What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-05-06 · 98 added, 86 removed, 140 unchanged (57% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of our financial condition and results of operations should be read together with our unaudited condensed financial statements and related notes and other financial information included elsewhere in this Quarterly Report, as well as our audited financial statements and notes thereto and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with Securities and Exchange Commission (SEC) on March 22, 2021.

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 ended December 31, 2020 filed with the Securities and Exchange Commission (“SEC”) on March 22, 2021 (“2020 Annual Report”).

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.

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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

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.

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We sell our solution through our direct sales organization, which covers most major metropolitan markets in the United States.

As of March 31, 2021, our sales organization is comprised of 33 capital sales team members, responsible for generating new customer demand for Tablo, and 57 clinical sales team members responsible for driving utilization and fleet expansion of Tablo consoles at existing customer sites.

As of June 3 0 , 2021 , our sales organization is comprised of 29 capital sales team members, responsible for generating new customer demand for Tablo , and 70 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 78 members provides maintenance services and product support to Tablo customers.

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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 executing a well-defined, three-pronged strategy designed to expand gross margins.

First, we have insourced our console manufacturing to help lower console cost.

Second, we are adding a second-source contract manufacturer for our cartridges to gain higher efficiency and lower material cost.

Third, 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 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 $22.9 million and $7.2 million for the three months ended March 31, 2021 and 2020, respectively.

For the three months ended March 31, 2021 and 2020, we incurred net losses of $30.0 million and $20.7 million, respectively.

As of March 31, 2021, we had an accumulated deficit of $524.1 million.

Our total revenue was $25.2 million and $11.7 million for the three months ended June 30, 2021 and 2020, respectively, and $48.1 million and $18.9 million for the six months ended June 30, 2021 and 2020, respectively.

For the three months ended June 30, 2021 and 2020, we incurred net losses of $30.2 million and $26.5 million, respectively, and for the six months ended June 30, 2021 and 2020, we incurred net losses of $60.2 million and $47.2 million, respectively.

As of June 30, 2021, we had an accumulated deficit of $554.3 million.

On September 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.

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On April 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 $149.7 million after deducting underwriting discounts and commissions and before expenses.

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

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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, 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 follow the health and safety guidelines of the U.S.

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 the U.S.

Centers for Disease Control and Prevention, Occupational Safety and Health Administration, and local and state public health departments where we operate.

For employees working on-site, we have and continue to provide personal protective equipment, practice social distancing, enforce mask wearing and increase sanitizing standards, and have also implemented COVID-19 testing at our facilities.

We also continue to support remote work arrangements for certain employees.

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 continue to provide vaccination site information and COVID-19 testing at our facilities.

We also actively support remote work arrangements.

In addition, 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 in Tijuana, Mexico, have not yet experienced significant disruption, the possibility that such disruption may occur remains.

While the operations at our contract manufacturing partners’ facilities and our outsourced business administration service provider, TACNA, for our facility in Tijuana, Mexico, have not yet experienced significant disruption as a result of the pandemic, the possibility that such disruption may occur remains.

Additionally, the COVID-19 pandemic has 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.

However, we cannot predict how long the pandemic and measures intended to contain the spread of COVID-19 will continue and what effect COVID-19 and the associated

containment measures will ultimately have 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 in Tijuana, Mexico in collaboration with Tacna, are more severely impacted by the pandemic and associated containment measures.

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.

H ow 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 CO VID -19 vaccines.

As a result, we cannot predict what effect COVID-19 and the associated containment measures will ultimately have 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 in Tijuana, Mexico in collaboration with T ACNA , are more severely impacted by the pandemic and associated containment measures.

Results of Operations

The following table summarizes our results of operations for the three months ended March 31, 2021 and 2020 (in thousands):

The following table summarizes our results of operations for the three and six months ended June 30, 2021 and 2020 (in thousands):

Three Months Ended

Six Months Ended

Product revenue

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Interest expense

Change in fair value of redeemable convertible preferred stock warrant liability

Change in fair value of redeemable convertible preferred stock

warrant liability

Loss before provision for income taxes

Provision for income taxes

Comparison of the Three Months Ended March 31, 2021 and 2020

Three Months Ended March 31,

Comparison of the Three and Six Months Ended June 30, 2021 and 2020

Three Months Ended June 30,

Six Months Ended June 30,

(dollars in thousands)

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Total revenue

Product revenue increased by $12.3 million, or 207% for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 driven by a $9.7 million increase in consoles revenue and a $2.6 million increase in consumables revenue.

