Outset Medical, Inc. 10-Q

Item 1. Financial Statements. Outset Medical, Inc. Condensed Balance Sheets (in thousands, except per share amounts) June 30, December 31, 2021 2020 (Unaudited) Assets Current assets: Cash and cash equivalents $ 274,274 $ 294,972 Short-term investments 121,934 19,898 Accounts receivable, net 16,411 6,468 Inventories 28,882 18,384 Prepaid expenses and other current assets 6,459 6,189 Total current assets 447,960 345,911 Restricted cash 33,311 33,311 Property and equipment, net 15,275 14,998 Operating lease right-of-use assets 7,752 8,253 Other assets 515 1,356 Total assets $ 504,813 $ 403,829 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 2,364 $ 4,948 Accrued compensation and related benefits 15,308 16,845 Accrued expenses and other current liabilities 9,256 7,903 Accrued warranty liability 3,073 2,913 Deferred revenue, current 4,373 3,201 Operating lease liabilities, current 1,069 882 Total current liabilities 35,443 36,692 Accrued interest, noncurrent 479 240 Deferred revenue, noncurrent 515 570 Operating lease liabilities, noncurrent 7,496 8,044 Term loan, noncurrent 29,718 29,674 Total liabilities 73,651 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 June 30, 2021 and December 31, 2020 — — Common stock, $ 0.001 par value; 300,000 shares authorized as of June 30, 2021 and December 31, 2020; 46,225 and 42,722 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively 46 43 Additional paid-in capital 985,436 822,624 Accumulated other comprehensive (loss) income ( 28 ) 1 Accumulated deficit ( 554,292 ) ( 494,059 ) Total stockholders' equity 431,162 328,609 Total liabilities and stockholders' equity $ 504,813 $ 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 Six Months Ended June 30, June 30, 2021 2020 2021 2020 Revenue: Product revenue $ 20,628 $ 9,697 $ 38,838 $ 15,623 Service and other revenue 4,588 2,045 9,294 3,309 Total revenue 25,216 11,742 48,132 18,932 Cost of revenue: Cost of product revenue 22,077 15,291 42,654 24,853 Cost of service and other revenue 2,087 1,215 4,137 2,407 Total cost of revenue 24,164 16,506 46,791 27,260 Gross profit 1,052 ( 4,764 ) 1,341 ( 8,328 ) Operating expenses: Research and development 8,032 6,053 15,602 11,891 Sales and marketing 13,204 9,244 26,353 16,526 General and administrative 9,722 4,848 18,968 8,374 Total operating expenses 30,958 20,145 60,923 36,791 Loss from operations ( 29,906 ) ( 24,909 ) ( 59,582 ) ( 45,119 ) Interest income and other income, net 164 67 276 527 Interest expense ( 431 ) ( 1,032 ) ( 853 ) ( 2,033 ) Change in fair value of redeemable convertible preferred stock warrant liability — ( 631 ) — ( 530 ) Loss before provision for income taxes ( 30,173 ) ( 26,505 ) ( 60,159 ) ( 47,155 ) Provision for income taxes 35 — 74 - Net loss $ ( 30,208 ) $ ( 26,505 ) $ ( 60,233 ) $ ( 47,155 ) Net loss attributable to common stockholders, basic and diluted $ ( 30,208 ) $ ( 26,505 ) $ ( 60,233 ) $ ( 4,987 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 0.66 ) $ ( 4.58 ) $ ( 1.36 ) $ ( 0.98 ) Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 45,680 5,784 44,228 5,086 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 Six Months Ended June 30, June 30, 2021 2020 2021 2020 Net loss $ ( 30,208 ) $ ( 26,505 ) $ ( 60,233 ) $ ( 47,155 ) Other comprehensive loss: Unrealized gain (loss) on available-for-sale securities ( 20 ) 13 ( 29 ) ( 22 ) Comprehensive loss $ ( 30,228 ) $ ( 26,492 ) $ ( 60,262 ) $ ( 47,177 ) 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 Issuance of common stock upon follow-on public offering, net of issuance costs — — 2,946 3 149,082 — — 149,085 Issuance of common stock for settlement of RSUs — — 1 — — — — — Stock option exercises — — 390 — 1,723 — — 1,723 Stock-based compensation expense — — — — 3,937 — — 3,937 Unrealized loss on available-for-sale securities — — — — — ( 20 ) — ( 20 ) Net loss — — — — — — ( 30,208 ) ( 30,208 ) Balance as of June 30, 2021 — $ — 46,225 $ 46 985,436 $ ( 28 ) $ ( 554,292 ) $ 431,162 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 ) Stock option exercises — — 26 — 80 — — 80 Stock-based compensation expense — — — — 683 — — 683 Unrealized gain on available-for-sale securities — — — — — 13 — 13 Net loss — — — — — — ( 26,505 ) ( 26,505 ) Balance as of June 30, 2020 204,996 $ 452,273 5,802 $ 6 $ 85,640 $ — $ ( 419,722 ) $ ( 334,076 ) 