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What changed in Outset Medical, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Outset Medical, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+473 added−526 removedSource: 10-K (2024-02-21) vs 10-K (2023-02-13)

Top changes in Outset Medical, Inc.'s 2023 10-K

473 paragraphs added · 526 removed · 379 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

102 edited+24 added−45 removed195 unchanged
Biggest changeThe CCPA gives California residents new rights to access and delete their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used by requiring covered companies to provide new disclosures to California consumers (as that term is broadly defined) and provide such consumers new ways to opt-out of certain sales of personal information.
Biggest changeFor instance, the California Consumer Privacy Act, as amended by the California Privacy Rights Act (CCPA) gives California residents rights to access, correct and delete their personal information, to opt out of the sale or sharing of certain personal information, to limit uses of certain sensitive data under certain circumstances, and to receive detailed information about how their personal information is used by requiring covered companies to provide disclosures to California consumers (as that term is broadly defined).
Item 1. B usiness. Our Company Outset is a medical technology company pioneering a first-of-its-kind technology to reduce the cost and complexity of dialysis. We believe the Tablo® Hemodialysis System represents a significant technological advancement that transforms the dialysis experience for patients and operationally simplifies it for providers.
Item 1. B usiness. Our Company Outset is a medical technology company pioneering a first-of-its-kind technology to reduce the cost and complexity of dialysis. We believe the Tablo® Hemodialysis System (Tablo) represents a significant technological advancement that transforms the dialysis experience for patients and operationally simplifies it for providers.
To demonstrate the cost advantages of Tablo in the home setting, we are continuing to collect additional patient clinical experience and outcomes data. The Tablo Hemodialysis System (Tablo) Tablo is an FDA-cleared single enterprise solution for hemodialysis, comprised of a compact console with integrated water purification, on-demand dialysate production and advanced software and connectivity capabilities.
To demonstrate the cost advantages of Tablo in the home setting, we are continuing to collect additional patient clinical experience and outcomes data. Tablo Hemodialysis System Tablo is an FDA-cleared single enterprise solution for hemodialysis, comprised of a compact console with integrated water purification, on-demand dialysate production and advanced software and connectivity capabilities.
Unlike traditional hemodialysis machines, Tablo can be used seamlessly across multiple 3 care settings and a wide range of clinical applications, all with the benefit of remote system management, monitoring and maintenance through two-way wireless data transmission capabilities. The Tablo system is comprised of the following components: • Tablo Console .
Unlike traditional hemodialysis machines, Tablo can be used seamlessly across multiple 3 care settings and a wide range of clinical applications, all with the benefit of remote system management, monitoring and maintenance through two-way wireless data transmission capabilities. Tablo is comprised of the following components: • Tablo Console .
The Tablo console can accommodate a wide range of treatment modalities, durations and flow rates, allowing for broad clinical applications. The Tablo console requires only a standard electrical outlet and tap water to operate. This eliminates the need for industrial water treatment rooms, separate water purification machines and pre-filled bags of dialysate associated with traditional dialysis machines.
Tablo console can accommodate a wide range of treatment modalities, durations and flow rates, allowing for broad clinical applications. Tablo console requires only a standard electrical outlet and tap water to operate. This eliminates the need for industrial water treatment rooms, separate water purification machines and pre-filled bags of dialysate associated with traditional dialysis machines.
The Tablo cartridge was designed to simplify and streamline treatment setup to minimize the potential for user error. The Tablo cartridge is intended to facilitate extracorporeal blood purification for patients. One cartridge is used per treatment, except in the case of extended therapy, where multiple cartridges can be used if needed.
Tablo cartridge was designed to simplify and streamline treatment setup to minimize the potential for user error. Tablo cartridge is intended to facilitate extracorporeal blood purification for patients. One cartridge is used per treatment, except in the case of extended therapy, where multiple cartridges can be used if needed.
As further described below in the section entitled “Tablo Data Ecosystem”, with Tablo, we are bringing data to dialysis. Tablo is built to live in a connected setting with cloud-based system monitoring, patient analytics and clinical recordkeeping. 4 Tablo Data Ecosystem Tablo's two-way wireless data transmission and connectedness help reduce maintenance costs and enable ongoing system improvements.
As further described below in the section entitled “Tablo Data Ecosystem”, with Tablo, we are bringing data to dialysis. Tablo is built to live in a connected setting with cloud-based system monitoring, patient analytics and clinical recordkeeping. Tablo Data Ecosystem 4 Tablo's two-way wireless data transmission and connectedness help reduce maintenance costs and enable ongoing system improvements.
Since Tablo’s original clearance by the FDA for home use in March 2020, we have made certain changes to the device over time and, where appropriate, have submitted 510(k) applications for certain modifications to the Tablo. In May 2021, we submitted a 510(k) application to the FDA covering the design changes for patient use in the home.
Since Tablo’s original clearance by the FDA for home use in March 2020, we have made certain changes to the device over time and, where appropriate, have submitted 510(k) applications for certain modifications to Tablo. In May 2021, we submitted a 510(k) application to the FDA covering the design changes for patient use in the home.
The Physician Payments Sunshine Act (Sunshine Act) requires us to track and report annually certain data on payments and other transfers of value we make to teaching hospitals and U.S.-licensed physicians, physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, anesthesiology assistants, and certified nurse-midwives.
