Outset Medical, Inc. 10-Q

Item 1. Financial Statements. Outset Medical, Inc. Condensed Balance Sheets (in thousands, except per share amounts) March 31, December 31, 2021 2020 (Unaudited) Assets Current assets: Cash and cash equivalents $ 251,767 $ 294,972 Short-term investments 25,717 19,898 Accounts receivable, net 12,110 6,468 Inventories 24,554 18,384 Prepaid expenses and other current assets 7,578 6,189 Total current assets 321,726 345,911 Restricted cash 33,311 33,311 Property and equipment, net 15,548 14,998 Operating lease right-of-use assets 8,004 8,253 Other assets 1,240 1,356 Total assets $ 379,829 $ 403,829 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 6,651 $ 4,948 Accrued compensation and related benefits 12,602 16,845 Accrued expenses and other current liabilities 8,183 7,903 Accrued warranty liability 2,860 2,913 Deferred revenue, current 3,540 3,201 Operating lease liabilities, current 984 882 Total current liabilities 34,820 36,692 Accrued interest, noncurrent 359 240 Deferred revenue, noncurrent 536 570 Operating lease liabilities, noncurrent 7,773 8,044 Term loan, noncurrent 29,696 29,674 Total liabilities 73,184 75,220 Commitments and contingencies (Note 6) Stockholders' equity: Preferred stock, $0.001 par value; 5,000 shares authorized, and no shares issued and outstanding as of March 31, 2021 and December 31, 2020 — — Common stock, $0.001 par value; 300,000 shares authorized as of March 31, 2021 and December 31, 2020; 42,888 and 42,722 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively 43 43 Additional paid-in capital 830,694 822,624 Accumulated other comprehensive (loss) income (8 ) 1 Accumulated deficit (524,084 ) (494,059 ) Total stockholders' equity 306,645 328,609 Total liabilities and stockholders' equity $ 379,829 $ 403,829 The accompanying notes are an integral part of these unaudited condensed financial statements. 1 Outset Medical, Inc. Condensed Statements of Operations (Unaudited) (in thousands, except per share amounts) Three Months Ended March 31, 2021 2020 Revenue: Product revenue $ 18,210 $ 5,926 Service and other revenue 4,706 1,264 Total revenue 22,916 7,190 Cost of revenue: Cost of product revenue 20,577 9,562 Cost of service and other revenue 2,050 1,192 Total cost of revenue 22,627 10,754 Gross profit 289 (3,564 ) Operating expenses: Research and development 7,570 5,838 Sales and marketing 13,149 7,282 General and administrative 9,246 3,526 Total operating expenses 29,965 16,646 Loss from operations (29,676 ) (20,210 ) Interest income and other income, net 112 460 Interest expense (422 ) (1,001 ) Change in fair value of redeemable convertible preferred stock warrant liability — 101 Loss before provision for income taxes (29,986 ) (20,650 ) Provision for income taxes 39 — Net loss $ (30,025 ) $ (20,650 ) Net income (loss) attributable to common stockholders: Basic $ (30,025 ) $ 3,387 Diluted $ (30,025 ) $ 4,161 Net income (loss) per share attributable to common stockholders: Basic $ (0.70 ) $ 0.77 Diluted $ (0.70 ) $ 0.74 Weighted-average shares used in computing net income (loss) per share attributable to common stockholders: Basic 42,760 4,388 Diluted 42,760 5,630 The accompanying notes are an integral part of these unaudited condensed financial statements. 2 Outset Medical, Inc. Condensed Statements of Comprehensive Loss (Unaudited) (in thousands) Three Months Ended March 31, 2021 2020 Net loss $ (30,025 ) $ (20,650 ) Other comprehensive loss: Unrealized loss on available-for-sale securities (9 ) (35 ) Comprehensive loss $ (30,034 ) $ (20,685 ) The accompanying notes are an integral part of these unaudited condensed financial statements. 3 Outset Medical, Inc. Condensed Statement of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited) (in thousands) Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Accumulated Other Comprehensive Accumulated Total Stockholders’ Equity Shares Amount Shares Amount Capital Income (Loss) Deficit (Deficit) Balance as of December 31, 2020 — $ — 42,722 $ 43 $ 822,624 $ 1 $ (494,059 ) $ 328,609 Issuance of common stock through employee stock purchase plan — — 80 — 1,838 — — 1,838 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 The accompanying notes are an integral part of these unaudited condensed financial statements. 