OUTSET MEDICAL, INC. 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 Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 filed with theSecurities and Exchange Commission ("SEC") onMarch 22, 2021 ("2020 Annual Report"). As used in this Quarterly Report, references to the "Company," "we," "us," "our," or similar terms refer toOutset 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.
Overview
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 enables Tablo to serve as a dialysis clinic on wheels and allows providers to standardize to a single technology platform from the hospital to the home. Tablo is also intelligent and connected, with automated documentation and the ability to integrate with electronic medical record reporting, along with streamlined remote machine management designed to maximize device uptime. We have generated meaningful evidence to demonstrate that providers can realize significant operational efficiencies, including reducing the cost of their dialysis programs by up to 80% in the intensive care unit. In addition, Tablo has been shown to deliver robust clinical care. In studies we have conducted, patients have reported experiencing fewer symptoms and better quality sleep while on Tablo. We believe Tablo empowers patients, who have traditionally been passive recipients of care, to regain agency and ownership of their treatment. Tablo is cleared by theU.S. Food and Drug Administration ("FDA") for use in the hospital, clinic or home setting. We designed Tablo from the ground up to be a single enterprise solution that can be utilized across the continuum of care, allowing dialysis to be delivered anytime, anywhere and by anyone. Tablo is comprised of a compact console with integrated water purification, on-demand dialysate production and a simple-to-use touchscreen interface. With Tablo, we are bringing data to dialysis. Tablo is built to live in a connected setting with cloud-based system monitoring, patient analytics, remote treatment monitoring and clinical recordkeeping and the ability to activate new capabilities and enhancements through wireless software updates. Tablo's data analytics and connectivity also enable predictive and preventative maintenance designed to maximize machine uptime. Unlike existing hemodialysis machines, which have limited clinical versatility across care settings and are generally burdened by specialized and expensive infrastructure, Tablo is a single enterprise dialysis solution that can be seamlessly utilized across different care settings and for multiple clinical needs. 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 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. While the COVID-19 pandemic has presented opportunities to demonstrate the real-world benefits of Tablo over traditional machines, we believe these benefits, in addition to the other advantages of Tablo, are continuing to drive customer purchasing decisions. Tablo is also well suited for home-based dialysis. Tablo was cleared by the FDA for use in patients with acute and/or chronic renal failure inSeptember 2014 . Subsequently, onMarch 31, 2020 , Tablo was cleared by the FDA for patient use in the home. Our ability to reduce training time, patient dropout, preparation and set up time, and the total treatment time 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 and grow this market successfully, we are focused 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 15 --------------------------------------------------------------------------------
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 will also be collecting additional patient clinical experience and outcomes data.
We sell our solutions through our direct sales organization, which covers most major metropolitan markets inthe United States . As ofSeptember 30, 2021 , our sales organization is comprised of 34 capital sales team members, responsible for generating new customer demand for Tablo, and 77 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 88 members provides maintenance services and product support to Tablo customers. The same sales organization and field service team drive Tablo penetration in both the acute and home 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 are continuing to execute a well-defined strategy designed to expand gross margins. First, we have successfully begun production at our own console manufacturing facility. Second, we are adding a second-source contract manufacturer for our cartridges to help gain higher efficiency and lower material and logistics cost. Third, we will continue to drive scale across our console platform to leverage our supply base and help improve our manufacturing efficiency. Fourth, we will continue to utilize our cloud-based data system, as well as enhanced product performance, to help drive down the cost of service. We generate revenue primarily from the initial sale of Tablo