Outset Medical, Inc. (OM) FY 2024 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of our financial condition and results of operations is expected to better allow investors to view the Company from management’s perspective and should be read together with our audited financial statements and related notes and other financial information included elsewhere in this Annual Report. The following discussion contains forward-looking statements that reflect our current plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Annual Report, particularly in the section titled “Risk Factors.” Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

We have elected to omit discussion of the earliest of the three years covered by the audited financial statements presented. Refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, located in our annual report on Form 10-K for the year ended December 31, 2023 for reference to discussion of the year ended December 31, 2023, the earliest of the three fiscal years presented.

Overview

Our technology is designed to elevate the dialysis experience for patients and help providers overcome traditional care delivery challenges. Requiring only an electrical outlet and tap water to operate, our Tablo® Hemodialysis System (Tablo) frees patients and providers from the burdensome infrastructure required to operate traditional dialysis machines. The integration of water purification and on-demand dialysate production in a single 35-inch compact console enables Tablo to serve as a dialysis clinic on wheels. With a simple-to-use touchscreen interface, two-way wireless data transmission and a proprietary data analytics platform, Tablo is a holistic approach to dialysis care. Unlike existing hemodialysis machines, which have limited clinical versatility across care settings, Tablo can be used seamlessly across multiple care settings and a wide range of clinical applications. Tablo is cleared by the FDA for use in the hospital, clinic, or home setting.

Tablo leverages cloud technology, making it possible for providers to monitor devices remotely, view treatment data, perform patient and population analytics, and automate clinical recordkeeping. Tablo's wireless connectivity enables us to release training, new features and enhancements over-the-air without interventions by FSEs. Tablo’s connectedness allows continuous streaming of over 500,000 device performance data points to the cloud for every treatment. We use this data, in conjunction with our diagnostic and predictive algorithms, to monitor device performance, identify and diagnose failures and, in some instances, predict and prevent potential future device failures or malfunctions. In effect, this contributes to a reduction in service hours and an increase in device uptime.

We have generated meaningful evidence to demonstrate that providers can realize significant operational efficiencies, including reducing the cost of their dialysis programs. In addition, Tablo has been shown to deliver robust clinical care. In studies and surveys we have conducted, patients have reported quality of life benefits on Tablo compared to other dialysis machines. We believe Tablo empowers patients, who have traditionally been passive recipients of care, to regain agency and ownership of their treatment.

Driving adoption of Tablo in the acute care setting has been our primary focus to date. We have invested in growing our economic and clinical evidence, built a veteran sales and clinical support team with significant expertise, and implemented a comprehensive training and customer experience program. Our experience in the acute care market has demonstrated Tablo’s clinical flexibility and operational versatility, while also delivering meaningful cost savings to the providers. In addition, we are also working with SNFs, LTACHs and other post-acute providers to raise awareness of Tablo’s economic and clinical benefits to them and to patients. We plan to continue leveraging our commercial infrastructure to broaden our installed base in the acute and post-acute care markets, as well as driving utilization and fleet expansion with our existing customers.

Tablo is also utilized for home-based dialysis. We believe our ability to reduce training time, patient dropout, and the supplies and infrastructure required to deliver dialysis in the home can drive efficiency and economic improvements to the home care model. In our home IDE trial, patients reported specific quality of life improvements compared to their experience on the incumbent home dialysis machine. To penetrate this market successfully, we have made investments in and continue to focus on refining our home distribution, logistics and support systems to help ensure they are ready for scale. We are also working with providers, patients, and payors to increase awareness and adoption of TCUs as a bridge to home-based therapy.

We generate revenue from the placement of Tablo consoles along with accessories, and shipping and handling charged to customers, which revenue is recognized up-front. For the years ended December 31, 2024, 2023, and 2022, sales of our consoles, which includes Tablo consoles and accessories, accounted for 26%, 47% and 56% of our revenue, respectively. We also earn recurring revenue from sales of consumables, including Tablo cartridge, and services, which generates significant total revenue over the life of Tablo console. For the years ended December 31, 2024, 2023, and 2022, sales of our consumables accounted for 45%, 32% and 25% of our revenue, respectively, and sales of service and other accounted for 29%, 21% and 19% of our revenue, respectively.