The increase in consoles revenue was driven by new customer adoption, fleet expansion across existing customers, and a $0.7 million increase in console leasing revenue.

The increase in consumables revenue was driven by our growth in console installed base and higher utilization of the installed base.

Service and other revenue increased by $3.4 million , or 272% for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

Product revenue increased by $10.9 million, or 113% for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020, driven by a $8.7 million increase in consoles revenue and a $2.2 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 $0.7 million increase in console leasing revenue.

The increase in consumables revenue was driven by our growth in console installed base.

Product revenue increased by $23.2 million, or 149% for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, driven by a $18.4 million increase in consoles revenue and a $4.8 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 $1.4 million increase in console leasing revenue.

The increase in consumables revenue was driven by our growth in console installed base.

Service and other revenue increased for the three and six months ended June 30, 2021 from the three and six months ended June 30, 2020.

The increase was primarily due to services associated with our growth in console installed base, including leased consoles.

Cost of Revenue, Gross Profit and Gross Margin

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(dollars in thousands)

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Total cost of revenue

Cost of product revenue increased by $11.0 million, or 115% for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

This increase was primarily due to higher console and consumable volume of $15.1 million, higher manufacturing overhead of $0.5 million and higher depreciation expense for leased consoles of $0.2 million.

Cost of product revenue increased by $6.8 million, or 44% for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

This increase was primarily due to higher console and consumable volume of $12.8 million and higher depreciation expense for leased consoles of $0.2 million.

This was offset by a $5.9 million reduction in product costs and a $0.4 million decrease in manufacturing overhead.

Cost of product revenue increased by $17.8 million, or 72% for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

This increase was primarily due to higher console and consumable volume of $27.8 million, higher depreciation expense for leased consoles of $0.4 million and higher manufacturing overhead of $0.1 million.

This was offset by a $10.6 million reduction in product costs.

Cost of service and other revenue increased by $0.9 million, or 72% for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

This increase was pri marily due to additional headcount costs in our service department, which were offset by higher absorption of these costs across our larger installed base.

Gross profit increased by $3.9 million, or 108% for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

The gross margin percentage improved by 50.9 percentage points for the three months ended March 31, 20 21, as compared to the three months ended March 31, 2020, driven primarily by $7.0 million related to higher margin sales of our products and $2.6 million in higher service revenue as a result of our larger installed base, including leased consoles.

This was offset by $5.2 million in increased costs as a result of selling more product and a $0.5 million increase in higher manufacturing overhead.

Cost of service and other revenue increased by $0.9 million, or 72% for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

This increase was pri marily due to additional headcount costs in our service department, which were absorbed across our larger installed base.

Cost of service and other revenue increased by $1.7 million, or 72% for the six months ended June 30, 2021 as compared to the three months ended June 30, 2020.

This increase was pri marily due to additional headcount costs in our service department, which were absorbed across our larger installed base.

Gross profit increased by $5.8 million, or 122% for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

The gross margin percentage improved by 44.8 percentage points for the three months ended June 30, 20 21, as compared to the three months ended June 30, 2020, driven primarily by the impact of our cost reduction activities.

Gross profit increased by $9.7 million, or 116% for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

The gross margin percentage improved by 46.8 percentage points for the six months ended June 30, 20 21, as compared to the six months ended June 30, 2020, driven primarily by the impact of our cost reduction activities.

Operating Expenses

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(dollars in thousands)

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Total operating expenses

Research and development expenses increased by $1.7 million, or 30% for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

Research and development expenses increased by $2.0 million, or 33% for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

The increase was primarily due to a $1.1 million increase in compensation and personnel costs, which includes a $0.5 million increase in stock-based compensation expense, and a $0.8 million increase in consultant services.

Research and development expenses increased by $3.7 million, or 31% for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

The increase was primarily due to a $3.2 million increase in compensation and personnel costs, which includes a $1.6 million increase in stock-based compensation expense, and a $0.8 million increase in consultant services.