consoles, and recurring sales of per-treatment consumables, including the Tablo cartridge, which generates significant total revenue over the life of the console. We generate additional revenue via annual service contracts and shipping and handling charged to customers. Our total revenue was$26.3 million and$13.8 million for the three months endedSeptember 30, 2021 and 2020, respectively, and$74.5 million and$32.7 million for the nine months endedSeptember 30, 2021 and 2020, respectively. For the three months endedSeptember 30, 2021 and 2020, we incurred net losses of$30.5 million and$42.3 million , respectively, and for the nine months endedSeptember 30, 2021 and 2020, we incurred net losses of$90.7 million and$89.4 million , respectively. As ofSeptember 30, 2021 , we had an accumulated deficit of$584.8 million . OnSeptember 17, 2020 , we completed our initial public offering ("IPO"), in which we sold 10,293,777 shares of common stock (which included 1,342,666 shares that were offered and sold pursuant to the full exercise of the IPO underwriters' option to purchase additional shares in connection with the IPO) at a price to the public of$27.00 per share. We received aggregate net proceeds of approximately$254.8 million after deducting offering costs, underwriting discounts and commissions of approximately$23.1 million . Upon the closing of the IPO, all of our outstanding redeemable convertible preferred stock automatically converted into shares of common stock. OnApril 13, 2021 , we completed a follow-on public offering and sold 2,945,864 shares of our common stock (which included 445,864 shares that were offered and sold pursuant to the full exercise of the underwriters' option to purchase additional shares) at a price to the public of$53.50 per share. We received aggregate net proceeds of approximately$149.1 million after deducting offering costs, underwriting discounts and commissions of$8.5 million .
Impacts of the COVID-19 pandemic
We believe that the COVID-19 pandemic has highlighted the limitations of traditional machines and the benefits of Tablo, driving an increase in demand for Tablo during 2020. We also believe the advantages of Tablo highlighted by the pandemic are now embedded as one of the many factors driving our customers' purchasing decisions and do not expect to experience significant revenue driven solely by COVID-19 in future periods. However, the duration and extent of the COVID-19 pandemic remain uncertain, particularly in light of ongoing vaccination efforts and emerging variant strains of the virus, and we cannot predict with certainty the ultimate impact of the COVID-19 pandemic and related containment measures on our business. In order to operate in a safe manner, we continue to monitor and follow the latest health and safety guidelines of theU.S. Centers for Disease Control and Prevention ,Occupational Safety and Health Administration , and local and state public health departments where we operate. These guidelines continue to change in light of local circumstances related to vaccine availability, population vaccination rates and emerging variant strains of the virus (including the Delta variant which appears to be highly transmissible). For employees working on-site, we continue to follow masking protocols consistent with evolving health and safety guidelines, facilitate social distancing and practice increased sanitizing standards. We have strongly encouraged all of our employees to get vaccinated, and during the third quarter of 2021, adopted a policy requiring our customer-facing and on-site employees to be fully vaccinated byOctober 2021 , subject to medical or religious exemptions. Additionally, we continue to provide vaccination site information and COVID-19 testing at our facilities. We are actively supporting remote work arrangements, while planning for a more structured return to office in late 2021 to increase productive collaboration while helping to ensure employee safety. Lastly, we have created a business continuity plan and incident management team to respond quickly and effectively to changes in order to offer customers uninterrupted products, services and support while safeguarding the best interest of employees, suppliers and stockholders. Our business may also be impacted by an escalation or a continuation of the COVID-19 pandemic. While the operations at our contract manufacturing partners' facilities and our outsourced business administration service provider, TACNA, for our facility inTijuana, Mexico , have not yet experienced significant disruption as a result of the pandemic, the possibility that such disruptionmay 16 -------------------------------------------------------------------------------- occur remains. Additionally, the COVID-19 pandemic has disrupted the operations of certain of our third-party suppliers, resulting in increased lead-times, higher component costs and lower allocations for