We primarily sell our solutions through our direct sales organization, which covers most major metropolitan markets in the United States. Our sales organization is comprised of our capital sales team, responsible for generating new customer demand for

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Tablo, and our clinical sales team, responsible for driving utilization and fleet expansion of Tablo at existing customer sites. In addition, our field service team provides maintenance services and product support to our customers. Our field sales and service teams represent 52% of our total full-time employees as of December 31, 2024. The same sales organization and field service team drive Tablo penetration in both the acute and home markets. We believe the ability to leverage one team to serve both markets will result in significant productivity and cost optimization as we continue to scale our business.

Recent Developments

In July 2023, we received a warning letter (the Warning Letter) from the FDA that raised two observations. The first observation asserted that certain content reviewed by the FDA and found on our website promotes Continuous Renal Replacement Therapy (CRRT), a modality outside of the current indications for Tablo. The second observation asserted that TabloCart with Prefiltration required prior 510(k) clearance for marketing authorization. TabloCart with Prefiltration is an accessory to Tablo launched in the third quarter of 2022. We took action to address the first observation regarding CRRT promotion through revision of processes and procedures and updates to existing labeling and promotional materials. We also took action to address the second observation regarding TabloCart with Prefiltration. Although we evaluated TabloCart with Prefiltration prior to marketing and distributing the product and concluded that no marketing authorization was necessary, we paused distribution of TabloCart with Prefiltration pending the FDA’s review and clearance of a 510(k) application for the same that we submitted in September 2023. In early May 2024, we received 510(k) clearance from the FDA for TabloCart with Prefiltration, and we have resumed distribution of TabloCart with Prefiltration. In February 2025, we were notified by the FDA that the issues cited in the Warning Letter have been addressed.

Key Factors Affecting Our Performance

We believe that our financial performance has been and in the foreseeable future will continue to be primarily driven by the following factors. While we believe each of these factors presents significant opportunities for our business, they also pose important challenges that we must successfully address in order to sustain our growth and improve our results of operations. Our ability to successfully address the factors below is subject to various risks and uncertainties, including those described in the section titled “Risk Factors.”

Market Acceptance of Tablo in Acute Setting

We plan to further broaden our installed base by continuing to target national and regional IDNs and health systems, as well as SNFs, LTACHs and other post-acute providers. In addition, we focus on driving utilization and fleet expansion with existing customers by providing an exceptional user experience delivered through our commercial team and a steady release of software enhancements that amplify Tablo’s operational reliability and clinical versatility. Our ability to successfully execute on this strategy, and thereby increase our revenue in the acute market, will depend on several factors. These factors include our ability to recover from the adverse impact in the field from the Warning Letter as we resume distribution of TabloCart with Prefiltration, as well as the success of our efforts to further evolve our initiatives to optimize our commercial organization, infrastructure and sales processes to support the growth of our business in the acute and post-acute care markets as we focus more heavily on enterprise selling and transition beyond earlier stage adoption of Tablo.

Expansion of Tablo within the Home Setting

We believe that a significant growth opportunity exists within the home hemodialysis market. We are partnering with innovative dialysis clinic providers, health systems and other adjacent healthcare providers who are motivated to grow their home hemodialysis population, and who share our vision of creating a seamless and supported transition to the home. We are also investing in market development over the longer term to expand the home hemodialysis market itself. The expansion of the home hemodialysis market and our ability to penetrate this market will be an important factor in driving the future growth of our business. In addition, the success of our efforts to expand within the home market, help grow new home programs and increase our revenue generated from home-based dialysis on the timeline that we anticipate will depend on several factors. These factors the success of our initiatives to optimize and further evolve our commercial organization, infrastructure and sales processes as we scale our business in the home market.