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) Six Months Ended June 30, 2021 2020 Cash flows from operating activities: Net loss $ ( 60,233 ) $ ( 47,155 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 2,553 688 Non-cash lease expense 501 108 Non-cash interest expense 282 400 Accretion of discount on investments, net 435 62 Provision for accounts receivable 5 98 Provision for inventories 325 249 Stock-based compensation expense 9,789 1,263 Change in fair value of redeemable convertible preferred stock warrant liability — 530 Changes in operating assets and liabilities: Accounts receivable ( 9,946 ) ( 3,402 ) Inventories ( 12,116 ) ( 2,025 ) Prepaid expenses and other assets 570 ( 590 ) Accounts payable ( 2,509 ) ( 726 ) Accrued payroll and related benefits ( 1,538 ) 1,055 Accrued expenses and other current liabilities 1,508 2,510 Accrued warranty liability 160 601 Deferred revenue 1,117 2,205 Operating lease liabilities ( 360 ) 70 Net cash used in operating activities ( 69,457 ) ( 44,059 ) Cash flows from investing activities: Purchases of property and equipment ( 1,766 ) ( 4,987 ) Purchases of investment securities ( 122,401 ) — Sales and maturities of investment securities 19,900 30,458 Net cash (used in) provided by investing activities ( 104,267 ) 25,471 Cash flows from financing activities: Proceeds from issuance of common stock upon follow-on public offering, net of issuance costs 149,085 — 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 3,941 94 Repayment of finance lease — ( 5 ) Payment of deferred offering costs — ( 50 ) Net cash provided by financing activities 153,026 126,797 Net (decrease) increase in cash, cash equivalents and restricted cash ( 20,698 ) 108,209 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 $ 307,585 $ 145,878 Supplemental cash flow disclosures: Cash paid for income taxes $ 42 $ — Cash paid for interest $ 149 $ 1,600 Cash paid for amounts included in the measurement of operating lease liabilities $ 360 $ 13 The accompanying notes are an integral part of these unaudited condensed financial statements. 6 Outset Medical, Inc. Condensed Statements of Cash Flows (Unaudited) (in thousands) Six Months Ended June 30, 2021 2020 Supplemental non-cash investing and financing activities: Capital expenditures included in accounts payable and accrued expenses $ 92 $ 98 Transfer of inventories to property and equipment $ 1,294 $ — Right-of-use assets obtained in exchange for lease liabilities $ — $ 8,849 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 Debt issuance costs included in accrued expenses $ — $ 215 Deferred offering costs included in accrued expenses $ — $ 1,200 Transfer of property and equipment to inventories $ — $ 165 7 Outset Medical, Inc. Notes to Condensed Financial Statements 1. Description of Business Outset Medical, Inc. (the “Company”) is a medical technology company pioneering a first-of-its-kind technology to reduce the cost and complexity of dialysis. The Tablo® Hemodialysis System, FDA cleared for use from the hospital to the home, represents a significant technological advancement that transforms the dialysis experience for patients and operationally simplifies it for providers. Tablo serves as a single enterprise solution that can be utilized across the continuum of care, allowing dialysis to be delivered anytime, anywhere and by anyone. The integration of water purification and on-demand dialysate production enables Tablo to serve as a dialysis clinic on wheels, with 2-way wireless data transmission and a proprietary data analytics platform powering a new holistic approach to dialysis care. 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 (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 $ 149.1 million after deducting offering costs, underwriting discounts and commissions of $ 8.5 million. 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 six months ended June 30, 2021 and 2020, the Company incurred a net loss of $ 60.2 million and $ 47.2 million, respectively. As of June 30, 2021, the Company had an accumulated deficit of $ 554.3 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. 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 the follow-on public offering, and cash generated from revenues from its products and services, 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-and six-month period are also unaudited. The results of operations for the three and six months ended June 30, 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. 