4 Outset Medical, Inc. Condensed Statement of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited) (in thousands) Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Accumulated Other Comprehensive Accumulated Total Stockholders’ Equity Shares Amount Shares Amount Capital Income (Loss) Deficit (Deficit) Balance as of December 31, 2019 147,214 $ 409,446 922 $ 1 $ 357 $ 22 $ (372,567 ) $ (372,187 ) Issuance of Series E redeemable convertible preferred stock, net of issuance costs 57,782 126,758 — — — — — — Issuance of common stock on settlement of accrued dividend — (41,763 ) 4,850 5 41,758 — — 41,763 Deemed dividend on settlement of accrued dividend — (42,530 ) — — 42,530 — — 42,530 Stock option exercises — — 4 — 14 — — 14 Stock-based compensation expense — — — — 580 — — 580 Unrealized loss on available-for-sale securities — — — — — (35 ) — (35 ) Adjustment to redemption value on redeemable convertible preferred stock — 362 — — (362 ) — — (362 ) Net loss — — — — — — (20,650 ) (20,650 ) Balance as of March 31, 2020 204,996 $ 452,273 5,776 $ 6 $ 84,877 $ (13 ) $ (393,217 ) $ (308,347 ) The accompanying notes are an integral part of these unaudited condensed financial statements. 5 Outset Medical, Inc. Condensed Statements of Cash Flows (Unaudited) (in thousands) Three Months Ended March 31, 2021 2020 Cash flows from operating activities: Net loss $ (30,025 ) $ (20,650 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,246 305 Non-cash lease expense 249 — Non-cash interest expense 140 200 Accretion of discount on investments, net 60 16 Provision for accounts receivable 5 11 Provision for inventories 115 90 Stock-based compensation expense 5,852 580 Change in fair value of redeemable convertible preferred stock warrant liability — (101 ) Changes in operating assets and liabilities: Accounts receivable (5,646 ) (3,055 ) Inventories (7,247 ) 824 Prepaid expenses and other assets (981 ) 71 Accounts payable 1,613 (1,430 ) Accrued payroll and related benefits (4,244 ) (2,726 ) Accrued expenses and other current liabilities 164 150 Accrued warranty liability (53 ) 71 Deferred revenue 305 751 Operating lease liabilities (169 ) — Net cash used in operating activities (38,616 ) (24,893 ) Cash flows from investing activities: Purchases of property and equipment (919 ) (2,799 ) Purchases of short-term investments (25,788 ) — Sales and maturities of short-term investments 19,900 21,958 Net cash (used in) provided by investing activities (6,807 ) 19,159 Cash flows from financing activities: Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs — 126,758 Proceeds from stock option exercises and employee stock purchase plan purchases 2,218 15 Repayment of finance lease — (3 ) Net cash provided by financing activities 2,218 126,770 Net (decrease) increase in cash, cash equivalents and restricted cash (43,205 ) 121,036 Cash, cash equivalents and restricted cash as of beginning of period 328,283 37,669 Cash, cash equivalents and restricted cash as of end of period $ 285,078 $ 158,705 Supplemental cash flow disclosures: Cash paid for income taxes $ — $ — Cash paid for interest $ 282 $ 800 Cash paid for amounts included in the measurement of operating lease liabilities $ 169 $ — Supplemental non-cash investing and financing activities: Capital expenditures included in accounts payable and accrued expenses $ 238 $ 366 Deemed dividend on settlement of accrued dividend $ — $ 42,530 Adjustment to redemption value on redeemable convertible preferred stock $ — $ 362 Issuance of common stock on settlement of accrued dividend $ — $ 41,763 The accompanying notes are an integral part of these unaudited condensed financial statements. 6 Outset Medical, Inc. Notes to Condensed Financial Statements 1. Description of Business Outset Medical, Inc. (the “Company”) was originally incorporated on May 5, 2003 in the state of Delaware under the name Home Dialysis Plus, Ltd. The name of the Company was changed to Outset Medical, Inc. on January 5, 2015. Outset Medical, Inc. is a medical technology company pioneering a first-of-its-kind technology to reduce the cost and complexity of dialysis. The Tablo Hemodialysis System enables dialysis care in acute and chronic settings. The Company’s headquarters are located in San Jose, CA. The Company’s registration statement on Form S-1 related to its initial public offering (IPO) was declared effective by the Securities and Exchange Commission (SEC) on September 14, 2020, and the Company’s common stock began trading on the Nasdaq Global Select Market on September 15, 2020. Upon the completion of the IPO, the Company sold 10,294,000 shares of common stock (which included 1,343,000 shares that were sold pursuant to the full exercise of the underwriters’ option to purchase additional shares in connection with the IPO) at a price to the public of $27.00 per share. Including the full exercise of the underwriters’ option to purchase additional