The increases were partially offset by a $0.4 million decrease in supplies and materials.

Sales and marketing expenses increased by $5.9 million, or 81% for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

The increase was primarily due to a $4.5 million increase in compensation and personnel costs, which includes a $1.7 million increase in stock-based compensation expense and a $1.1 million increase in commission expense , a $0.9 million increase in clinical sales consultant services, $0.3 million increase in facilities and other allocated costs and $0.1 million increase in freight expenses .

General and administrative expenses increased by $5.7 million, or 162% for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

The increase was primarily due to a $5.1 million increase in compensation and personnel costs, which includes a $2.5 million increase in stock-based compensation expense, a $0.6 million increase in professional and consultant services associated with new public company status and a $0.4 million increase in depreciation expense.

The increases were partially offset by a $0.4 million decrease in facilities and other allocated costs.

Sales and marketing expenses increased by $4.0 million, or 43% for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

The increase was primarily due to a $2.3 million increase in compensation and personnel costs, which includes a $1.0 million increase in stock-based compensation expense , a $0.9 million increase in clinical sales consultant services, a $0.5 million increase in travel expenses and a $0.2 million increase in allocated costs for facilities and information technology to support the general expansion of our operations .

Sales and marketing expenses increased by $9.8 million, or 59% for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

The increase was primarily due to a $6.9 million increase in compensation and personnel costs, which includes a $2.6 million increase in stock-based compensation expense , a $2.0 million increase in clinical sales consultant services, a $0.4 million increase in allocated costs for facilities and information technology to support the general expansion of our operations , a $0.2 million in travel expenses and a $0.2 million increase in freight expenses .

General and administrative expenses increased by $4.9 million, or 101% for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

The increase was primarily due to a $3.1 million increase in compensation and personnel costs, which includes a $1.8 million increase in stock-based compensation expense, a $0.9 million increase in insurance costs, a $0.6 million increase in outside services costs, and a $0.4 million increase in allocated costs for facilities and information technology to support the general expansion of our operations.

The increases were partially offset by a $0.1 million decrease in professional and consultant services.

General and administrative expenses increased by $10.6 million, or 127% for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

The increase was primarily due to a $6.6 million increase in compensation and personnel costs, which includes a $4.3 million increase in stock-based compensation expense, a $1.8 million increase in insurance costs, a $1.2 million increase in allocated costs for facilities and information technology to support the general expansion of our operations, a $0.6 million increase in outside services costs, and a $0.5 million increase in professional and consultant services.

The increases were partially offset by a $0.1 million decrease in depreciation expense.

Other Income (Expense), Net

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(dollars in thousands)

Other Income (Expense), Net:

Interest income and other income, net

Interest expense

Change in fair value of redeemable convertible preferred stock

Change in fair value of redeemable

convertible preferred stock

warrant liability

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* Not meaningful

Interest income and other income, net decreased by $0.3 million, or 76% for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, driven by lower interest rates and a lower average balance in cash, cash equivalents and short-term investment securities in the first quarter of 2021.

Interest expense decreased by $0.6 million, or 58% for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

Interest income and other income, net increased by $0.1 million, or 145% for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020, primarily driven by a value added taxes refund related to startup costs in our new manufacturing facility received in the second quarter of 2021.

Interest income and other income, net decreased by $0.3 million, or 48% for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

The decrease was primarily due to a $0.6 million decrease in interest income driven by lower interest rates in the first half of 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 the first half of 2021.

Interest expense decreased for the three and six months ended June 30, 2021 as compared to the three and six months ended June 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.

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Upon the closing of our IPO in September 2020, all shares 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 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.

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.

Liquidity and Capital Resources

Sources of Liquidity

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.

As of June 30, 2021, the Company had cash, cash equivalents and short-term investments of $396.2 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 $429.5 million.

Since our inception, we have incurred net losses and negative cash flows from operations.

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In September 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.

In April 2021, we completed a follow-on public offering for aggregate net proceeds of approximately $149.7 million , after deducting underwriting discounts and commissions and before expenses (see Note 11 to the condensed financial statements for further details).

In April 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.