Gross Margin

Our ability to expand our gross margins depends on: first, our ability to continue to sell Tablo cartridges, services, and accessories for Tablo consoles; second, our ability to reduce the cost of service and third, our ability to reduce the cost of Tablo consoles. Our ability to expand gross margins will also depend in part on our ability to control the average selling prices of our products and services, including by selling higher-margin accessories, consumables and services. Further, we will continue to utilize our cloud-based data system, as well as enhanced product and support performance, to improve service margin and drive down service costs per console. In addition, over the past several years, we have moved the production of Tablo consoles and a majority of Tablo

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cartridges in-house to our manufacturing facility in Tijuana, Mexico which we operate in collaboration with TACNA as part of our cost reduction activities. This has helped further our long-term gross margin expansion and supply continuity strategies while reducing the costs of Tablo console production and improving the flexibility of our operations. We will continue our cost reduction activities by using our design, engineering, supply chain and manufacturing capabilities to help further advance and improve the efficiency of our manufacturing processes, lowering the cost of parts and components and lowering our costs of production. Our ability to expand gross margins depends on our ability to successfully execute these strategies, as well as the impact of macroeconomic factors described below, including the tariffs imposed by the new administration.

Profitability Initiatives

Our ability to achieve and sustain profitability depends on several key factors: first, our ability to grow our revenue while expanding gross margins, as discussed above; second, our ability to optimize operating expenses; and third, our ability to optimize working capital. We have undertaken various initiatives designed to improve operational efficiencies, reduce operating expenses to align with anticipated levels of revenue growth and streamline our overall cost structure, including several organizational restructurings implemented beginning in the fourth quarter of 2023 through early 2025. We are also taking steps to improve our ability to efficiently manage working capital, including inventory. Our ability to transition to profitability will depend on the success of our efforts to optimize spending and working capital, including inventory.

Impacts of Macroeconomic Factors

Global macroeconomic conditions, including inflationary pressures, rising interest rates, increased labor costs, staffing shortages and global supply chain disruptions, may impact our business and results of operations, and those of our customers, manufacturing partners and suppliers. As the duration and severity of these macroeconomic conditions remain uncertain and depend on various factors, we cannot predict what effects these macroeconomic conditions will ultimately have on our business and results of operations, our customers, or our suppliers.

Beginning in the third quarter of 2023, we began to observe an increasing number of our existing and prospective customers deferring their decisions to purchase Tablo in an environment of rising interest rates and more cautious capital spending. These deferrals served to elongate our sales cycle and the timing of delivery and installations, which, in turn, contributed to an adverse impact on our bookings and revenues starting in the second half of 2023 and through 2024. We may see disruption from this in future periods. Beginning in 2022, our existing and prospective customers faced shortages of skilled nurses and other clinical personnel as well as increased labor costs, combined with economic pressures resulting from general economic and financial market conditions, primarily escalating inflation, tightening hospital operating budgets and increased scrutiny of capital purchase decisions, all of which generally have the effect of lengthening the average sales cycle and elongating the timing of installations. These factors negatively impacted our customer base on pipeline development and installation schedules, which, in turn, negatively impacted our bookings, delayed our shipments and adversely impacted our revenues for 2022 and, to a lesser extent, 2023. We have generally seen some stabilization in these challenging labor market dynamics for healthcare providers during 2023 and thereafter as compared to 2022. Moreover, we believe Tablo offers automation and ease-of-use benefits over traditional machines that can enhance our existing and potential customers’ ability to support their patient populations despite staffing shortages. However, if our customers continue to face prolonged periods of rising interest rates, capital budget constraints, volatility, uncertainty, staffing shortages, cash flow challenges, rising costs and other financial pressures, whether due to general macroeconomic conditions, cybersecurity events or otherwise, it could ultimately adversely impact our ability to expand existing customer relationships or attract new customers of Tablo, timely collect amounts due, effectively manage our inventory levels, and have a material adverse effect on our bookings, revenues, results of operations, financial condition, and, ultimately, our future growth and profitability.