our purchase of some components (including certain critical components) and, in certain cases, requiring us to procure materials from alternative sources or incur higher logistical expenses. We have worked closely with our manufacturing partners and suppliers to enable us to source key components and maintain appropriate inventory levels to meet customer demand, and have not experienced material disruptions in our supply chain to date. Additionally, surges and shifts in consumer demand as the economy reopens, further exacerbated by COVID-19 outbreaks and protocols, have strained the global freight network and placed significant stress on air, ocean and ground freight carriers. This has resulted in labor shortages, container and chassis shortages, reduced carrier capacity, carrier delays and longer lead times, shipment receiving and unloading backlogs at manyU.S. ports, and escalating freight costs. These supply chain disruptions have escalated during the fourth quarter of 2021, and we are facing increased supply chain constraints, notably with the transportation of Tablo cartridges from our contract manufacturing partner inSoutheast 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. 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 operation. How long the pandemic, and measures intended to contain the spread of COVID-19, will continue remains uncertain and depends on ongoing developments, including but not limited to any resurgences of the virus including emerging variant strains such as the Delta variant, federal, state and local government actions taken in response, and continued availability, effectiveness and public acceptance of COVID-19 vaccines. Additionally, the duration and severity of disruptions in the global supply chain, largely driven by high demand as the economy reopens and the ongoing impact of the pandemic, also remain uncertain and depend on various factors, including the effectiveness of recent government actions intended to mitigate these disruptions. As a result, we cannot predict what effect COVID-19, the associated containment measures and the related supply chain disruptions will ultimately have on our business and results of operations, or on our suppliers and vendors, in particular for any of our suppliers and vendors that may not qualify as essential businesses and suffer more significant or lengthier disruptions to their business operations. 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 inTijuana, Mexico in collaboration with TACNA, are more severely impacted by the pandemic and associated containment measures. 17 --------------------------------------------------------------------------------
Results of Operations
The following table summarizes our results of operations for the three and nine
months ended
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Revenue:
Product revenue $ 21,824 $ 10,812 $ 60,662 $ 26,435
Service and other revenue 4,494 2,944 13,788 6,253
Total revenue 26,318 13,756 74,450 32,688
Cost of revenue:
Cost of product revenue 20,526 17,265 63,180 42,118
Cost of service and other revenue 2,846 1,617 6,983 4,024
Total cost of revenue 23,372 18,882 70,163 46,142
Gross profit 2,946 (5,126 ) 4,287 (13,454 )
Operating expenses:
Research and development 9,729 9,175 25,331 21,066
Sales and marketing 15,726 13,344 42,079 29,870
General and administrative 7,629 13,088 26,597 21,462
Total operating expenses 33,084 35,607 94,007 72,398
Loss from operations (30,138 ) (40,733 ) (89,720 ) (85,852 )
Interest income and other income
(expense), net 99 (3 ) 375 524
Interest expense (431 ) (428 ) (1,284 ) (2,461 )
Change in fair value of redeemable
convertible preferred stock
warrant liability - 437 - (93 )
Loss on extinguishment of term loan - (1,567 ) - (1,567 )
Loss before provision for income taxes (30,470 ) (42,294 ) (90,629 ) (89,449 )
Provision for income taxes - - 74 -
Net loss $ (30,470 ) $ (42,294 ) $ (90,703 ) $ (89,449 ) Comparison of the Three and Nine Months Ended
Revenue
Three Months Ended Nine Months Ended
September 30, Change September 30, Change
(dollars in
thousands) 2021 2020 $ % 2021 2020 $ %
Revenue:
Product revenue $ 21,824 $ 10,812 $ 11,012 102 % $ 60,662 $ 26,435 $ 34,227 129 %
Service and other
revenue 4,494 2,944 1,550 53 % 13,788 6,253 7,535 121 %
Total revenue $ 26,318 $ 13,756 12,562 91 % $ 74,450 $ 32,688 41,762 128 %
Product revenue increased by $11.0 million , or 102% for the three months ended
September 30, 2021 as compared to the three months ended September 30, 2020 ,
driven by a $6.4 million increase in consoles revenue and a $4.6 million
increase in consumables revenue. The increase in consoles revenue was driven by
new customer adoption, fleet expansion across existing customer sites, and
higher average selling prices and a $0.7 million increase in console leasing
revenue. The increase in consumables revenue was driven by the growth in our
console installed base.
Product revenue increased by $34.2 million , or 129% for the nine months ended
September 30, 2021 as compared to the nine months ended September 30, 2020 ,
driven by a $24.8 million increase in consoles revenue and a $9.4 million
increase in consumables revenue. The increase in consoles revenue was driven by
new customer adoption, fleet expansion across existing customer sites, higher
average selling prices and a $2.0 million increase in console leasing revenue.
The increase in consumables revenue was driven by the growth in our console
installed base.
Service and other revenue increased for the three and nine months ended
September 30, 2021 from the three and nine months ended September 30, 2020 . The
increase was primarily due to services associated with the growth in our console
installed base, including leased consoles.
18
--------------------------------------------------------------------------------Cost of Revenue, Gross Profit and Gross Margin
Three Months Ended
September 30, Change Nine Months Ended September 30, Change
(dollars in thousands) 2021 2020 $ % 2021 2020 $ %
Cost of revenue:
Cost of product
revenue $ 20,526 $ 17,265 $ 3,261 19 % $ 63,180 $ 42,118 $ 21,062 50 %
Cost of service and
other revenue 2,846 1,617 1,229 76 % 6,983 4,024 2,959 74 %
Total cost of revenue
$ 70,163 $ 46,142 24,021 52 % Gross profit 2,946 (5,126 ) 8,072 157 % 4,287 (13,454 ) 17,741 132 % Gross margin 11.2 % (37.3 ) % 5.8 % (41.2 ) % Cost of product revenue increased by$3.3 million , or 19% for the three months endedSeptember 30, 2021 as compared to the three months endedSeptember 30, 2020 . This increase was primarily due to higher console and consumable volume of$8.9 million . This was offset by a$4.1 million reduction in product costs and a$1.5 million decrease in manufacturing overhead. Cost of product revenue increased by$21.1 million , or 50% for the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . This increase was primarily due to higher console and consumable volume of$36.1 million and higher depreciation expense for leased consoles of$0.5 million . This was offset by a$14.2 million reduction in product costs and a$1.4 million decrease in manufacturing overhead. Cost of service and other revenue increased for the three and nine months endedSeptember 30, 2021 as compared to the three and nine months endedSeptember 30, 2020 . This increase was primarily due to additional headcount costs in our service department, which were absorbed across our larger installed base. Gross profit increased by$8.1 million , or 157% for the three months endedSeptember 30, 2021 as compared to the three months endedSeptember 30, 2020 . The gross margin percentage improved by 48.5 percentage points for the three months endedSeptember 30, 2021 , as compared to the three months endedSeptember 30, 2020 , driven primarily by the impact of our cost reduction activities and higher average selling prices. Gross profit increased by$17.7 million , or 132% for the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . The gross margin percentage improved by 47.0 percentage points for the nine months endedSeptember 30, 2021 , as compared to the nine months endedSeptember 30, 2020 , driven primarily by the impact of our cost reduction activities and higher average selling prices. Operating Expenses Three Months Ended Nine Months Ended September 30, Change September 30, Change (dollars in thousands) 2021 2020 $ % 2021 2020 $ %
Operating expenses:
Research and development
15,726 13,344 2,382
18 % 42,079 29,870 12,209 41 %
General and administrative 7,629 13,088 (5,459 ) (42 )% 26,597 21,462 5,135 24 %
Total operating expenses
Research and development expenses increased by$0.6 million , or 6% for the three months endedSeptember 30, 2021 as compared to the three months endedSeptember 30, 2020 . The increase was primarily due to a$1.7 million increase in consulting services. The increase was partially offset by a$1.2 million net decrease in compensation and personnel costs, which includes a$1.1 million increase in compensation offset by a$2.3 million decrease in stock-based compensation expense due to the one-time cumulative expense related to stock options with performance and market-based vesting conditions in 2020. Research and development expenses increased by$4.3 million , or 20% for the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . The increase was primarily due to a$2.6 million increase in consulting services and a$2.0 million net increase in compensation and personnel costs which includes a$2.8 million increase in compensation offset by a$0.8 million decrease in stock-based compensation expense due to the one-time cumulative expense related to stock options with performance and market-based vesting conditions in 2020. The increases were partially offset by a$0.3 million decrease in supplies and materials. Sales and marketing expenses increased by$2.4 million , or 18% for the three months endedSeptember 30, 2021 as compared to the three months endedSeptember 30, 2020 . The increase was primarily due to a$1.0 million net increase in compensation and 19 -------------------------------------------------------------------------------- personnel costs, which includes a$2.4 million increase in compensation offset by a$1.4 million decrease in stock-based compensation expense due to the one-time cumulative expense related to stock options with performance and market-based vesting conditions in 2020, a$0.6 million increase in travel expenses, a$0.5 million increase in allocated costs for facilities and information technology to support the general expansion of our operations, a$0.1 million increase in freight expenses and a$0.1 million increase in clinical sales consulting services. Sales and marketing expenses increased by$12.2 million , or 41% for the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . The increase was primarily due to a$7.9 million increase in compensation and personnel costs, which includes a$1.2 million increase in stock-based compensation expense, a$2.1 million increase in clinical sales consultant services, a$1.0 million increase in allocated costs for facilities and information technology to support the general expansion of our operations, a$0.8 million increase in travel expenses and a$0.3 million increase in freight expenses. General and administrative expenses decreased by$5.5 million , or 42% for the three months endedSeptember 30, 2021 as compared to the three months endedSeptember 30, 2020 . The decrease was primarily due to a$5.6 million net decrease in compensation and personnel costs, which includes a$7.2 million decrease in stock-based compensation expense due to the one-time cumulative expense related to stock options with performance and market-based vesting conditions in 2020 which offset by a$1.6 million increase compensation, and a$0.7 million decrease in outside services costs. The decrease was partially offset by a$0.6 million increase in insurance costs and a$0.1 million increase in allocated costs for facilities and information technology to support the general expansion of our operations. General and administrative expenses increased by$5.1 million , or 24% for the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . The increase was primarily due to a$2.4 million increase in insurance costs, a$1.2 million net increase in compensation and personnel costs, which includes a$4.2 million increase in compensation offset by a$3.0 million decrease in stock-based compensation expense due to the one-time cumulative expense related to stock options with performance and market-based vesting conditions in 2020, a$0.8 million increase in professional and consulting services and a$0.7 million increase in allocated costs for facilities and information technology to support the general expansion of our operations. 20
--------------------------------------------------------------------------------
Other Income (Expense), Net
Three Months Ended Nine Months Ended
September 30, Change September 30, Change
(dollars in thousands) 2021 2020 $ % 2021 2020 $ %
Other Income (Expense),
Net:
Interest income and
other income
(expense), net $ 99 $ (3 ) $ 102 (3,400 )% $ 375 $ 524 $ (149 ) (28 )%
Interest expense (431 ) (428 ) (3 ) 1 % (1,284 ) (2,461 ) 1,177 (48 )%
Change in fair value of
redeemable
convertible preferred
stock
warrant liability - 437 (437 ) * - (93 ) 93 *
Loss on extinguishment
of term loan - (1,567 ) 1,567 * - (1,567 ) 1,567 *
Total other expense,
net $ (332 ) $ (1,561 ) 1,229 (79 )% $ (909 ) $ (3,597 ) 2,688 (75 )%
* Not meaningful
Interest income and other income (expense), net increased by $0.1 million for
the three months ended September 30, 2021 as compared to the three months ended
September 30, 2020 . This increase was primarily due to a higher average balance
in money market funds and short-term investment securities in the three months
ended September 30, 2021 .
Interest income and other income (expense), net decreased by $0.1 million , or
28% for the nine months ended September 30, 2021 as compared to the nine months
ended September 30, 2020 . The decrease was primarily due to a $0.4 million
decrease in interest income driven by lower interest rates during 2021. This
decrease was partially offset by a $0.3 million value added taxes refund
primarily related to startup costs in our new manufacturing facility received
during 2021.
Interest expense slightly increased for the three months ended September 30,
2021 as compared to the three months ended September 30, 2020 due to accretion
of the SVB Term Loan.
Interest expense decreased for the nine months ended September 30, 2021 as
compared to the nine months ended September 30, 2020 . The decrease was driven
primarily by a lower interest rate under the SVB Term Loan as compared to the
rate under the Perceptive Term Loan, which we voluntarily repaid in July 2020 .
The change in the fair value of redeemable convertible preferred stock warrant
liability was driven by the changes in assumptions used to value the warrant
liability. Upon the closing of our IPO in September 2020 , all of our outstanding
redeemable convertible preferred stock warrants were either exercised into
common stock or automatically converted into warrants to purchase common stock.
Accordingly, we have ceased to incur the change in the fair value of redeemable
convertible preferred stock warrant liability as the entire redeemable
convertible preferred stock warrant liability was reclassified to additional
paid-in capital.
The loss on extinguishment of term loan of
Liquidity and Capital Resources
Sources of Liquidity
As of
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 and issuances of debt. InSeptember 2020 , we completed our IPO for aggregate net proceeds of approximately$254.8 million (inclusive of the full exercise of the underwriters' option to purchase additional shares), net of offering costs, underwriter discounts and commissions of$23.1 million . InApril 2021 , we completed a follow-on public offering for aggregate net proceeds of approximately$149.1 million , after deducting offering costs, underwriting discounts and commissions of$8.5 million . 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 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 subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring 21 -------------------------------------------------------------------------------- dividends. We believe that our existing cash, cash equivalents and short-term investments, and cash generated from sales of our products, will be sufficient to meet our anticipated needs for at least the next 12 months from the date of this Quarterly Report. Cash Flows Summary The following table summarizes the cash flows for each of the periods indicated (in thousands): Nine Months Ended September 30, 2021 2020 Net cash (used in) provided by: Operating activities $ (97,588 )$ (73,175 ) Investing activities (126,089 ) (6,411 ) Financing activities 159,213 386,555 Net (decrease) increase in cash, cash equivalents and restricted cash $ (64,464 )$ 306,969 Operating Activities The net cash used in operating activities of$97.6 million for the nine months endedSeptember 30, 2021 was due to a net loss of$90.7 million and a net cash outflow from the change in our operating assets and liabilities of$26.5 million , which were partially offset by adjustments for stock-based compensation expense of$12.7 million , depreciation and amortization of$3.9 million , accretion of discount on investments of$1.2 million , non-cash lease expense of$0.8 million , provision for inventories of$0.8 million , and non-cash interest expense of$0.4 million . The net cash outflow from operating assets and liabilities was primarily due to an increase in inventories of$17.9 million due to the timing of inventory purchases including advance purchases of inventory due to the anticipated demand and to mitigate supply chain disruptions, which partially related to COVID-19, an increase in accounts receivable of$12.8 million due to timing of collections, a decrease in account payable of$2.1 million due to timing of vendor payments, and a decrease in operating lease liabilities of$0.6 million . The net cash outflow from operating assets and liabilities was partially offset by an increase in accrued expenses and other current liabilities of$3.5 million , an increase in deferred revenue of$1.6 million due to the growth of our business, an increase in accrued payroll and related benefits of$0.9 million , a decrease in prepaid expenses and other assets of$0.7 million , and an increase in accrued warranty liability of$0.3 million . Net cash used in operating activities of$73.2 million for the nine months endedSeptember 30, 2020 was due to a net loss of$89.4 million and a net change in our net operating assets and liabilities of$3.2 million , partially offset by adjustments for stock-based compensation of$15.2 million , loss on extinguishment of term loan of$1.6 million , depreciation and amortization of$1.2 million , non-cash interest expense of$0.5 million , non-cash lease expense of$0.4 million , provision for inventories of$0.4 million , and change in fair value of redeemable convertible preferred stock warrant liability of$0.1 million . The net cash outflow from operating assets and liabilities was primarily due to an increase in inventories of$9.2 million due to the timing of inventory purchases including advance purchases of inventory due to anticipated demand, an increase in prepaid expenses and other assets of$5.4 million , and an increase in accounts receivable of$3.2 million due to timing of collections. The net cash outflow from operating assets and liabilities was partially offset by an increase in accrued expenses and other current liabilities of$5.1 million consistent with the growth of our business, an increase in accrued payroll and related benefits of$3.9 million due to an increase in headcount, an increase in deferred revenue of$3.7 million , and an increase in accrued warranty liability of$1.6 million and an increase in accounts payable of$0.4 million due to timing of vendor payments.
