a temporary basis to support participating providers to launch and manage an inpatient dialysis program using Tablo and, as full-time staff is hired, to help train and onboard those nurses. This pilot program is still in its relatively early stages and may not be successful in achieving the objectives we intend and anticipate and ultimately, it may fail to meet our customers’ expectations, any of which could harm our reputation and customer relationships. In addition, the program may not generate sufficient returns to justify our investment, or may result in unanticipated costs, which could adversely impact our operating margins and results of operations.

The following table summarizes our results of operations for the three and six months ended June 30, ~~2022~~2023 and ~~2021~~2022 (in thousands):


	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	June 30,						June 30,						June 30,						June 30,
	2022			2021			2022			2021			2023			2022			2023			2022
Revenue:
Product revenue	$	19,621		$	20,628		$	45,285		$	38,838		$	29,330		$	19,621		$	57,109		$	45,285
Service and other revenue		5,436			4,588			10,322			9,294			6,710			5,436			12,398			10,322
Total revenue		25,057			25,216			55,607			48,132			36,040			25,057			69,507			55,607
Cost of revenue:
Cost of product revenue		17,718			22,077			40,828			42,654			22,212			17,718			43,029			40,828
Cost of service and other revenue		3,557			2,087			6,555			4,137			6,125			3,557			12,347			6,555
Total cost of revenue		21,275			24,164			47,383			46,791			28,337			21,275			55,376			47,383
Gross profit		3,782			1,052			8,224			1,341			7,703			3,782			14,131			8,224
Operating expenses:
Research and development		13,521			8,032			24,352			15,602			14,906			13,521			28,699			24,352
Sales and marketing		23,198			13,204			43,575			26,353			24,985			23,198			49,318			43,575
General and administrative		10,784			9,722			20,493			18,968			11,290			10,784			23,077			20,493
Total operating expenses		47,503			30,958			88,420			60,923			51,181			47,503			101,094			88,420
Loss from operations		(43,721	)		(29,906	)		(80,196	)		(59,582	)		(43,478	)		(43,721	)		(86,963	)		(80,196	)
Interest income and other income, net		459			164			579			276			2,668			459			5,316			579
Interest expense		(481	)		(431	)		(903	)		(853	)		(3,103	)		(481	)		(6,045	)		(903	)
Loss before provision for income taxes		(43,743	)		(30,173	)		(80,520	)		(60,159	)		(43,913	)		(43,743	)		(87,692	)		(80,520	)
Provision for income taxes		96			35			211			74			133			96			325			211
Net loss	$	(43,839	)	$	(30,208	)	$	(80,731	)	$	(60,233	)	$	(44,046	)	$	(43,839	)	$	(88,017	)	$	(80,731	)

Comparison of the Three and Six Months Ended June 30, ~~2022~~2023 and ~~2021~~2022


	Three Months Ended June 30,				Change						Six Months Ended June 30,				Change					Three Months Ended June 30,				Change					Six Months Ended June 30,				Change
(dollars in thousands)	2022		2021		$			%			2022		2021		$		%			2023		2022		$		%			2023		2022		$		%
Revenue:
Product revenue	$	19,621	$	20,628	$	(1,007	)		(5	)%	$	45,285	$	38,838	$	6,447		17	%	$	29,330	$	19,621	$	9,709		49	%	$	57,109	$	45,285	$	11,824		26	%
Service and other revenue		5,436		4,588		848			18	%		10,322		9,294		1,028		11	%		6,710		5,436		1,274		23	%		12,398		10,322		2,076		20	%
Total revenue	$	25,057	$	25,216		(159	)		(1	)%	$	55,607	$	48,132		7,475		16	%	$	36,040	$	25,057		10,983		44	%	$	69,507	$	55,607		13,900		25	%

Product revenue ~~decreased~~increased by ~~$1.0~~$9.7 million or 5%49% for the three months ended June 30, ~~2022~~2023 as compared to the same ~~quarter~~period in the prior year. This ~~decrease~~increase was driven by a ~~$3.6~~$6.5 million ~~decrease~~increase in ~~consoles~~console 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~~$3.2 million increase in consumables revenue ~~driven by the~~due to growth in our console installed base.