In 2022, we launched a pilot clinical and administrative services program designed to help bridge our healthcare provider customers, particularly those challenged by staffing shortages, as they transition from using an outsourced inpatient dialysis provider to offering on-site inpatient dialysis services on their own. In return for a fair market value service fee, we assign members of our own employed nurses on a temporary basis to support participating providers to launch and manage an inpatient dialysis program using Tablo and, as full-time staff is hired, to help train and onboard those nurses. However, our pilot clinical and administrative services program may not be successful in achieving the objectives we intend and anticipate, may fail to meet our customers’ expectations, may not generate sufficient returns to justify our investment, or may result in unanticipated costs, which could harm our reputation and customer relationships, and adversely impact our operating margins and results of operations.

From a supply chain perspective, we have worked closely with our manufacturing partners and suppliers to enable us to source key components and maintain appropriate inventory levels to meet customer demand, and have not experienced material disruptions in our supply chain to date. However, macroeconomic factors such as rising inflation, increasing labor costs, and surges and shifts in consumer demand have disrupted the operations of certain of our third-party suppliers, resulting, in some cases, in increased lead times and higher component costs. We believe that localizing production of a majority of Tablo cartridges in Mexico (in-house at our manufacturing facility) has helped achieve cost reductions through lower freight costs, further our long-term gross margin expansion and supply continuity strategies and improve the flexibility of our operations. However, we may face increased

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supply chain constraints in the future, which could negatively impact our ability to meet customer demand on a timely basis, result in customer dissatisfaction and adversely impact our operating margins and results of operations. Moreover, increased tariffs imposed by the new administration, including on goods imported into the United States from Mexico and China, could adversely impact our supply chain and distribution costs, as well as our ability to achieve sustainable gross margins. While we do not believe we have exposure to these potential tariffs as Tablo, TabloCart and Tablo consumables are covered under a special exemption, we cannot predict what actions may ultimately be taken with respect to tariffs or trade relations between the United States and other countries (including Mexico and China), what products may be subject to such actions, or what actions may be taken by the other countries in retaliation.

Components of Operating Results

Revenue

We generate our revenue primarily from the sale of products and services. In addition, in limited instances, we may enter into console operating lease arrangements that contain lease and non-lease components. Our product and services revenues are generated primarily through direct sales to customers in the United States.

Product Revenue

We generate product revenue primarily from the sale of our Tablo consoles, including accessories, and the sale of related consumables, including Tablo cartridges. Our Tablo consoles and consumables are generally sold without the right of return. Revenue is recognized when control of our Tablo consoles is transferred, generally upon shipment, and excludes the value of the initial service agreement, which is recognized as service and other revenue over the term of the initial service agreement. Leases of Tablo consoles are considered operating leases and recognized as revenue over their lease term. Consumables are recognized primarily upon shipment. Revenue is recognized net of any sales incentive, rebates and any taxes collected from customers.

Service and Other Revenue

We generate service revenue primarily from service agreements for our Tablo consoles and other revenue from shipping and handling charged to customers. Under the service agreements, we provide maintenance, repair and training services, connectivity to our cloud infrastructure, including TabloHub, as well as software updates, when and if available, for Tablo consoles. The service agreements are typically entered into for a one-year term. Revenue from the sale of service agreements is recognized ratably over the service period.

Cost of Revenue

Cost of Product Revenue

Cost of product revenue primarily consists of finished goods, inbound freight costs, and manufacturing costs incurred in the production process including personnel and related costs, costs of component materials, manufacturing overhead, and infrastructure costs including facilities and information technology. In addition, cost of product revenue includes warranty costs and provisions for excess and obsolete inventory. We expect cost of product revenue as a percentage of revenue to decrease over the long-term primarily as, and to the extent that, our efforts to reduce manufacturing costs of our products are successful, the percentage of our product revenues attributable to consumables increase, and our product revenue grows. However, our cost of product revenue as a percentage of revenue may fluctuate from period to period.

Cost of Service and Other Revenue

Cost of service and other revenue primarily consists of personnel and related costs, travel, and component costs incurred in connection with our obligations under our service agreements. We plan to further utilize our cloud-based data systems, as well as enhanced product performance, to lower the cost of service as a percentage of revenue. We expect cost of service and other revenue as a percentage of revenue to decrease over the long-term primarily as, and to the extent, our service and other revenue grows. However, our cost of service and other revenue as a percentage of revenue may fluctuate from period to period.

