Outset Medical(OM) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed financial statements for Outset Medical, Inc. as of June 30, 2025, and for the three and six-month periods then ended, reflecting revenue growth, improved gross margins, and a reduced net loss compared to the prior year, alongside significant changes in the balance sheet due to recent financing activities, including a new term loan and the issuance of convertible preferred stock Condensed Balance Sheets As of June 30, 2025, total assets increased to $288.8 million from $275.8 million at year-end 2024, driven by an increase in short-term investments, while total liabilities decreased significantly to $134.0 million from $249.0 million, primarily due to debt refinancing, leading to a substantial increase in total stockholders' equity to $154.8 million from $26.8 million Condensed Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total current assets | $275,578 | $258,221 | | Total assets | $288,801 | $275,795 | | Total current liabilities | $36,909 | $45,378 | | Term loans | $94,814 | $197,375 | | Total liabilities | $134,017 | $248,976 | | Total stockholders' equity | $154,784 | $26,819 | Condensed Statements of Operations For the second quarter of 2025, total revenue grew to $31.4 million, a 15% increase year-over-year, with gross profit rising to $11.9 million, while operating expenses were significantly reduced by 29% to $28.7 million, leading to a substantially smaller loss from operations of $16.9 million and a net loss of $18.5 million compared to the prior-year period Q2 and H1 2025 vs 2024 Performance (in thousands, except per share amounts) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $31,419 | $27,388 | $61,171 | $55,556 | | Gross profit | $11,867 | $9,782 | $22,933 | $17,997 | | Total operating expenses | $28,732 | $40,546 | $56,197 | $85,673 | | Loss from operations | $(16,865) | $(30,764) | $(33,264) | $(67,676) | | Net loss | $(18,541) | $(34,454) | $(44,324) | $(74,398) | | Net loss per share | $(1.04) | $(9.96) | $(3.57) | $(21.72) | - A loss on extinguishment of term loan of $7.7 million was recognized in the first six months of 2025 due to debt refinancing[11] Condensed Statements of Cash Flows For the six months ended June 30, 2025, net cash used in operating activities decreased significantly to $30.5 million from $79.2 million in the prior year, reflecting a lower net loss and better working capital management, while net cash used in investing activities increased to $109.2 million due to higher purchases of investment securities, and net cash provided by financing activities was $55.3 million from preferred stock and new term loans, partially offset by prior term loan repayment Six Months Ended June 30 Cash Flow Summary (in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(30,486) | $(79,247) | | Net cash used in investing activities | $(109,241) | $(20,090) | | Net cash provided by financing activities | $55,272 | $68,687 | | Net decrease in cash, cash equivalents and restricted cash | $(84,455) | $(30,650) | - Financing activities in H1 2025 included $161.5 million in proceeds from Series A convertible preferred stock and $98.3 million from new term loans, offset by a $205.0 million repayment of a prior term loan[22] Notes to Unaudited Condensed Financial Statements The notes detail significant corporate and financial events, including a 15-for-one reverse stock split in March 2025, the raising of $172.7 million in gross proceeds from a private placement of Series A Convertible Preferred Stock, and securing a new $125 million credit facility, alongside disclosures on ongoing litigation, revenue recognition, debt restructuring resulting in a $7.7 million loss on extinguishment, and workforce reductions - In March 2025, the company executed a 15-for-one reverse stock split All share and per-share amounts have been retroactively adjusted[28][29] - To improve liquidity, the company raised $172.7 million gross from a private placement of Series A Convertible Preferred Stock and entered a new credit agreement for up to $125 million, drawing an initial $100 million term loan[31][32] - The company terminated its prior SLR Credit Facility and repaid all amounts due, resulting in a $7.7 million loss on extinguishment of debt in H1 2025[55] - The company is facing stockholder class action and derivative lawsuits filed in late 2024 and 2025, alleging false or misleading statements, and the outcome and potential loss cannot currently be estimated[49][50][51] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's performance, highlighting a 15% year-over-year revenue increase for Q2 2025 to $31.4 million and a gross margin improvement to 37.8%, attributing positive results to higher sales of consumables and consoles, better average selling prices, and lower unit costs, while noting a 29% decrease in operating expenses due to cost reduction initiatives, and detailing a successful capital raise of over $270 million through debt and equity in early 2025, which provides sufficient liquidity for at least the next 12 months, alongside the resolution of a prior FDA Warning Letter Results of Operations Comparing the three and six months ended June 30, 2025, to the same periods in 2024, total