Product revenue increased by ~~$6.4~~$11.8 million, or ~~17%~~26% for the six months ended June 30, ~~2022~~2023 as compared to the same period in the prior ~~year,~~year. This increase was driven by a ~~$6.8~~$7.3 million increase in console revenue and a $4.5 million increase in consumables revenue attributable to ~~the~~ growth in our console installed base and higher average selling price for consumables. This increase was partially offset by a net $0.3 million decrease in consoles revenue which, in turn, was comprised of a $1.2 million decrease in console leasing revenue, offset by a $0.9 million increase resulting from a higher volume of consoles sold at higher average selling price.base.

Service and other revenue increased for the three and six months ended June 30, ~~2022~~2023 as compared to the same ~~periods~~period in the prior year. The increase was primarily due to services associated with the growth in our console installed base, which was partially offset by ~~a decrease in service revenue from leased consoles.~~

~~In May 2022, we implemented a shipment hold on~~ the ~~distribution and marketing~~expiration 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 of 2022, as well as on our pipeline of potential new deals. While we have resumed

marketing and shipping Tablo for home use, we may continue to experience 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. In addition, we anticipate that our revenues may continue to be negatively impacted by the staffing challenges and, potentially, other macroeconomic factors highlighted above, affecting our customers. While we plan to take 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.certain lease agreements.

Gross profit increased by ~~$2.7~~$3.9 million or ~~260%~~104% for the three months ended June 30, ~~2022~~2023 as compared to the same ~~quarter~~period in the prior year. ~~The gross~~Gross margin ~~percentage~~ improved by ~~10.9~~6.3 percentage points for the three months ended June 30, ~~2022,~~2023 as compared to the same ~~quarter~~ period

in the prior year. ~~This improvement~~The improvements in gross profit and gross margin ~~was~~were primarily driven by the impact of ~~our~~ cost reduction activities ~~and the product revenue mix.~~for consoles. Such improvement was partially offset by ~~the~~ lower service gross margin ~~of service and other revenue~~mainly due to the ~~planned~~ expiration of ~~a component of a customer~~certain lease ~~agreement.~~agreements.

Gross profit increased by ~~$6.9~~$5.9 million or ~~513%~~72% for the six months ended June 30, ~~2022~~2023 as compared to the same period in the prior year. Gross margin improved by 5.5 percentage points for the six months ended June 30, 2023 as compared to the same period in the prior year. The improvements in gross profit and gross margin ~~percentage improved~~were primarily driven by ~~12.0 percentage points~~the impact of cost reduction activities and a higher average selling price for consoles. Such improvement was partially offset by lower service gross margin mainly due to the expiration of certain lease agreements.

Research and development expenses increased for the three and six months ended June 30, ~~2022,~~2023 as compared to the same period in the prior year. ~~This improvement in gross profit and gross margin~~The increase was primarily driven by the impact of our cost reduction activities 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 lease agreement.

Research and development expenses increased by $5.5 million, or 68% 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, resulting in increased fixed and ~~higher consulting services to support our product development activities. In addition, there were~~share-based compensation expense, increased supplies and materials costs, and increased infrastructure costs, ~~to support our growth.~~partially offset by lower consulting expenses.

Sales and marketing expenses increased by ~~$10.0~~$1.8 million or ~~76%~~8% for the three months ended June 30, ~~2022~~2023 as compared to the same ~~quarter~~period in the prior year. The increase was primarily driven by higher ~~headcount~~commission expense due to an increase in sales, increased share-based compensation expense, and increased infrastructure costs to support our ~~growth. In addition, there were higher travel and freight expenses for the three months ended June 30, 2022, as compared with the same quarter in the prior year. This increase was slightly~~growth, partially offset by lower freight expense and lower consulting expenses.