Gross Profit and Gross Margin

We calculate gross margin as gross profit divided by total revenue. Our gross profit has been and will continue to be, affected by a variety of factors, including market conditions that may impact our pricing; product mix and average selling prices; excess and obsolete inventories; our cost structure for manufacturing operations relative to volume; inbound freight costs, and product warranty obligations. We expect our gross margin to increase over the long term to the extent that we are successful in our ability to lower production costs, that we generate recurring revenues from sales of our consumables and services, and that we can lower cost of service and other revenue as a percentage of revenue. We continue to use our design, engineering, and manufacturing capabilities to further advance and improve the efficiency of our manufacturing processes, which, if successful, we believe will lower production

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costs and enable us to increase our gross margin. While we expect gross margin to increase over the long term, we also anticipate it will likely fluctuate from quarter to quarter.

Operating Expenses

Research and Development

Research and development expenses primarily consist of personnel and related costs, regulatory fees, consulting services, laboratory supplies and materials expenses, and infrastructure costs including facilities, depreciation and information technology.

We plan to continue to invest in our research and development efforts to grow our economic and clinical evidence, and enhance existing products to improve reliability and reduce costs. We expect research and development expenses to vary over time, depending on the level and timing of the enhancement of the existing products as well as cost reduction initiatives. As a percentage of revenue, however, we expect research and development expenses to continue to decrease over the long-term primarily as, and to the extent, our revenue grows.

Sales and Marketing

Sales and marketing expenses primarily consist of personnel and related costs, including sales commissions and travel. Other sales and marketing expenses include marketing and promotional activities, costs of outside consultants, customer services costs, and infrastructure costs including facilities, depreciation, and information technology. Shipping and handling costs, as well as the associated personnel expenses, are included in sales and marketing expenses.

As we continue to drive the expansion of Tablo, we expect shipping and handling costs to also increase. However, the full year impact of mid-year cost saving initiatives in 2024 will result in lower year over year spend. We plan to continue to invest in infrastructure to support our growth and expect sales and marketing expenses as a percentage of revenue to continue to decrease over the long-term primarily as, and to the extent, our revenue grows.

General and Administrative

General and administrative expenses primarily consist of personnel and related costs, accounting and legal expenses, general corporate expenses, and infrastructure costs including facilities, depreciation, and information technology. As a percentage of revenue, we expect general and administrative expenses to decrease over the long-term primarily as, and to the extent, our revenue grows.

We expect our stock-based compensation expense allocated to cost of revenue, research and development expenses, sales and marketing expenses, and general and administrative expenses to fluctuate based on our stock price at particular points in time as we issue additional stock-based awards under our equity incentive plan and employee stock purchase plan to attract and retain employees.

Interest Income and Other Income, Net

Interest income and other income, net, primarily consists of interest earned on our cash and cash equivalents and short-term investments.

Interest Expense

Interest expense consists of interest on our debt and amortization of associated debt discount. See Note 7 to the financial statements for further details.

Provision for Income Taxes

Provision for income taxes primarily consists of foreign taxes in Mexico. We have a full valuation allowance for deferred tax assets, including net operating loss carryforwards and tax credits related primarily to research and development.

Results of Operations

In this section, we discuss the results of our operations for the year ended December 31, 2024 compared to the year ended December 31, 2023.

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The following table sets forth, for the years indicated, our results of operations (in thousands):

Revenue

Product revenue decreased by $22.6 million, or 22%, for the year ended December 31, 2024 as compared to the prior year. The decrease was mainly due to a $31.5 million decrease in console revenue as a result of a lower number of consoles sold in 2024 as compared to the prior year. This decrease was partially offset by an $8.9 million increase in consumables revenue attributable to the growth in our console installed base.

Service and other revenue increased by $5.9 million, or 22%, for the year ended December 31, 2024 as compared to the prior year. The increase was primarily due to services associated with the growth in our console installed base.