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

Three Months Ended March 31,

Six Months Ended June 30,

Net cash (used in) provided by:

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Financing activities

Net increase in cash, cash equivalents and restricted cash

Net (decrease) increase in cash, cash equivalents and restricted cash

Operating Activities

The net cash used in operating activities of $38.6 million for the three months ended March 31, 2021 was due to a net loss of $30.0 million and a net cash outflow from the change in our operating assets and liabilities of $16.3 million, which were partially offset by adjustments for stock-based compensation expense of $5.9 million, depreciation and amortization of $1.2 million, non-cash lease expense of $0.2 million, non-cash interest expense of $0.1 million, and provision for inventories of $0.1 million.

The net cash outflow from operating assets and liabilities was primarily due to an increase in inventories of $7.2 million due to the timing of inventory purchases including advance purchases of inventory due to anticipated demand and to mitigate supply chain disruptions, which partially related to COVID-19 , an increase in accounts receivable of $5.6 million due to timing of collections, a decrease in accrued payroll and related benefits of $4.2 million mainly due to the payment of 2020 annual cash bonuses to our employees, an increase in prepaid expenses and other assets of $1.0 million and a decrease in operating lease liabilities of $0.2 million.

The net cash outflow from operating assets and liabilities was partially offset by an increase in account payable and accrued expenses and other current liabilities of $1.8 million due to timing of vendor payments and an increase in deferred revenue of $0.3 million due to the growth of our business.

The net cash used in operating activities of $24.9 million for the three months ended March 31, 2020 was due to a net loss of $20.7 million and a net cash outflow from the change in our net operating assets and liabilities of $5.3 million, which were partially offset by adjustments for stock-based compensation expense of $0.6 million, depreciation and amortization of $0.3 million and non-cash interest expense of $0.2 million.

The net cash outflow from operating assets and liabilities was primarily due to an increase in accounts receivable of $3.1 million, a decrease in accrued payroll and related benefits of $2.7 million mainly due to the payment of 2019 annual cash bonuses to our employees and a decrease in accounts payable of $1.4 million due to timing of payments.

The net cash outflow from operating assets and liabilities was partially offset by a decrease in inventories of $0.8 million due to higher demand and an increase in deferred revenue of $0.8 million due to the growth in our business.

The net cash used in operating activities of $69.5 million for the six months ended June 30, 2021 was due to a net loss of $60.2 million and a net cash outflow from the change in our operating assets and liabilities of $23.1 million, which were partially offset by adjustments for stock-based compensation expense of $9.8 million, depreciation and amortization of $2.6 million, non-cash lease expense of $0.5 million, accretion of discount on investments of $0.4 million, non-cash interest expense of $0.3 million, and provision for inventories of $0.3 million.

The net cash outflow from operating assets and liabilities was primarily due to an increase in inventories of $12.1 million due to the timing of inventory purchases including advance purchases of inventory due to the transition to our own manufacturing facility, anticipated demand and to mitigate supply chain disruptions, which partially related to COVID-19 , an increase in accounts receivable of $9.9 million due to timing of collections, a net decrease in account payable, accrued expenses and other current liabilities of $1.0 million due to timing of vendor payments and a decrease in accrued payroll and related benefits of $1.5 million, and a decrease in operating lease liabilities of $0.4 million.

The net cash outflow from operating assets and liabilities was partially offset by an increase in deferred revenue of $1.1 million due to the growth of our business, an increase in prepaid expenses and other assets of $0.6 million, and an increase in accrued warranty liability of $0.2 million.

The net cash used in operating activities for the six months ended June 30, 2020 was $44.1 million, attributable to a net loss of $47.2 million and a net change in our net operating assets and liabilities of $0.3 million, partially offset by non-cash charges of $3.4 million.

Non-cash charges primarily consisted of $1.3 million in stock-based compensation, $0.7 million in depreciation and amortization, $0.5 million in the change in the fair value of the redeemable convertible preferred stock warrant liability, $0.4 million in non-cash interest expense, $0.2 million in provision for inventory and $0.1 million in no-cash lease expense.

The change in our net operating assets and liabilities was primarily due to a $3.4 million increase in accounts receivable and a $2.0 million increase in inventories due to growth in our business, a $0.7 million decrease in accounts payable due to timing of payments and a $0.6 million increase in prepaid expenses and other assets.