shares, the Company received aggregate net proceeds of $254.8 million after deducting offering costs, underwriting discounts and commissions of $23.1 million. On April 13, 2021, the Company completed a follow-on public offering and sold 2,946,000 shares of common stock (see Note 11 for further discussion) . Reverse Stock Split In September 2020, the Company’s board of directors and shareholders approved a certificate of amendment to the amended and restated certificate of incorporation to effect a reverse split of shares of the Company’s common stock on a 7.9-for-one basis (the “Reverse Stock Split”) effective as of September 8, 2020. The number of authorized shares and the par values of the common stock and redeemable convertible preferred stock were not adjusted as a result of the Reverse Stock Split. In connection with the Reverse Stock Split, the conversion ratio for the Company’s outstanding redeemable convertible preferred stock was proportionately adjusted such that the common stock issuable upon conversion of such preferred stock was decreased in proportion to the Reverse Stock Split. All references to common stock and options to purchase common stock share data, per share data and related information contained in these condensed financial statements have been retrospectively adjusted to reflect the effect of the Reverse Stock Split for all periods presented. Liquidity Since inception, the Company has incurred net losses and negative cash flows from operations. During the three months ended March 31, 2021 and 2020, the Company incurred a net loss of $30.0 million and $20.7 million, respectively. As of March 31, 2021, the Company had an accumulated deficit of $524.1 million. As of March 31, 2021, the Company had cash, cash equivalents and short-term investments of $277.5 million, which are available to fund future operations, and restricted cash of $33.3 million, for a total cash, cash equivalents, restricted cash and short-term investments balance of $310.8 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 and short-term investments, which include the proceeds from the IPO, and cash generated from revenues from its products and services, as well as the proceeds from the follow-on public offering (see Note 11 for further discussion), 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-month period are also unaudited. The results of operations for the three months ended March 31, 2021 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, 2020 included herein was derived from the audited financial statements as of that date. 7 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, 2020, which are included in the Annual Report on Form 10-K filed with SEC on March 22, 2021. 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 three months ended March 31, 2021, there have been no changes to the Company’s significant accounting policies as described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2020 that have had a material impact on the Company’s condensed financial statements and related notes, except as described below, including under “Recently Adopted Accounting Pronouncements.” Cash, Cash Equivalents and Restricted Cash As of March 31, 2021 and December 31, 2020, the restricted cash balance of $33.3 million primarily relates to contractual obligations under the SVB Loan and Security Agreement (see Note 7) and collateral for building leases in San Jose, CA and Tijuana Mexico. The following table provides a reconciliation of cash, cash equivalents and restricted cash that sum to the total of the amounts shown in the accompanying condensed statements of cash flows (in thousands): March 31, 2021 2020 Cash and cash equivalents $ 251,767 $ 157,962 Restricted cash 33,311 743 Total cash, cash equivalents and restricted cash $ 285,078 $ 158,705 Fair Value of Financial Instruments The Company determines the fair value of an asset or liability based on the assumptions that market participants would use in pricing the asset or liability in an orderly transaction between market participants at the measurement date. The identification of market participant assumptions provides a basis for determining what inputs are to be used for pricing each asset or liability. A fair value hierarchy has been established which gives precedence to fair value measurements calculated using observable inputs over those using unobservable inputs. This hierarchy prioritizes the inputs into three broad levels as follows: Level 1: Quoted prices in active markets for identical instruments; Level 2: Other significant observable inputs (including quoted