Gross Profit and Gross Margin

Gross profit increased by $9.6 million, or 33%, for the year ended December 31, 2024 as compared to the prior year. The gross margin percentage improved by 11.7 percentage points for the year ended December 31, 2024 as compared to the prior year. This improvement in gross margin was primarily driven by a higher mix of consumable and service and other revenue in 2024 as compared to the prior year. Consumables have a higher gross margin than consoles and had improved gross margin year over year. The higher consumable gross margin mainly resulted from a lower cost per unit as well as a higher average selling price for consumables.

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Operating Expenses

Research and development expenses decreased by $18.9 million, or 33%, for the year ended December 31, 2024 as compared to the prior year. The decrease was primarily due to an overall decrease in compensation-related and stock-based compensation expense, consulting and materials expense and infrastructure costs resulting from our cost reduction efforts implemented in 2024 and the fourth quarter of 2023.

Sales and marketing expenses decreased by $26.2 million, or 27% for the year ended December 31, 2024 as compared to the prior year. The decrease was primarily driven by an overall decrease in compensation-related and stock-based compensation expense, travel and consulting expense resulting from our cost reduction efforts implemented in 2024 and the fourth quarter of 2023. These decreases were partially offset by higher freight expenses due to higher volume in consumable sales.

General and administrative expenses decreased by $1.7 million, or 4%, for the year ended December 31, 2024 as compared to the prior year. The decrease was primarily driven by an overall decrease in consulting, compensation-related expense resulting from our cost reduction efforts implemented in 2024 and the fourth quarter of 2023. Our insurance costs also decreased as compared to the prior year. These decreases were partially offset by $2.4 million increase in the allowance for credit losses as compared to the prior year period.

Other Income (Expenses), Net

The decrease in interest income and other income, net, for the year ended December 31, 2024 as compared to the prior year was driven by the changes in interest rates.

The increase in interest expense for the year ended December 31, 2024 as compared to the prior year was due to the increase in interest rate and higher outstanding balance under the SLR Term Loan Facility in 2024 as compared to 2023.

Liquidity and Capital Resources

Sources of Liquidity

Since our inception, we have incurred net losses and negative cash flows from operations. To date, we have financed our operations and capital expenditures primarily through sales of equity securities, revenue from sales, debt financings, and proceeds from employee exercises of stock options and employee stock purchase plan purchases.

As of December 31, 2024, we had a total cash, cash equivalents, restricted cash and short-term investments balance of $162.0 million. In January 2025, we entered into Securities Purchase Agreements with various investors pursuant to which we sold 843,908 shares of Series A Preferred Stock at a price of $200.00 per share in the Private Placement. Subject to the stockholder approval and beneficial ownership limitations, each share of Series A Preferred Stock will automatically convert into 250 shares of common stock for an aggregate of 210,977,000 shares of common stock. The gross proceeds from the Private Placement, before deducting placement agent fees and other offering expenses, were $168.8 million. An additional $3.9 million, for 19,432 shares of Series A Preferred Stock, will be invested by certain members of our Board of Directors and management upon shareholder approval.

In addition, in January 2025, we entered into a credit agreement and guaranty (the Perceptive Credit Agreement) with Perceptive Credit Holdings IV, LP, as administrative agent (Agent) and the lenders from time to time party thereto, which provided a $100 million 5-year term loan at closing and will provide an additional term loan of up to $25 million at our election, which is available for funding until July 14, 2027, subject to achievement of a specified revenue milestone and other customary conditions.

Starting January 2025, we are required to comply with certain covenants under the Perceptive Credit Agreement, including, among others, requirements as to financial reporting, restrictions on our ability to incur additional indebtedness and to pay any

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dividends or other distributions on capital stock, maintenance of a minimum cash balance, and achievement of certain specified trailing twelve-month net revenue targets. If we fail to comply with any covenants, payments or other terms of the Perceptive Credit Agreement and such failure constitutes an event of default thereunder, such event of default would give Agent the right to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable (see the section entitled "Debt Obligations" below).