8 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 for the fiscal year ended December 31, 2020 filed with SEC on March 22, 2021 (“2020 Annual Report”) . 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 and six months ended June 30, 2021, there have been no changes to the Company’s significant accounting policies as described in its 2020 Annual Report that have had a material impact on the Company’s condensed financial statements and related notes, except as described below. Cash, Cash Equivalents and Restricted Cash As of June 30, 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): June 30, 2021 2020 Cash and cash equivalents $ 274,274 $ 141,871 Restricted cash 33,311 4,007 Total cash, cash equivalents and restricted cash $ 307,585 $ 145,878 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. 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. 9 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. 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 June 30, Six Months Ended June 30, 2021 2020 2021 2020 Consoles $ 16,857 $ 8,186 $ 31,623 $ 13,213 Consumables 3,771 1,511 7,215 2,410 Total product revenue 20,628 9,697 38,838 15,623 Service and other revenue 4,588 2,045 9,294 3,309 Total revenue $ 25,216 $ 11,742 $ 48,132 $ 18,932 For the three and six months ended June 30, 2021, $ 1.3 million and $ 2.6 million of consoles revenue were from console operating lease arrangements, compared to $ 0.6 million and $ 1.2 million for the three and six months ended June 30, 2020. Performance Obligations and Contract Liabilities As of June 30, 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 $ 4.9 million, which is recorded as deferred revenue on the Company’s condensed balance sheets. Of that amount, $ 4.4 million will be recognized as revenue during the next 12 months and $ 0.5 million thereafter . 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. 10 Revenue recorded during the three and six months ended June 30 , 2021 included $ 1.0 million and $ 2.6 million , respectively, of previously deferred revenue that was included in contract liabilities as of December 31, 20 20 . 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): June 30, 2021 Valuation Hierarchy Amortized Costs Gross Unrealized Holding Gains Gross Unrealized Holding Losses Aggregate Fair Value Assets: Cash equivalents: Money market funds Level 1 $ 106,486 $ — $ — $ 106,486 Short-term investments: Corporate debt Level 2 101,964 5 ( 33 ) 101,936 Commercial paper Level 2 17,984 — — 17,984 Yankee debt securities Level 2 2,014 — — 2,014 Total cash equivalents and short-term investments $ 228,448 $ 5 $ ( 33 ) $ 228,420 December 31, 2020 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 June 30, 2021, the remaining contractual maturities for available-for-sale securities were between one month to sixteen months. 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 June 30, 2021. During the three and six months ended June 30, 2021 and 2020, the Company did no t recognize other-than- temporary impairment losses related to its investment securities. 5 . Balance Sheet Components Inventories Inventories consist of the following (in thousands): June 30, December 31, 2021 2020 Raw materials $ 13,449 $ 7,989 Work in process 6,610 6,200 Finished goods 8,823 4,195 Total inventories $ 28,882 $ 18,384 11 Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following (in thousands): June 30, December 31, 2021 2020 Accrued inventory $ 2,096 $ 3,576 Accrued research and development expenses 703 175 Accrued professional services 1,324 2,187 Other 5,133 1,965 Total accrued expenses and other current liabilities $ 9,256 $ 7,903 Accrued Warranty Liability The change in accrued warranty liability is presented in the following table (in thousands): June 30, December 31, 2021 2020 Balance at the beginning of the period $ 2,913 $ 1,702 Additions charge to cost of product revenue 3,545 4,858 Consumption ( 3,385 ) ( 3,647 ) Balance at the end of the period $ 3,073 $ 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, customers 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): June 30, December 31, 2021 2020 Principal of term loan $ 30,000 $ 30,000 Unamortized debt discount ( 282 ) ( 326 ) Total term loan, noncurrent $ 29,718 $ 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 June 30, 2021). The 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. 