prices in active markets for similar instruments); and Level 3: Significant unobservable inputs (including assumptions in determining the fair value of certain investments). The Company’s cash and cash equivalents, restricted cash, short-term investments, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to their short maturities. Management believes that its term loan bears interest at the prevailing market rates for instruments with similar characteristics; accordingly, the carrying value of this instrument approximates its fair value. The Company’s investment securities are recorded at fair value based on the fair value hierarchy. Money market funds and U.S. Treasury securities are classified within Level 1 of the fair value hierarchy. Commercial paper, corporate debt and Yankee debt securities are within Level 2 of the fair value hierarchy. Unrealized gains and losses, deemed temporary in nature, are reported as a separate component of accumulated other comprehensive income (loss). Accrued Warranty Liability The Company generally provides a one-year warranty for defective parts and workmanship on its Tablo consoles, commencing upon the transfer of title and risk of loss to the customer. The Company accrues the estimated cost of product warranties when it invoices the customer, based on historical experience and expected results. Should actual product failure rates and material usage costs differ from these estimates, revisions to the estimated warranty liability would be required. The Company periodically assesses the adequacy of its recorded product warranty liabilities and adjusts the balance as required. Warranty expense is recorded as a component of cost of product revenue in the accompanying condensed statements of operations. 8 Contract Liabilities - Deferred Revenue The timing of revenue recognition may differ from the timing of invoicing to customers. The Company records deferred revenue when revenue is recognized subsequent to invoicing. For multi-year service agreements, the Company generally invoices customers annually at the beginning of each annual coverage period. Deferred revenue that will be recognized during the 12 months following the balance sheet date is recorded as the current portion of deferred revenue and the remaining portion is recorded as noncurrent. Revenue The Company’s revenue is generated primarily from the sale of its products and services. Product revenue consists primarily of sales of the Tablo console and related consumables, including Tablo cartridges, used in treatment delivery. Service and other revenue consists primarily of revenue generated from consoles service contracts and other revenue from shipping and handling charged to customers. The Company considers each product and each service contract to be a distinct performance obligation. Revenue is recognized when a performance obligation is satisfied, which occurs when control of the promised products or services is transferred to the customer in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. Revenue from product sales is recognized at a point in time when management has determined that control has transferred to the customer, which is generally when legal title has transferred to the customer. Revenue from service contracts is recognized as the output of the service is transferred to the customer over time, typically evenly over the contract term. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities. The Company’s contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Judgment is also required to determine the stand-alone selling price (SSP) for each distinct performance obligation. The Company uses an observable price to estimate SSP for items that are sold separately, including customer support agreements. In instances where SSP is not directly observable, such as when the Company does not sell the product or service separately, the Company determines the SSP using information that may include market conditions and other observable inputs. The Company may offer additional goods or services to customers at the inception of customer contracts at prices not at SSP. This may be considered a material right and an additional performance obligation of the contract. SSP is assigned based on the estimated value of the material right. Costs associated with product sales include commissions. The Company applies the practical expedient to expense the commissions as incurred as the expected amortization period is one year or less. Commissions are recorded as sales and marketing expenses in the accompanying condensed statements of