While we have taken actions to reduce operating expenses and working capital to align with anticipated revenue growth including implementing restructuring plans to streamline our overall organizational structure and renegotiating commitments with suppliers to reduce inventory, we expect to continue to incur operating losses in the near term while we make investments to support our anticipated growth. We may raise additional capital through the issuance of additional equity financing, debt financings, which may require refinancing or amending the terms of our existing debt, or other sources. If this financing is not available to us at adequate levels or on acceptable terms, we may need to further evaluate our operating plans. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our existing stockholders’ rights. We are subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional capital through debt financing (including through our existing debt), we may be subject to an increase in our interest expense which may negatively affect our cash flow.

On September 23, 2024, we received notice from the Listing Qualifications staff of Nasdaq that we no longer complied with the minimum bid price requirement for continued listing on the Nasdaq Global Select Market. On December 24, 2024, Nasdaq notified us that we had regained compliance with the minimum bid price requirement, as our stock had maintained a closing bid price above $1.00 for 15 consecutive trading days. However, on February 24, 2025, we received a second notice from Nasdaq of failure to comply with the minimum bid price requirement. If we are unable to regain compliance with the minimum bid price requirement within the applicable compliance period, or are unable to otherwise maintain compliance with other applicable Nasdaq listing rules, we may not be able to maintain the listing of our common stock on Nasdaq, which could adversely affect our ability to issue additional securities or obtain additional financing on terms acceptable to us, or at all. For further details, see the section entitled “Risk Factors” under Part I, Item 1A above.

We believe that our existing cash, cash equivalents and short-term investments, cash generated from sales, and proceeds recently received from the debt financing described below under “Debt Obligations ‒ Perceptive Credit Agreement” as well as proceeds received from the Private Placement described in Note 13 to the financial statements will be sufficient to meet our anticipated needs for at least the next 12 months from the issuance date of this Annual Report.

Cash Flows Summary

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

Operating Activities

Net cash used in operating activities of $116.3 million for the year ended December 31, 2024 was due to a net loss of $128.0 million, a net cash outflow from the change in our operating assets and liabilities of $25.7 million, and amortization of premium on investments of $4.7 million, partially adjusted by the primary non-cash adjustments for stock-based compensation expense of $29.4 million, depreciation and amortization of $5.7 million, non-cash interest expense of $2.6 million, allowance for credit losses of $2.4 million, and non-cash lease expense of $1.4 million. The net cash outflow from operating assets and liabilities was primarily due to an increase in inventories, a decrease in accrued expenses and other current liabilities, an increase in accounts receivable due to timing of collections and billings, decreases in accounts payable, accrued compensation and related benefits, accrued warranty liabilities, and operating lease liabilities. The net cash outflow from operating assets and liabilities was partially offset by an increase in deferred revenue due to the growth in service agreements and a decrease in prepaid expenses and other assets.

Net cash used in operating activities of $131.4 million for the year ended December 31, 2023 was due to a net loss of $172.8 million and a net cash outflow from the change in our operating assets and liabilities of $0.8 million, partially adjusted by the primary non-cash adjustments for stock-based compensation expense of $38.6 million, amortization of premium on investments of $6.4 million, depreciation and amortization of $5.8 million, non-cash interest expense of $1.8 million, and non-cash lease expense of $1.3 million. The net cash outflow from operating assets and liabilities was primarily due to an increase in accounts receivable due to

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timing of collections and billings, a decrease in accrued expenses and other current liabilities, a decrease in accrued compensation and related benefits, and a decrease in operating lease liabilities. The net cash outflow from operating assets and liabilities was partially offset by an increase in accounts payable due to timing of vendor payments, an increase in deferred revenue due to the growth in service agreements and a decrease in inventories.

Investing Activities

Net cash provided by investing activities of $103.9 million for the year ended December 31, 2024 was due to the sales and maturities of investment securities of $261.4 million, partially offset by purchases of investment securities of $156.6 million and purchases of property and equipment of $0.9 million.

Net cash provided by investing activities of $83.0 million for the year ended December 31, 2023 was due to the maturities of investment securities of $258.8 million, partially offset by purchases of investment securities of $172.3 million and purchases of property and equipment of $3.4 million.