Sales and marketing expenses increased by ~~$17.2~~$5.7 million or ~~65%~~13% for the six months ended June 30, ~~2022~~2023 as compared to the same period in the prior year. The increase was primarily driven by the timing of national sales and service meetings, increased fixed and share-based compensation expense, higher commission expense due to an increase in sales, and increased infrastructure costs to support our growth, partially offset by lower consulting expenses.

General and administrative expenses increased by $0.5 million or 5% for the three months ended June 30, 2023 as compared to the same period in the prior year. The increase was primarily driven by increased share-based compensation expense, partially offset by a decrease in insurance expenses.

General and administrative expenses increased by $2.6 million or 13% for the six months ended June 30, 2023 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~~consulting expenses, and higher ~~sales, and increased~~ infrastructure costs, to support our growth. In addition, there were higher travel and freight expenses for the six months ended June 30, 2022, as compared with the same quarter in the prior year. This increase was partially offset by lower consulting expenses.

General and administrative expenses increased by $1.1 million or 11% for the three months ended June 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.~~

General and administrative expenses increased by $1.5 million or 8% for the six months ended June 30, 2022 as compared to the same period in the prior year. The increase was primarily driven by higher headcount and increased infrastructure 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.~~expenses.


	Three Months Ended June 30,						Change						Six Months Ended June 30,						Change						Three Months Ended June 30,						Change						Six Months Ended June 30,						Change
(dollars in thousands)	2022			2021			$			%			2022			2021			$			%			2023			2022			$			%			2023			2022			$			%
Other income (expenses), net:
Interest income and other income, net	$	459		$	164		$	295			180	%	$	579		$	276		$	303			110	%	$	2,668		$	459		$	2,209			481	%	$	5,316		$	579		$	4,737			818	%
Interest expense		(481	)		(431	)		(50	)		12	%		(903	)		(853	)		(50	)		6	%		(3,103	)		(481	)		(2,622	)		545	%		(6,045	)		(903	)		(5,142	)		569	%
Total other expenses, net	$	(22	)	$	(267	)		245			(92	)%	$	(324	)	$	(577	)		253			(44	)%	$	(435	)	$	(22	)		(413	)		1,877	%	$	(729	)	$	(324	)		(405	)		125	%

The increase in interest income and other income, net for the three and six months ended June 30, ~~2022~~2023 as compared to the same periods in the prior year was driven by higher interest ~~rates.~~rates and a higher average short-term investments balance in 2023.

~~Interest~~The increase in interest expense for the three and six months ended June 30, ~~2022 were relatively consistent~~2023 was due to the higher interest expense and outstanding balance under the SLR Term Loan Facility in 2023 as compared to the lower interest expense and outstanding balance under our prior term loan facility with ~~the amounts for the same periods~~Silicon Valley Bank in ~~the prior year.~~2022.

As of June 30, ~~2022,~~2023, we had cash, cash equivalents and short-term investments of ~~$262.1~~$222.8 million, which are available to fund future operations, and restricted cash of ~~$33.3~~$3.3 million, for a total cash, cash equivalents, restricted cash and short-term investments balance of ~~$295.4~~$226.1 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,~~financing, and proceeds from employee exercise of stock ~~option exercises~~options and ~~employee stock~~ESPP purchases.

We expect to continue to incur significant expenses for the foreseeable future and to incur operating losses in the near term while we make investments to support our anticipated growth. We may raise additional capital through the issuance of additional equity financing, debt ~~financings,~~financing, including through refinancing our existing debt, or other sources. If this financing is not available to us at adequate levels or on acceptable terms, we may need to reevaluate our operating plans. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our existing stockholders’ rights. ~~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, and proceeds received and currently available from the debt financing described in Note 7 of ~~our products and services,~~the accompanying condensed financial statements above, will be sufficient to meet our anticipated needs for at least the next 12 months from the issuance date of this Quarterly Report.