operations. Operating Lease Arrangements The Company enters into operating lease arrangements that contain both lease and non-lease elements. The lease element includes Tablo consoles, while non-lease elements include consumables, services and training. Revenue related to such arrangements is allocated to lease and non-lease elements based on their relative SSP. Revenue for the lease element, net of any taxes collected from customers, is recognized on a straight-line basis as product revenue over the lease term, generally three months to one year, in the statements of operations. The costs of the leased Tablo consoles are included in property and equipment, net in the balance sheets and amortized to cost of product revenue. Shipping and Handling Costs Shipping and handling charged to customers are recorded as revenue. Shipping and handling costs are expensed as incurred and are included in sales and marketing expenses. Stock-Based Compensation Expense Stock-based compensation expense relates to stock options with a service-based vesting condition, stock options with performance and market-based vesting conditions, stock purchase rights under the Company’s Employee Stock Purchase Plan (ESPP), restricted stock units (RSUs) and performance stock units (PSUs). Stock-based compensation expense for the Company’s stock-based awards is based on their grant date fair value. 9 Service-based options granted to an optionee generally vest at a rate of 25 % on the first anniversary of the original vesting date, with the balance vesting monthly over the remaining three years . The fair value of stock options with a service condition and stock purchase rights under the ESPP on the grant date is estimated using the Black-Scholes option-pricing model. The fair value of these awards is recognized as compensation expense on a straight-line basis over the requisite service period in which the awards are expected to vest and forfeitures are recognized as they occur. The Black-Scholes model considers several variables and assumptions in estimating the fair value of service-based stock options and stock purchase rights under the ESPP. These variables include the per share fair value of the underlying common stock, exercise price, expected term, risk-free interest rate, expected annual dividend yield and expected stock price volatility over the expected term. For all service-based stock options granted, the Company calculates the expected term using the simplified method for “plain vanilla” stock option awards. For stock options with performance and market-based vesting conditions, stock-based compensation expense is recognized when it is considered probable that the performance vesting condition will be satisfied. Stock-based compensation expense related to these options is recognized using the accelerated attribution method and not reversed if the achievement of the market condition does not occur. The fair value of these stock options is estimated using the Monte Carlo approach. RSUs granted to an optionee 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. The fair value of RSUs and PSUs with a service- or performance-based vesting condition is based on the market price of the Company’s common stock on the date of grant. The determination of the stock-based compensation expense related to PSUs with a performance-based vesting condition to be recognized requires the use of certain estimates and assumptions. At each reporting period, the Company reassesses the probability of the achievement of corporate performance goals to estimate the number of shares to be released. Any increase or decrease in stock-based compensation expense resulting from an adjustment in the estimated shares to be released is treated as accumulative catch-up in the period of adjustment. If any of the assumptions or estimates used change significantly, stock-based compensation expense may differ materially from what the Company has recorded in the current period. The fair value of PSUs with a market-based vesting condition is estimated using the Monte Carlo approach. Stock-based compensation expense related to these PSUs is recognized using the accelerated attribution method and not reversed if the achievement of the market condition does not occur. Net Income (Loss) Per Share Attributable to Common Stockholders The Company follows the two-class method when computing net income (loss) per share as the Company has issued shares that meet the definition of participating securities. The two-class method determines net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. Basic net income (loss) per share attributable to common stockholders is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period, without consideration for potential dilutive securities. Diluted net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of common shares and common share equivalents of potentially dilutive securities outstanding for the period. For purposes of the diluted net income (loss) per share calculation, redeemable convertible preferred stock, awards under the Company’s equity compensation plan and warrants are considered to be potentially dilutive securities. For periods in which the Company reports net losses, basic net loss per share attributable to common stockholders is the same as diluted net loss per share attributable to common stockholders because the effects of potentially dilutive securities are antidilutive. Recently Adopted Accounting Pronouncements In December 2019, the Financial Accounting Standards Board (FASB) issued ASU No. 2019-12, Income Taxes (Topic 740) (ASU 2019-12), which simplifies the accounting for income taxes, primarily by eliminating certain exceptions to ASC 740. The Company early adopted ASU 2019-12 on a modified retrospective basis as of January 1, 2021, which did not have a material impact on the condensed financial statements. 10 Recently Issued Accounting Pronouncements Not Yet Adopted In June 2016, the 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 ASU 2016-13 to 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, 2023. The Company is currently evaluating the impact of the adoption of ASU 2016-13 on its financial statements. 3 . Revenue and Deferred Revenue Disaggregation of Revenue Revenue by source consists of the following (in thousands): Three Months Ended March 31, 2021 2020 Consoles $ 14,766 $ 5,027 Consumables 3,444 899 Total product revenue 18,210 5,926 Service and other revenue 4,706 1,264 Total revenue $ 22,916 $ 7,190 For the three months ended March 31, 2021 and 2020, $1.3 million and $0.6 million of consoles revenue were from console operating lease arrangements. Performance Obligations As of March 31, 2021, 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 $4.1 million, which is recorded as deferred revenue on the Company’s condensed balance sheets. Of that amount, $3.6 million will be recognized as revenue during the next 12 months and approximately $0.5 million thereafter. Contract Liabilities The contract liabilities consist of deferred revenue which represents payments received in advance of revenue recognition related to console service agreements and for prepayments for products or services yet to be delivered. Revenue under these agreements is recognized over the related service period. The following table summarizes the Company’s contract liabilities (in thousands): March 31, December 31, 2021 2020 Deferred revenue, current $ 3,540 $ 3,201 Deferred revenue, noncurrent 536 570 Total deferred revenue $ 4,076 $ 3,771 Revenue recorded during the three months ended March 31, 2021 included $2.4 million of previously deferred revenue that was included in contract liabilities as of December 31, 2020. 11 4. Fair Value Measurements 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): March 31, 2021 Valuation Hierarchy Amortized Costs Gross Unrealized Holding Gains Gross Unrealized Holding Losses Aggregate Fair Value Assets: Cash equivalents: Money market funds Level 1 $ 50,147 $ — $ — $ 50,147 Short-term investments: Commercial paper Level 2 13,286 — — 13,286 Corporate debt Level 2 10,416 — (6 ) 10,410 Yankee debt securities Level 2 2,023 — (2 ) 2,021 Total cash equivalents and short-term investments $ 75,872 $ — $ (8 ) $ 75,864 December 31, 2020 Valuation Hierarchy Amortized Costs Gross Unrealized Holding Gains Gross Unrealized Holding Losses Aggregate Fair Value Assets: Cash equivalents: Money market funds Level 1 $ 56,056 $ — $ — $ 56,056 Short-term investments: U.S. Treasury securities Level 1 14,999 1 — 15,000 Corporate debt Level 2 4,898 — — 4,898 Total cash equivalents and short-term investments $ 75,953 $ 1 $ — $ 75,954 As of March 31, 2021, the remaining contractual maturities for available-for-sale securities were less than one year. Impairment assessments are made at the individual security level at each reporting period. When the fair value of an available-for-sale security is less than its cost at the balance sheet date, a determination is made as to whether the impairment is other-than-temporary and, if it is other-than-temporary, an impairment loss is recognized in earnings equal to the difference between the investment’s amortized cost and fair value at such date. There were no unrealized losses for securities in an unrealized loss position for more than 12 months as of March 31, 2021. During the three months ended March 31, 2021 and 2020, the Company did not recognize other-than-temporary impairment losses related to its short-term investments. 5 . Balance Sheet Components Inventories Inventories consist of the following (in thousands): March 31, December 31, 2021 2020 Raw materials $ 10,852 $ 7,989 Work in process 7,638 6,200 Finished goods 6,064 4,195 Total inventories $ 24,554 $ 18,384 12 Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following (in thousands): March 31, December 31, 2021 2020 Accrued inventory $ 3,058 $ 3,576 Accrued research and development expenses 98 175 Accrued professional services 2,693 2,187 Others 2,334 1,965 Total accrued expenses and other current liabilities $ 8,183 $ 7,903 Accrued Warranty Liability The change in accrued warranty liability is presented in the following table (in thousands): March 31, December 31, 2021 2020 Balance at the beginning of the period $ 2,913 $ 1,702 Additions charge to cost of product revenue 1,625 4,858 Consumption (1,678 ) (3,647 ) Balance at the end of the period $ 2,860 $ 2,913 6. Commitments and Contingencies Litigation From time to time, the Company may become involved in 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. Indemnifications In the ordinary course of business, the Company often includes standard indemnification provisions in its arrangements with its partners, customer 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): March 31, December 31, 2021 2020 Principal of term loan $ 30,000 $ 30,000 Unamortized debt discount (304 ) (326 ) Total term loan, noncurrent $ 29,696 $ 29,674 SVB Loan and Security Agreement On July 2, 2020, the Company entered into a senior secured term loan facility with Silicon Valley Bank (SVB) (the SVB Loan and Security Agreement), which provides for a $30.0 million term loan (the SVB Term Loan). The SVB Term Loan matures on November 1, 2025. Payments 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 interest at the greater of (A) 0.5% above the Prime Rate as reported in the Wall Street Journal and (B) 3.75% (3.75% as of March 31, 2021). The 13 Company is obligated to maintain a restricted cash balance greater or equal to the outstanding principal balance of $ 30.0 million of the SVB Term Loan. There is also a final payment fee equal to 6.75% of the original principal amount of the SVB Term Loan, or approximately $2.0 million, due at maturity (or any earlier date of optional pre-payment or acceleration of principal due to an event of default). Such fee is being accreted to interest expense using the effective interest method with the offset recorded in noncurrent accrued interest. The Company may, at its option, prepay the SVB Term Loan in full, subject to an additional prepayment fee ranging between 1% and 3% of the outstanding principal amount of the SVB Term Loan. In the event of default or change in control, all unpaid principal and all accrued and unpaid interest amounts (if any) become immediately due and payable including the prepayment fee. Events of default include, but are not limited to, a payment default, a material adverse change, and insolvency. The SVB Term Loan is secured by substantially all of the Company’s assets, including all of the capital stock held by the Company, if any (subject to a 65% limitation on pledges of capital stock of foreign subsidiaries), subject to certain exceptions. The SVB Loan and Security Agreement contains customary representations, warranties, affirmative covenants and also contains certain restrictive covenants. Debt issuance costs paid directly to SVB and other debt issuance costs amounting to $0.4 million were accounted for as discounts on the SVB Term Loan. These debt discounts, along with the final payment fee, are being amortized over the term of the SVB Term Loan using the effective interest rate method. As of March 31, 2021, the unamortized debt discount was $0.3 million, which is recorded as a direct deduction from the SVB Term Loan on the accompanying condensed balance sheets. 8. Equity Incentive Plan Equity Incentive Plans On January 1, 2021, the number of shares of common stock reserved for the issuance of awards under the 2020 Equity Incentive Plan (the “2020 Plan”) was increased by 1,709,000 shares as a result of the automatic increase pursuant to the 2020 Plan. As of March 31, 2021, 4,460,000 shares were reserved for future issuance under the 2020 Plan. Employees Share Purchase Plan (ESPP) On January 1, 2021, the number of shares of common stock reserved for purchase under the Employee Share Purchase Plan (ESPP) was increased by 427,000 shares as a result of the automatic increase pursuant to the ESPP. As of March 31, 2021, 1,034,000 shares of common stock were reserved for issuance in connection with the current and future offering periods under the ESPP. The price at which common stock is purchased under the ESPP is equal to 85% of the fair market value of the common stock on the first day of the offering period or purchase date, whichever is lower. During the three months ended March 31, 2021, 80,000 shares of common stock were issued under the ESPP. No shares of common stock were issued during the three months ended March 31, 2020 as the ESPP was adopted in September 2020. 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 March 31, 2021 2020 Cost of revenue $ 75 $ 19 Research and development 1,165 118 Sales and marketing 1,742 82 General and administrative 2,870 361 Total stock-based compensation expense $ 5,852 $ 580 Stock Options with Performance and Market Conditions As of December 31, 2020, the Company had 1,933,000 shares of outstanding stock options with performance and market-based vesting conditions. The options vest over the requisite service period if the Company achieves both (i) a performance condition tied to a liquidity event, which includes the effectiveness of an IPO, and (ii) certain market conditions, provided the optionee is providing services on the date of the event. As of March 31, 2021, all outstanding stock options with performance and market-based vesting conditions were fully vested other than 151,000 shares of these stock options that are scheduled to vest in September 2021. 14 For the three months ended March 31, 2021 , the Company recorded stock-based compensation expense of $4.2 million related to these stock options . No such expense was recognized for the three months ended March 31, 2020 as the performance vesting condition w as not satisfied un til the closing of the IPO in September 2020 . Unamortized stock -based compensation expense related to these awards amounted to $0.5 million as of March 31, 2021 , which the Company expects to recognize over an estimated weighted-average period of 0. 3 year s . 9. Income Taxes For the three months ended March 31, 2021 and 2020, the Company incurred an income tax provision of an insignificant amount and zero, respectively. The U.S. federal and state net deferred tax assets have been fully reserved, as the Company believes it is not more likely than not that the benefit will be realized. 10. Net Income (Loss) Per Share Attributable to Common Stockholders A reconciliation of the numerator and denominator used in the calculation of basic and diluted net income (loss) per share attributable to common stockholders is as follows (in thousands except per share amounts): Three Months Ended March 31, 2021 2020 Numerator: Net loss $ (30,025 ) $ (20,650 ) Adjustment to redemption value on redeemable convertible preferred stock — (362 ) Deemed dividend on settlement of accrued dividend — 42,530 Undistributed earnings allocated to participating securities — (18,131 ) Net income (loss) attributable to common stockholders, basic $ (30,025 ) $ 3,387 Undistributed earnings reallocated to dilutive potential common shares — 774 Net income (loss) attributable to common stockholders, diluted $ (30,025 ) $ 4,161 Denominator: Weighted-average shares of common stock, basic 42,760 4,388 Effect of dilutive stock options — 1,242 Weighted-average shares of common stock, diluted 42,760 5,630 Net income (loss) per share attributable to common stockholders Basic $ (0.70 ) $ 0.77 Diluted $ (0.70 ) $ 0.74 The following outstanding potentially dilutive shares were excluded from the calculation of diluted net income (loss) per share due to their anti-dilutive effect (in thousands): March 31, 2021 2020 Stock options to purchase common stock 5,019 2,124 Warrant to purchase common stock 63 — Restricted stock units 403 — Shares committed under ESPP 7 — Redeemable convertible preferred stock, on an as-if converted basis — 25,958 Warrants to purchase redeemable convertible preferred stock — 505 Total 5,492 28,587 11. Subsequent Event On April 13, 2021, the Company completed its follow-on public offering and sold 2,946,000 shares of its common stock (which included 446,000 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. The Company received aggregate net proceeds of approximately $149.7 million after deducting underwriting discounts and commissions and before expenses. 15