Financing Activities

Net cash provided by financing activities of $67.9 million for the year ended December 31, 2024 was due primarily to the net proceeds of $66.5 million from borrowings under the SLR Term Loan Facility and the proceeds of $2.3 million from employee exercises of stock options and employee stock purchase plan purchases. These cash inflow was partially offset by the payment of deferred financing costs.

Net cash provided by financing activities of $43.7 million for the year ended December 31, 2023 was due primarily to the net proceeds of $33.2 million from borrowings under the SLR Term Loan Facility and the proceeds of $10.4 million from employee exercises of stock options and employee stock purchase plan purchases.

Debt Obligations

Perceptive Credit Agreement

On January 3, 2025, we entered into a senior secured credit facility for borrowings up to an aggregate principal amount of $125.0 million pursuant to the Perceptive Credit Agreement among Perceptive Credit Holdings IV, LP, as administrative agent (Agent), the lenders from time to time party thereto and the Company.

Pursuant to the terms and conditions of the Perceptive Credit Agreement, the lenders agreed to extend term loans to us in an aggregate principal amount of up to $125.0 million, comprised of (i) a term loan of $100.0 million (the Initial Term Loan), which was funded at the closing of the Perceptive Credit Agreement on January 8, 2025, and (ii) a delayed draw term loan of up to $25.0 million (the Delayed Draw Loan). The Delayed Draw Loan is available for funding until July 14, 2027, subject to the achievement of a specific revenue milestone and other customary conditions.

SLR Debt Financing

On November 3, 2022, we entered into two senior secured credit facilities, which collectively provide for borrowings of up to $300.0 million as follows: (i) up to a $250.0 million term loan facility pursuant to a loan and security agreement (the SLR Loan Agreement) among SLR Investment Corp., as collateral agent (SLR Agent), the lenders from time to time party thereto (the Term Loan Lenders) and us (the SLR Term Loan Facility) and (ii) up to a $50.0 million asset-based revolving credit facility pursuant to a credit agreement (the SLR Revolving Credit Agreement, together with the SLR Loan Agreement, the SLR Credit Facility Agreements) among Gemino Healthcare Finance, LLC d/b/a SLR Healthcare ABL, as lender (ABL Lender), and us (the SLR Revolver, together with the SLR Term Loan Facility, the SLR Credit Facilities).

As of December 31, 2024, $200.0 million was outstanding under the SLR Term Loan Facility and no amounts were outstanding under the SLR Revolver. On January 3, 2025, we terminated the SLR Credit Facility Agreements and repaid in full all amounts due under its two existing senior secured credit facilities with (i) SLR Investment Corp. and (ii) ABL lender including the final payment of $7.5 million and termination fee of $0.1 million, using the proceeds from the Perceptive Credit Agreement, together with cash on hand.

Critical Accounting Estimates

Our financial statements have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses incurred during the reporting periods. The estimates are based on historical experience and on various other factors that are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent

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from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.

While the significant accounting policies are more fully described in Note 2 to our audited financial statements included elsewhere in this Annual Report, we believe that the following critical accounting policy is most important to understanding and evaluating our reported financial results.

Revenue Recognition

Our contracts with customers often include multiple performance obligations, such as products and services. We determine the standalone sale prices (SSP) based upon the facts and circumstances of each performance obligation (product or services), which often requires management's judgement. We use an observable price to estimate SSP for items that are sold separately, including service agreements. In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions and other observable inputs and allocate the contracted transaction price to each distinct performance obligation based upon the relative SSP. When SSP is not directly observable for a performance obligation, we utilize the residual method to allocate revenue. We may offer additional goods or services to customers at the inception of customer contracts at prices not at SSP. If such contracts result in a material right, we allocate part of the transaction price to that right and recognize the associated revenue when those future goods and services are transferred to the customer. SSP is assigned based on the estimated value of the material right. We establish SSP ranges for our products and services and reassess them periodically.

Recent Accounting Pronouncements

Refer to Note 2, “Summary of Significant Accounting Policies” in our audited financial statements included in Part II, Item 8 of this Annual Report for a discussion of recent accounting pronouncements that may impact us.