These changes were partially offset by a $2.5 million increase in accrued expenses and other current liabilities due to timing of payments, a $2.2 million increase in deferred revenue mainly due to the growth of our business, a $1.1 million increase in accrued payroll and related benefits and a $0.6 million increase in accrued warranty liability.

Investing Activities

The net cash used in investing activities of $6.8 million for the three months ended March 31, 2021 was due primarily to the purchases of short-term investments of $25.8 million and the purchases of property and equipment of $0.9 million, partially offset by the sales and maturities of short-term investments of $19.9 million.

The net cash provided by investing activities for the three months ended March 31, 2020 was $19.2 million and related primarily to the sales and maturities of short-term investments of $22.0 million, partially offset by the purchases of property and equipment of $2.8 million.

The net cash used in investing activities of $104.3 million for the six months ended June 30, 2021 was due primarily to the purchases of investment securities of $122.4 million and the purchases of property and equipment of $1.8 million, partially offset by the sales and maturities of investment securities of $19.9 million.

The net cash provided by investing activities for the six months ended June 30, 2020 was $25.5 million and related primarily to the sales and maturities of investment securities of $30.5 million, partially offset by the purchases of property and equipment of $5.0 million.

Financing Activities

The net cash provided by financing activities of $2.2 million for the three months ended March 31, 2021 was due to the proceeds of $2.2 million from employee exercises of stock options and employee stock purchase plan purchases.

The net cash provided by financing activities for the three months ended March 31, 2020 was due primarily to the net proceeds of $126.8 million from the issuance of our Series E redeemable convertible preferred stock.

The net cash provided by financing activities of $153.0 million for the six months ended June 30, 2021 was due primarily to the net proceeds of $149.1 million from the issuance of our common stock upon the follow-on offering and the proceeds of $3.9 million from employee exercises of stock options and employee stock purchase plan purchases.

The net cash provided by financing activities for the six months ended June 30, 2020 was due primarily to the net proceeds of $126.8 million from the issuance of our Series E redeemable convertible preferred stock.

Contractual Obligations and Commitments

During the three months ended March 31, 2021, there have been no material changes outside the ordinary course of business to our contractual obligations from those disclosed in “ 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 ended December 31, 2020.

During the three and six months ended June 30, 2021, there have been no material changes to our contractual obligations from those disclosed in “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” included in our 2020 Annual Report.

Off-Balance Sheet Arrangements

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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 most recent Annual Report on Form 10-K filed with the SEC on March 22, 2021.

For additional information, please refer to Note 2 to our unaudited condensed financial statements in this Quarterly Report.

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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.

Quantitative and Qualitati ve Disclosures About Market Risk

Interest Rate Risk

Our cash, cash equivalents, restricted cash and short-term investments are held in bank deposits, money market funds, U.S.

Treasury and debt securities.

Such interest-earning instruments carry a degree of interest rate risk.

The goals of our investment policy are liquidity and capital preservation;

we do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate exposure.

We believe that we do not have any material exposure to changes in the fair value of these assets as a result of changes in interest rates due to the short-term nature of our cash, cash equivalents and short-term investments.

As of March 31, 2021, we had $30.0 million in variable rate debt outstanding.

The SVB Term Loan matures on November 1, 2025, with interest-only monthly payments until June 2023.

The term loan accrues interest at a rate per annum equal to the greater of (A) one-half of one percent (0.50%) above the Prime Rate as reported in the Wall Street Journal then in effect (which shall not be less than zero) and (B) three and three-quarters of one percent (3.75%).

An immediate 100 basis point change in the prime rate would not have a material impact on our debt-related obligations, financial position or results of operations.

Foreign Currency Exchange Risk

Our expenses are generally denominated in U.S.

However, certain of our Mexico-based manufacturing operations incur costs that are denominated in Mexican Pesos (MXN), we are exposed to the risk of currency fluctuations between the U.S.

dollar and MXN.

To date, foreign currency transaction gains and losses have not been material to our financial statements.

Unfavorable changes in foreign exchange rates versus the U.S.

dollar could increase our product costs, thus reducing our gross profit.

We have not engaged in the hedging of foreign currency transactions to date, although we may choose to do so in the future.

We do not believe that an immediate 10% increase or decrease in the relative value of the U.S.

dollar to other currencies would have a material effect on operating results or financial condition.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis