Outset Medical, Inc.

Previous wording

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. In some cases, you can identify these statements by forward-looking words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “predict,” “plan,” “expect” or the negative or plural of these words or similar expressions. 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 and in Part I, Item 1A, “Risk Factors” and in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. 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.

Current wording

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. In some cases, you can identify these statements by forward-looking words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “predict,” “plan,” “expect” or the negative or plural of these words or similar expressions. 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 and in Part I, Item 1A, “Risk Factors” and in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2024 Annual Report. 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.

Previous wording

We generate revenue from the placement of Tablo consoles along with accessories, and shipping and handling charged to customers, which revenue is recognized up-front. We also earn recurring revenue from sales of consumables, including Tablo cartridge, and services, which generates significant total revenue over the life of Tablo consoles. For the three months ended March 31, 2025 and 2024, our total revenue was $29.8 million and $28.2 million, respectively.

Current wording

We generate revenue from the placement of Tablo consoles along with accessories, and shipping and handling charged to customers, which revenue is recognized up-front. We also earn recurring revenue from sales of consumables, including Tablo cartridge, and services, which generates significant total revenue over the life of Tablo consoles. Our total revenues were $31.4 million and $27.4 million for the three months ended June 30, 2025 and 2024, respectively, and $61.2 million and $55.6 million for the six months ended June 30, 2025 and 2024, respectively.

Previous wording

We primarily sell our solutions through our direct sales organization, which covers most major metropolitan markets in the United States. Our sales organization is comprised of our capital sales team, responsible for generating new customer demand for Tablo, and our clinical sales team, responsible for driving utilization and fleet expansion of Tablo at existing customer sites. In addition, our field service team provides maintenance services and product support to our customers. Our field sales and service teams represent 57% of our total full-time employees as of March 31, 2025. 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.

Current wording

We primarily sell our solutions through our direct sales organization, which covers most major metropolitan markets in the United States. Our sales organization is comprised of our capital sales team, responsible for generating new customer demand for Tablo, and our clinical sales team, responsible for driving utilization and fleet expansion of Tablo at existing customer sites. In addition, our field service team provides maintenance services and product support to our customers. Our field sales and service teams represent 59% of our total full-time employees as of June 30, 2025. 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.

Previous wording

Our ability to expand our gross margins depends on: first, our ability to continue to sell Tablo cartridges, services, and accessories for Tablo consoles; second, our ability to reduce the cost of service and third, our ability to reduce the cost of Tablo consoles. Our ability to expand gross margins will also depend in part on our ability to control the average selling prices of our products and services, including by selling higher-margin accessories, consumables and services. Further, we will continue to utilize our cloud-based data system, as well as enhanced product and support performance, to improve service margin and drive down service costs per console. In addition, over the past several years, we have moved the production of Tablo consoles and a majority of Tablo cartridges in-house to our manufacturing facility in Tijuana, Mexico which we operate in collaboration with TACNA, as part of our cost reduction activities. This has helped further our long-term gross margin expansion and supply continuity strategies while reducing the costs of Tablo console production and improving the flexibility of our operations. We will continue our cost reduction activities by using our design, engineering, supply chain and manufacturing capabilities to help further advance and improve the efficiency of our manufacturing processes, lowering the cost of parts and components and lowering our costs of production. Our ability to expand gross margins depends on our ability to successfully execute these strategies, as well as the impact of macroeconomic factors described below, including the tariffs imposed by the current administration.

Current wording

Our ability to expand our gross margins depends on: first, our ability to continue to sell Tablo cartridges, services, and accessories for Tablo consoles; second, our ability to reduce the cost of service and third, our ability to reduce the cost to manufacture Tablo consoles. Our ability to expand gross margins will also depend in part on our ability to control the average selling prices of our products and services, including by selling higher-margin accessories, consumables and services. Further, we will continue to utilize our cloud-based data system, as well as enhanced product and support performance, to improve service margin and drive down service costs per console. In addition, over the past several years, we have moved the production of Tablo consoles and a majority of Tablo cartridges in-house to our manufacturing facility in Tijuana, Mexico which we operate in collaboration with TACNA, as part of our cost reduction activities. This has helped further our long-term gross margin expansion and supply continuity strategies while reducing the costs of Tablo console production and improving the flexibility of our operations. We will continue our cost reduction activities by using our design, engineering, supply chain and manufacturing capabilities to help further advance and improve the efficiency of our manufacturing processes, lowering the cost of parts and components and lowering our costs of production. Our ability to expand gross margins depends on our ability to successfully execute these strategies, as well as the impact of macroeconomic factors described below, including the tariffs imposed by the current administration.