12 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 a 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 June 30, 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 Company’s 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 June 30, 2021, 4,364,000 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 Company’s Employee Share Purchase Plan (“ESPP”) was increased by 427,000 shares as a result of the automatic increase pursuant to the ESPP. As of June 30, 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 the purchase date, whichever is lower. During the three and six months ended June 30, 2021, zero and 80,000 shares, respectively, of common stock were issued under the ESPP. No shares of common stock were issued during the three and six months ended June 30, 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 Six Months Ended June 30, June 30, 2021 2020 2021 2020 Cost of revenue $ 62 $ 20 $ 137 $ 39 Research and development 643 134 1,808 252 Sales and marketing 1,052 101 2,794 183 General and administrative 2,180 428 5,050 789 Total stock-based compensation expense $ 3,937 $ 683 $ 9,789 $ 1,263 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 June 30, 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 . For the three and six months ended June 30, 2021, the Company recorded stock-based compensation expense of $ 0.3 million and $ 4.5 million, respectively, related to these stock options. No such expense was recognized for the three and six months ended June 30, 2020 as the performance vesting condition was not satisfied until the closing of the IPO in September 2020. Unamortized stock-based compensation expense related to these awards amounted to $ 0.3 million as of June 30, 2021, which the Company expects to recognize over an estimated weighted-average period of 0.2 years . 13 9. Income Taxes For each of the three and six months ended June 30, 2021 and 2020, the Company incurred an income tax provision of an insignificant amount . The U.S. federal and state net deferred tax assets have been fully offset by a valuation allowance, as the Company believes it is not more likely than not that the deferred tax assets will be realized. 10. Net Loss Per Share Attributable to Common Stockholders A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share attributable to common stockholders is as follows (in thousands except per share amounts): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Numerator: Net loss $ ( 30,208 ) $ ( 26,505 ) $ ( 60,233 ) $ ( 47,155 ) Adjustment to redemption value on redeemable convertible preferred stock — — — ( 362 ) Deemed dividend on settlement of accrued dividend — — — 42,530 Net loss attributable to common stockholders, basic and diluted $ ( 30,208 ) $ ( 26,505 ) $ ( 60,233 ) $ ( 4,987 ) Denominator: Weighted-average shares of common stock, basic and diluted 45,680 5,784 44,228 5,086 Net loss per share attributable to common stockholders, basic and diluted $ ( 0.66 ) $ ( 4.58 ) $ ( 1.36 ) $ ( 0.98 ) The following outstanding potentially dilutive shares were excluded from the calculation of diluted net loss per share due to their anti-dilutive effect (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Stock options to purchase common stock 4,653 5,009 4,653 5,009 Warrant to purchase common stock 63 — 63 — Restricted stock units 473 — 473 — Shares committed under ESPP 27 — 27 — Redeemable convertible preferred stock, on an as-if converted basis — 25,958 — 25,958 Warrants to purchase redeemable convertible preferred stock — 520 — 520 Total 5,216 31,487 5,216 31,487 11. Subsequent Event On July 1, 2021, the Company announced the departure of Rebecca Chambers from her position as the Company’s Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer, effective July 16, 2021 as well as the appointment of Nabeel Ahmed , the Company’s Vice President , Finance , as the Company’s Interim Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer, effective upon Ms. Chambers’ departure until such time as a permanent replacement was named . Subsequently, the Company announced that Nabeel Ahmed transitioned to the permanent role of Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer, effective July 30, 2021. 14