revenue increased by 15% and 10%, respectively, with gross margin improving to 37.8% for Q2 2025 from 35.7% in Q2 2024, driven by higher average selling prices and lower console unit costs, while total operating expenses saw a significant decrease of 29% in Q2 and 34% in H1, primarily due to cost reduction efforts across R&D, Sales & Marketing, and General & Administrative functions, with a one-time loss of $7.7 million on debt extinguishment recorded in H1 2025 Revenue Growth (in thousands) | Revenue Type | Q2 2025 | Q2 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Product revenue | $23,082 | $19,238 | $3,844 | 20% | | Service and other revenue | $8,337 | $8,150 | $187 | 2% | | Total revenue | $31,419 | $27,388 | $4,031 | 15% | Gross Margin Improvement | Period | Gross Margin 2025 | Gross Margin 2024 | | :--- | :--- | :--- | | Three Months Ended June 30 | 37.8% | 35.7% | | Six Months Ended June 30 | 37.5% | 32.4% | Operating Expense Reduction (in thousands) | Expense Category | Q2 2025 | Q2 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $5,289 | $9,734 | $(4,445) | (46)% | | Sales and marketing | $14,280 | $18,128 | $(3,848) | (21)% | | General and administrative | $9,163 | $12,684 | $(3,521) | (28)% | | Total operating expenses | $28,732 | $40,546 | $(11,814) | (29)% | Liquidity and Capital Resources As of June 30, 2025, the company held $187.4 million in cash, cash equivalents, restricted cash, and short-term investments, having significantly bolstered its liquidity in early 2025 by raising $172.7 million in gross proceeds from a private placement of convertible preferred stock and securing a new $100 million term loan, which management believes, despite a history of net losses, are sufficient to meet anticipated needs for at least the next 12 months - The company's cash, cash equivalents, restricted cash, and short-term investments totaled $187.4 million as of June 30, 2025[125] - In January and March 2025, the company raised $172.7 million in gross proceeds through a private placement of Series A Convertible Preferred Stock[125] - In January 2025, the company entered into a new credit agreement, securing a $100 million 5-year term loan with an option for an additional $25 million[126] - Management believes that existing cash and recent financing proceeds are sufficient to fund operations for at least the next 12 months[129] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company has indicated that this section is not applicable for this reporting period - The company states this item is 'Not applicable'[136] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective at a reasonable assurance level as of June 30, 2025, with no material changes to the company's internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[138] - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls[139] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is currently involved in purported stockholder class action and derivative lawsuits filed in late 2024 and mid-2025, alleging that the company and certain officers and directors made materially false or misleading statements regarding its business and products, with the cases in their early stages and the potential loss currently inestimable - The company is a defendant in stockholder class action lawsuits filed in August and October 2024, and several derivative lawsuits filed between November 2024 and June 2025[49][50] - The lawsuits allege violations of federal securities laws related to statements about the sale and marketing of the Tablo Hemodialysis System[49] - The litigation is at an early stage, and the company cannot currently estimate the range of possible losses[51] Item 1A. Risk Factors This section updates the company's risk factors, emphasizing the ongoing financial pressures faced by its customers, such as capital budget constraints and staffing shortages, which have elongated sales cycles and may continue to negatively impact revenues, while also highlighting the risks associated with pending litigation, which could adversely affect the business and reputation, and noting uncertainty related to macroeconomic conditions and government policy changes as potential headwinds - Customers are facing financial pressures, including rising interest rates and cautious capital spending, which has led to deferred purchasing decisions and elongated sales cycles since Q3 2023[145] - Uncertainty from policy changes under the current administration (e.g., trade tariffs, interest rates, government reimbursement) could increase financial strain on customers and adversely impact the company's results[147] - Ongoing litigation, including stockholder class action and derivative lawsuits, presents a risk that could adversely affect the company's business, financial condition, and reputation[150] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the reporting period - None reported[151] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, material contracts, and certifications by the Principal Executive Officer and Principal Financial Officer as required by the Sarbanes-Oxley Act - A list of exhibits filed with the report is provided, including governance documents, warrant agreements, and required CEO/CFO certifications[156]