Previous wording

From a supply chain perspective, 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. However, macroeconomic factors such as rising inflation, increasing labor costs, and surges and shifts in consumer demand have disrupted the operations of certain of our third-party suppliers, resulting, in some cases, in increased lead times and higher component costs. We believe that localizing production of a majority of Tablo cartridges in Mexico (in-house at our manufacturing facility) has helped achieve cost reductions through lower freight costs, further our long-term gross margin expansion and supply continuity strategies and improve the flexibility of our operations. However, we may face increased supply chain constraints in the future, which 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. Moreover, increased tariffs imposed by the current administration, including on goods imported into the United States from Mexico and China, could adversely impact our supply chain and distribution costs, as well as our ability to achieve sustainable gross margins. While we do not believe we have exposure to these potential tariffs as Tablo, TabloCart and Tablo consumables are covered under a special exemption, we cannot predict what actions may ultimately be taken with respect to tariffs or trade relations between the United States and other countries (including Mexico and China), what products may be subject to such actions, or what actions may be taken by the other countries in retaliation.

Current wording

From a supply chain perspective, 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. However, macroeconomic factors such as rising inflation, increasing labor costs, and surges and shifts in consumer demand have disrupted the operations of certain of our third-party suppliers, resulting, in some cases, in increased lead times and higher component costs. We believe that localizing production of a majority of Tablo cartridges in Mexico (in-house at our manufacturing facility) has helped achieve cost reductions through lower freight costs, further our long-term gross margin expansion and supply continuity strategies and improve the flexibility of our operations. However, we may face increased supply chain constraints in the future, which 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. Moreover, increased tariffs imposed by the current administration, including on goods imported into the United States from Mexico and China, could adversely impact our supply chain and distribution costs, as well as our ability to achieve sustainable gross margins. While we do not believe we have exposure to these potential tariffs as Tablo, TabloCart and Tablo cartridge are covered under a special exemption, we cannot predict what actions may ultimately be taken with respect to tariffs or trade relations between the United States and other countries (including Mexico and China), what products may be subject to such actions, or what actions may be taken by the other countries in retaliation.

Previous wording

The following table summarizes our results of operations for the three months ended March 31, 2025 and 2024 (in thousands):

Current wording

The following table summarizes our results of operations for the three and six months ended June 30, 2025 and 2024 (in thousands):

Previous wording

Comparison of the Three Months Ended March 31, 2025 and 2024

Current wording

Comparison of the Three and Six Months Ended June 30, 2025 and 2024

Previous wording

Product revenue increased by $0.9 million or 4% for the three months ended March 31, 2025 as compared to the same period in the prior year. This increase was driven by a $3.0 million increase in consumable revenue due to the growth in our console installed base, which was partially offset by a $2.1 million decrease in console revenue.

Current wording

Product revenue increased by $3.8 million, or 20%, for the three months ended June 30, 2025 as compared to the same period in the prior year. This increase was driven by a $2.0 million increase in consumable revenue due to growth in our console installed base and a $1.8 million increase in console revenue.

Previous wording

Service and other revenue increased by $0.7 million or 9% for the three months ended March 31, 2025 as compared to the same period in the prior year. This increase was primarily due to services associated with the growth in our console installed base.

Current wording

Service and other revenue increased for the three and six months ended June 30, 2025 as compared to the same periods in the prior year. The increase was primarily due to services associated with growth in our console installed base.

Previous wording

Gross profit increased by $2.9 million or 35% for the three months ended March 31, 2025 as compared to the same period in the prior year. Gross margin improved by 8.0 percentage points for the three months ended March 31, 2025, as compared to the same period in the prior year. This improvement in gross profit and gross margin was primarily driven by a higher mix of consumable and service and other revenue, both of which had improved gross margin year over year. The higher consumable gross margin resulted from a higher average selling price and lower cost per unit for consumables.

Current wording

Gross profit increased for the three and six months ended June 30, 2025 as compared to the same periods in the prior year. Gross margin improved by 2.1 percentage points for the three months ended June 30, 2025 and 5.1 percentage points for the six months ended June 30, 2025 as compared to the same periods in the prior year. These improvements in gross profit and gross margin were primarily driven by higher average selling prices for consoles and consumables and lower unit cost per console. These improvements were slightly offset by lower gross margin on service and other revenue as a result of one-time strategic investment in service operations to enhance console reliability.

Previous wording

Research and development expenses decreased by $7.1 million or 56% for the three months ended March 31, 2025, as compared to the same period in the prior year. This decrease was primarily due to an overall decrease in compensation-related and stock-based compensation expenses, consulting expense, and infrastructure costs resulting from our cost reduction efforts implemented in the current quarter and the prior year.

Current wording

Research and development expenses decreased for the three and six months ended June 30, 2025 as compared to the same periods in the prior year. The decrease was primarily due to an overall decrease in compensation-related and stock-based compensation expense, consulting expense, and infrastructure costs resulting from our cost reduction efforts implemented in the fourth quarter of 2023, in 2024 and early 2025.

Previous wording

Sales and marketing expenses decreased by $7.4 million or 35% for the three months ended March 31, 2025 as compared to the same period in the prior year. The decrease was primarily driven by an overall decrease in compensation-related and stock-based compensation expenses, infrastructure costs, travel, freight and consulting expenses resulting from our cost reduction efforts implemented in the current quarter and the prior year.

Current wording

Sales and marketing expenses decreased for the three and six months ended June 30, 2025 as compared to the same periods in the prior year. The decrease was primarily driven by an overall decrease in compensation-related and stock-based compensation expense, freight, travel and consulting expenses resulting from our cost reduction efforts implemented in the fourth quarter of 2023, in 2024 and early 2025. The decreases for the six months ended June 30, 2025 were also reduced by the reduction in infrastructure costs.

Previous wording

General and administrative expenses decreased by $3.1 million or 27% for the three months ended March 31, 2025 as compared to the same period in the prior year. This decrease was primarily due to an overall decrease in compensation-related and stock-based compensation expenses resulting from our cost reduction efforts implemented in the current quarter and the prior year. These decreases were partially offset by an increase in professional services expense in the current year.

Current wording

General and administrative expenses decreased for the three and six months ended June 30, 2025 as compared to the same period in the prior year. The decrease was primarily due to an overall decrease in compensation-related and stock-based compensation expense, and consulting expenses resulting from our cost reduction efforts implemented in the fourth quarter of 2023, in 2024 and early 2025. Our provision for credit losses also decreased as compared to the prior year periods.

Previous wording

The decrease in interest income and other income, net for the three months ended March 31, 2025 as compared to the same period in the prior year was driven by a lower average short-term investment balance in 2025.

Current wording

The decrease in interest income and other income, net for the three and six months ended June 30, 2025 as compared to the same periods in the prior year were driven by a lower average short-term investment balance in 2025.

Previous wording

The decrease in interest expense for the three months ended March 31, 2025 as compared to the same period in the prior year was due to a lower outstanding term loan balance in 2025.

Current wording

The decreases in interest expense for the three and six months ended June 30, 2025 were primarily due to a lower outstanding term loan balance in 2025.

Previous wording

As of March 31, 2025, we had cash, cash equivalents, restricted cash and short-term investments of $192.3 million. In January and March 2025, we sold 863,340 shares of Series A Convertible Preferred Stock at a price of $200.00 per share in the Private Placement for total gross proceeds of $172.7 million, before deducting placement agent fees and other offering expenses. Subsequently, 842,753 shares of Series A Convertible Preferred Stock were converted into 14,045,866 shares of our common stock.

Current wording

As of June 30, 2025, we had cash, cash equivalents, restricted cash, and short-term investments of $187.4 million. In January and March 2025, we sold 863,340 shares of Series A Convertible Preferred Stock at a price of $200.00 per share in the Private Placement for total gross proceeds of $172.7 million, before deducting placement agent fees and other offering expenses. Subsequently, 842,753 shares of Series A Convertible Preferred Stock were converted into 14,045,866 shares of our common stock.