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

The net cash used in operating activities of ~~$76.9~~$72.9 million for the six months ended June 30, ~~2022~~2023 was due to a net loss of ~~$80.7~~$88.0 million, theamortization of premiums on investments of $3.4 million and a net cash outflow from the change in our operating assets and liabilities of ~~$13.9~~$5.7 million, which were ~~partially offset~~adjusted by ~~adjustments for~~ stock-based compensation expense of ~~$12.4~~$18.6 million, depreciation and amortization of ~~$2.6~~$2.9 million, ~~accretion~~non-cash interest expense of ~~discount on investments of $1.0~~$0.9 million, provision for inventories of ~~$0.8~~$0.9 million, non-cash lease expense of ~~$0.5~~$0.6 million and other non-cash ~~interest expense~~items 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 due to anticipated demand and to mitigate supply chain disruptions, a decrease in accrued payroll and related benefits, a decrease in operating lease liabilities and accrued warranty liability. The net cash outflow from operating assets and liabilities was partially offset by 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$0.2 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~~collection, a decrease in accrued ~~payroll~~compensation and related benefits, and a decrease in ~~operating lease liabilities.~~accrued expenses and other current liabilities due to timing of vendor payments. The net cash outflow from operating assets and liabilities was partially offset by a decrease in inventories as a result of the timing of inventory purchases and our effort to optimize working capital, an increase in deferred revenue ~~as a result of the~~due to growth ofin our business, ~~an increase~~a decrease in accounts payable due to timing of vendor payments, and a decrease in prepaid expenses and other ~~assets, and an increase in accrued warranty liability.~~assets.

The net cash ~~used in~~provided by investing activities of ~~$34.7~~$29.8 million for the six months ended June 30, ~~2022~~2023 was due ~~primarily~~ to the maturities of short-term investment securities of $129.3 million, which was partially offset by the purchases of short-term investment securities of ~~$133.0~~$97.8 million and the purchases of property and equipment of ~~$3.5 million, partially offset by the sales and maturities of 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$1.6 million.

The net cash provided by financing activities of ~~$4.8~~$6.3 million for the six months ended June 30, ~~2022~~2023 was due to the proceeds ~~of $4.8 million~~ from employee exercises of stock options and ESPP purchases.

The net cash provided by financing activities of $153.0 million for the six months ended June 30, 2021 was due primarily to the net proceeds of $149.1 million from the issuance of our common stock upon the follow-on offering and 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.~~

Management’s discussion and analysis of the financial condition and results of operations is based on the financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the

date of the financial statements, as well as the reported revenues and expenses incurred during the reporting periods. The estimates are based on historical experience and on various other factors that are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

There have been no new or significant changes in our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our ~~2021~~2022 Annual Report. ~~For additional information, please refer to Note 2 to our unaudited condensed financial statements in this Quarterly Report.~~

~~See Note 2~~In April 2023, we adopted a recoupment (or “clawback”) policy that applies to incentive compensation paid to current and certain former executive officers that was based on incorrect financial performance measures. Under the policy, if we are required to prepare an accounting restatement due to the material noncompliance of any financial reporting requirement under applicable securities laws, the Compensation Committee of our ~~unaudited condensed~~Board of Directors is required to cause us to recoup from each executive officer who was employed during the three preceding fiscal years the excess of the incentive compensation received by the executive officer during such three-year period, based on the erroneous financial ~~statements included elsewhere in this Quarterly Report for more~~information, over the incentive compensation that would have been received by the executive if it had been calculated based on the restated financial information. The policy is intended to comply with the requirements of Securities and Exchange Commission rules and Nasdaq Stock Market (Nasdaq) listing standards implementing Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and will be amended to the extent required to reflect the final Nasdaq listing standards once they are issued.

~~There has been no material change in the nature of the Company’s~~Our market risks related to interest rate ~~risks or~~and foreign currency exchange ~~risks from those~~rates are described in Part II Item 7A of our ~~2021~~2022 Annual Report. Our exposure to market risks has not changed materially since December 31, 2022.

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”~~From time to time we may become involved in ~~Note 6, Commitments~~legal proceedings or investigations, which could have an adverse impact on our reputation, business and ~~Contingencies,~~financial condition and divert the attention of our management from the ~~notes accompanying~~operation of our ~~unaudited condensed~~business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, results of operations, financial ~~statements in this Quarterly Report is incorporated herein by reference.~~condition or cash flows.

You should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our ~~2021~~2022 Annual Report, ~~as updated by the risk factors discussed in Part II, “Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the fiscal quarter ended Mach 31, 2022 (“Q1 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~~2022 Annual ~~Report, as updated by our Q1 2022 Quarterly~~ Report, except as set forth below. The risks described in our ~~2021~~2022 Annual ~~Report and our Q1 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 are subject to risks related to the warning letter we recently ~~resumed~~received from the FDA and the pause we recently implemented on the distribution of TabloCart with Prefiltration.

As previously disclosed in our 2022 Annual Report, the FDA issued an FDA Form-483 identifying four inspectional observations resulting from an FDA inspection of our San Jose, California facility that concluded on February 10, 2023. We provided our response plan to the FDA in March 2023, and have since completed the associated remediation workstreams to fully address these observations.

On July 6, 2023, we received a warning letter (the “Warning Letter”) from the FDA that raised two additional observations. The first observation asserts that certain content reviewed by the FDA and found on our website promotes CRRT, a modality outside of the current indications for the Tablo Hemodialysis System. The second observation asserts that TabloCart with Prefiltration requires prior 510(k) clearance for marketing ~~and shipping~~authorization. TabloCart with Prefiltration is an accessory to the Tablo System ~~for home use following~~launched in the ~~FDA’s clearance~~third quarter of our most recent 510(k) submission, our business and operations may continue to experience disruptions as a result of the prior shipment hold. In addition, as we continue to modify Tablo from time to time, such modifications may require new 510(k) clearances from the FDA, which we may not be able to obtain on a timely basis or at all.2022.

~~Since Tablo’s original clearance by the FDA for home use in March 2020, we have made certain changes to the device over time. In May 2021, we~~We timely submitted a ~~“catch-up” 510(k) application~~response to the FDA ~~covering~~in late July 2023. As communicated in our response, we believe we have taken or committed to take appropriate measures to resolve the ~~design changes for patient use~~matters raised in the ~~home. In May 2022, after further discussions with~~Warning Letter. We believe the ~~FDA~~concern raised by the first observation regarding CRRT promotion has been effectively addressed through labeling and ~~receiving indications~~promotional changes that have already been completed. With regard to the ~~clearance of this~~second observation, we have agreed to submit a 510(k) application ~~would be delayed beyond our original expectations,~~for TabloCart with Prefiltration. Although we ~~implemented a shipment hold on~~evaluated TabloCart with Prefiltration prior to marketing and distributing the product and concluded that no marketing authorization was necessary, we have paused distribution ~~and marketing~~ of ~~Tablo for use in the home environment~~TabloCart with Prefiltration pending the FDA’s review and clearance of ~~this~~the 510(k) ~~application. In late July 2022,~~application that we plan to submit.

While we remain committed to fully cooperating with the FDA ~~cleared this 510(k) application~~to expeditiously and completely resolve the Warning Letter, we cannot guarantee that the FDA will be satisfied with our response or the remedial measures we have taken or committed to take, nor can we give any assurances as to the timing of ~~Tablo for patient use~~the resolution of such matters. Failure to promptly and fully address the matters raised in the ~~home~~Warning Letter to the FDA’s satisfaction or to comply with FDA regulations in general could result in further regulatory and enforcement actions being initiated by the FDA. These actions may include, among other things, additional inspections, requirements to implement additional remedial measures, recommending or requiring that we ~~have resumed marketing and shipping Tablo for home use.~~

~~The shipment hold on Tablo for home use had~~cease manufacturing or producing TabloCart with Prefiltration or that we withdraw or recall the product from the marketplace, until clearance is obtained (which may not happen in a ~~significant negative impact on our bookings and revenue for the second quarter of 2022,~~timely manner or at all), as well as ~~on our pipeline of potential new deals. Following the most recent 510(k) clearance,~~product seizures, injunctions, civil monetary penalties, fines, or criminal prosecution. In addition, although we have ~~resumed marketing~~paused distribution of TabloCart with Prefiltration pending the FDA’s review and ~~shipping Tablo for home use. However,~~clearance of the 510(k) application we ~~may continue~~plan to ~~experience disruptions to~~submit, the FDA could specifically mandate that we do so, which would result in the resumption of such distribution being outside of our ~~home and acute business and operations that~~sole control. Any such actions could materially and adversely ~~impact~~disrupt and harm our business, reputation, financial condition, results of operations ~~financial condition~~ and ~~growth prospects as~~future growth.

In addition, while we ~~recover from~~have committed to submitting a 510(k) application for TabloCart with Prefiltration, we cannot predict with certainty when the ~~interruption to, and loss~~FDA will complete its review of ~~momentum in,~~ our ~~home commercialization and marketing, related disruptions to~~application, whether the FDA will ultimately grant clearance of our ~~acute business, and any negative effects to our reputation as a result~~application, or when we will resume distribution 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~~product. Based on the results 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,FDA’s review, we may be required to take additional actions, which may include making changes to the product, temporarily ~~suspend shipment of, withdraw~~withdrawing or ~~recall Tablo~~recalling TabloCart with Prefiltration 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~~any of which ~~would~~could materially and adversely disrupt and harm our business and future growth. ~~Where~~

Moreover, even if we ~~determine that modifications~~are able to ~~Tablo do require a new 510(k) clearance from~~expeditiously and definitively resolve the ~~FDA,~~Warning Letter, we will incur incremental expenses relating to doing so, and we may ~~not be able~~experience related disruptions 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~~business, including reputational harm, ~~our future growth.~~

~~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 postpone purchasing decisions. For example, during the second quarter of 2022, our existing and potential customers began to face increasing staffingcustomer uncertainty

~~shortages~~regarding the matters addressed in the Warning Letter and ~~increased labor costs, combined~~diversion of management’s time and attention. Furthermore, our business and operations may experience disruptions as a result of our pause on the distribution of TabloCart 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 basePrefiltration, including reputational harm, adverse impacts on ~~pipeline development and installation schedules, which, in turn, negatively impacted~~ our bookings, ~~delayed our shipments~~backlog, revenue, 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, as well as reduced demand for TabloCart and/or, potentially, Tablo, any of ~~Tablo,~~which may materially and ~~have a material adverse effect on~~adversely affect our ~~bookings, revenues,~~ results of operations, financial condition and ~~ultimately,~~growth prospects. These risks would be exacerbated if the FDA’s review of our ~~future growth and profitability.~~

We may in the future become subject to a post-market surveillance order issued by the FDA for 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, which could harm our business.

The FDA has previously notified us that the Tablo System is subject 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 submitted 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~~TabloCart 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 toPrefiltration and the current ~~version~~distribution pause (or any mandated distribution pause by the FDA) continues for an extended period 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,time, 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 obtainultimately does not grant 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 of which could materially and adversely harm 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 condition 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.510(k) application.

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.

~~None.~~During the period covered by this Quarterly Report, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

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	22
Item 4.	Controls and Procedures	22
PART II.	OTHER INFORMATION	23
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults Upon Senior Securities	2524
Item 4.	Mine Safety Disclosures	2524
Item 5.	Other Information	2524
Item 6.	Exhibits	2625
Signatures		2726


		Incorporation by Reference
Exhibit Number	Description	Form	File No.	Exhibit	Filing Date

3.1	Form of Amended and Restated Certificate of Incorporation of Outset Medical, Inc.	S-1/A	333-248225	3.1	September 9, 2020

3.2	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

4.2	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

4.4	Form of Series A Warrant Agreement #2	S-1	333-248225	4.4	August 21, 2020

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)


	Outset Medical, Inc.

Date: August 2, ~~2022~~2023	By:	/s/ Leslie Trigg
		Leslie Trigg
		President and Chief Executive Officer (Principal Executive Officer)

Date: August 2, ~~2022~~2023	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