Investing Activities
The net cash used in investing activities of$126.1 million for the nine months endedSeptember 30, 2021 was due primarily to the purchases of investment securities of$148.1 million and the purchases of property and equipment of$2.3 million , partially offset by the sales and maturities of investment securities of$24.3 million . Net cash used in investing activities of$6.4 million for the nine months endedSeptember 30, 2020 was due primarily to the purchases of short-term investments of$32.9 million and the purchases of property and equipment of$6.4 million , partially offset by the sales and maturities of short-term investments of$32.9 million . Financing Activities The net cash provided by financing activities of$159.2 million for the nine months endedSeptember 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$10.1 million from employee exercises of stock options and employee stock purchase plan purchases. Net cash provided by financing activities of$386.6 million for the nine months endedSeptember 30, 2020 was due primarily to the net proceeds of$255.7 million from the issuance of our common stock in our IPO, net of issuance costs paid to date, the net proceeds of$126.8 million from the issuance of our Series E redeemable convertible preferred stock, the net proceeds of$29.6 million from borrowings on the SVB Loan and Security Agreement, proceeds of$4.3 million from the exercise of the Series C redeemable 22 -------------------------------------------------------------------------------- convertible preferred stock warrants, and proceeds of$1.1 million from the issuance of common stock from exercises of stock options, partially offset by the cash outflow of$31.0 million in repayment of Perceptive Loan which included early prepayment and exit fees.
Contractual Obligations and Commitments
During the three and nine months ended
Off-Balance Sheet Arrangements
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 theSEC .
Critical Accounting Policies and Estimates
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 withU.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses incurred during the reporting periods. The estimates are based on historical experience and on various other factors that are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
There have been no significant changes in our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 2020 Annual Report. For additional information, please refer to Note 2 to our unaudited condensed financial statements in this Quarterly Report.
Emerging Growth Company Status
We are an emerging growth company, as defined in the Jumpstart Our Business
Startups Act ("JOBS Act"). Under the JOBS Act, emerging growth companies can
delay adopting new or revised accounting standards issued subsequent to the
enactment of the JOBS Act until such time as those standards apply to private
companies. We elected to use this extended transition period for complying with
new or revised accounting standards that have different effective dates for
public and private companies until the earlier of the date that we (i) are no
longer an emerging growth company or (ii) affirmatively and irrevocably opt out
of the extended transition period provided in the JOBS Act. As a result, our
financial statements may not be comparable to companies that comply with the new
or revised accounting pronouncements as of public company effective dates.
Because (i) the aggregate worldwide market value of our voting common stock held
by non-affiliates (or "public float") exceeded $700 million on June 30, 2021 ,
(ii) we will have been subject to the reporting requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended ("Exchange Act") for at
least twelve calendar months, (iii) we have previously filed an annual report
under Section 13(a) or 15(d) of the Exchange Act and (iv) we are not eligible
for smaller reporting company status because we exceed the public float and
revenue threshold for such status, we will qualify as a "large accelerated
filer" under Rule 12b-2 of the Exchange Act as of the end of the current fiscal
year. As a large accelerated filer, we will no longer qualify as an emerging
growth company.
Recent Accounting Pronouncements
See Note 2 to our unaudited condensed financial statements included elsewhere in this Quarterly Report for more information.
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