Previous wording

In September 2024, we received notice from the Listing Qualifications staff of Nasdaq that we no longer complied with the minimum bid price requirement for continued listing on the Nasdaq Global Select Market. Although compliance was regained in December 2024, we received a second notice of non-compliance in February 2025 after again failing to meet the minimum bid price requirement. As of early April 2025, the Company has since regained compliance after effecting the Reverse Stock Split. However, if we are unable to maintain compliance with the minimum bid price requirement or other applicable Nasdaq listing rules, we may not be able to maintain the listing of our common stock on Nasdaq, which could adversely affect our ability to issue additional securities or obtain additional financing on terms acceptable to us, or at all.

Current wording

In September 2024, we received notice from the Listing Qualifications staff of Nasdaq that we no longer complied with the minimum bid price requirement for continued listing on the Nasdaq Global Select Market. Although compliance was regained in December 2024, we received a second notice of non-compliance in February 2025 after again failing to meet the minimum bid price requirement. Following the Reverse Stock Split, the Company regained compliance. However, if we are unable to maintain compliance with the minimum bid price requirement or other applicable Nasdaq listing rules, we may not be able to maintain the listing of our common stock on Nasdaq, which could adversely affect our ability to issue additional securities or obtain additional financing on terms acceptable to us, or at all.

Previous wording

The net cash used in operating activities of $25.7 million for the three months ended March 31, 2025 was due to a net loss of $25.8 million, the amortization of premiums on investments of $0.4 million and a net cash outflow from the change in our operating assets and liabilities of $12.6 million, which were adjusted by loss on extinguishment of term loan of $7.7 million, stock-based compensation expense of $3.0 million, depreciation and amortization of $1.3 million, non-cash interest expense of $0.6 million, non-cash lease expense of $0.4 million, and allowance for credit losses of $0.2 million. The net cash outflow from operating assets and liabilities was primarily driven by a decrease in accrued compensation and related benefits primarily due to annual cash bonus payouts for 2024, a decrease in accrued interest as a result of the termination of SRL Term Loan, a decrease in accounts payable, and an increase in accounts receivable. The net cash outflow from operating assets and liabilities was partially offset by a decrease in inventory.

Current wording

The net cash used in operating activities of $30.5 million for the six months ended June 30, 2025 was due to a net loss of $44.3 million, a net cash outflow from the change in our operating assets and liabilities of $5.3 million, and the amortization of premiums on investments of $1.0 million, which were adjusted by loss on extinguishment of term loan of $7.7 million, stock-based compensation expense of $6.5 million, depreciation and amortization of $2.4 million, provision for credit losses of $1.6 million, non-cash interest expense of $1.3 million, non-cash lease expense of $0.8 million, and provision for inventories of $0.2 million. The net cash outflow from operating assets and liabilities was primarily due to a decrease in accrued compensation and related benefits resulting from the payouts of 2024 annual cash bonus, a decrease in accrued interest as a result of the termination of the SLR Term Loan, a decrease in accounts payable, an increase in accounts receivable resulting from the timing of collection and decreases in operating lease liabilities and accrued warranty liability. The net cash outflow from operating assets and liabilities was partially offset by a decrease in inventory, an increase in deferred revenue due to growth in our business, increases in accrued expenses and other current liabilities and a decrease in prepaid expenses and other assets.

Previous wording

The net cash used in investing activities of $78.1 million for the three months ended March 31, 2025 was primarily due to the purchases of short-term investment securities of $96.3 million, which was partially offset by the maturities of short-term investment securities of $18.4 million.

Current wording

The net cash used in investing activities of $109.2 million for the six months ended June 30, 2025 was due to purchases of short-term investment securities of $153.7 million and purchases of property and equipment of $0.4 million, which was partially offset by the maturities of short-term investment securities of $44.8 million.

Previous wording

The net cash provided by financing activities of $55.7 million for the three months ended March 31, 2025 was due to the net proceeds of $161.9 million from the issuance of Series A Convertible Preferred Stock, the net proceeds of $98.3 million from the borrowing under the Perceptive Term Loan Facility, and the proceeds from ESPP purchases, partially offset by the cash outflow of $205.0 million in repayment of the SLR Term Loan which included final payment and termination fees.

Current wording

The net cash provided by financing activities of $55.3 million for the six months ended June 30, 2025 was due to net proceeds of $161.5 million from the issuance of Series A Convertible Preferred Stock, net proceeds of $98.3 million from borrowings under the Perceptive Term Loan Facility, and proceeds from ESPP purchases, partially offset by cash outflow of $205.0 million in repayment of the SLR Term Loan which included final payment and termination fees.