The Physician Payments Sunshine Act (Sunshine Act) requires us to track and report annually certain data on payments and other transfers of value we make to U.S. teaching hospitals and U.S.-licensed physicians, physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, anesthesiology assistants, and certified nurse-midwives.
Dialysis clinics’ continuing use of Tablo, however, will depend on whether the cost of treatments involving Tablo (including the amortized cost of the Tablo console and other capital equipment) will continue to be adequately covered by the reimbursement that the dialysis clinics receive from Medicare and any other third-party payors.
Dialysis clinics’ continuing use of Tablo, however, will depend on whether the cost of treatments involving Tablo (including the amortized cost of Tablo console and other capital equipment) will continue to be adequately covered by the reimbursement that the dialysis clinics receive from Medicare and any other third-party payors.
These include: • establishment registration and device listing with the FDA; • QSR requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the design and manufacturing process; • labeling regulations and FDA prohibitions against the promotion of investigational products, or the promotion of ‘‘off-label’’ uses of cleared or approved products; • requirements related to promotional activities; • clearance or approval of product modifications to 510(k)-cleared devices that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of our cleared devices, or approval of certain modifications to PMA-approved devices; • medical device reporting regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur; • correction, removal and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; • the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that is in violation of governing laws and regulations; and • post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device.
These include: • establishment registration and device listing with the FDA; • QSR requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the design and manufacturing process; • labeling regulations and FDA prohibitions against the promotion of investigational products, or the promotion of ‘‘off-label’’ uses of cleared or approved products; • requirements related to promotional activities; • clearance or approval of product modifications to 510(k)-cleared devices that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of our cleared devices, or approval of certain modifications to PMA-approved devices; • medical device reporting regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur; • correction, removal and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; • the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that is in violation of governing laws and regulations; and 10 • post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device.
If the FDA determines that we failed to comply with applicable regulatory requirements, it can take a variety of compliance or enforcement actions, which may result in any of the following sanctions: • FDA untitled letters, FDA Form 483s, FDA warning letters, it has come to our attention letters, fines, injunctions, consent decrees and civil penalties; • unanticipated expenditures to address or defend such actions; • customer notifications or repair, replacement, refunds, recall, detention or seizure of our products; • recall, detention or seizure of our products; • operating restrictions, partial suspension or total shutdown of production; • refusing or delaying our requests for regulatory approvals or clearances of new products or modified products; 11 • withdrawing of 510(k) clearances or PMA approvals that have already been granted; • refusal to grant export approval for our products; or • criminal prosecution.
If the FDA determines that we failed to comply with applicable regulatory requirements, it can take a variety of compliance or enforcement actions, which may result in any of the following sanctions: • FDA untitled letters, FDA Form 483s, FDA warning letters, it has come to our attention letters, fines, injunctions, consent decrees and civil penalties; • unanticipated expenditures to address or defend such actions; • customer notifications or repair, replacement, refunds, recall, detention or seizure of our products; • recall, detention or seizure of our products; • operating restrictions, partial suspension or total shutdown of production; • refusing or delaying our requests for regulatory approvals or clearances of new products or modified products; • withdrawing of 510(k) clearances or PMA approvals that have already been granted; • refusal to grant export approval for our products; or • criminal prosecution.
As there is not a uniform national standard for what constitutes medical justification, a clinic’s decision as to how much it is willing to spend on home dialysis equipment and services will be at least partly dependent on the number of weekly treatments prescribed for home dialysis with the Tablo system and, if greater than three, the level of confidence the center has in the predictability of receiving reimbursement from Medicare for additional treatments per week based on submitted claims for medical justification.
As there is not a uniform national standard for what constitutes medical justification, a clinic’s decision as to how much it is willing to spend on home dialysis equipment and services will be at least partly dependent on the number of weekly treatments prescribed for home dialysis with Tablo and, if greater than three, the level of confidence the center has in the predictability of receiving reimbursement from Medicare for additional treatments per week based on submitted claims for medical justification.
The U.S. federal Anti-Kickback Statute is a broad criminal statute that prohibits, among other things, the knowing and willful offer, solicitation, receipt, or payment of any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, for the purpose of inducing or rewarding the order, purchase, use or recommendation of items or services that may be paid for, or reimbursed by, in whole or in part, a federal healthcare program, such as Medicare or Medicaid.
The U.S. federal Anti-Kickback Statute is a broad criminal statute that prohibits, among other things, the knowing and willful offer, solicitation, receipt, or payment of any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, for the purpose of inducing or rewarding the order, purchase, use or recommendation of items or services that may be paid for, in whole or in part, by a federal healthcare program, such as Medicare or Medicaid.
The Further Consolidated Appropriations Act of 2020, Pub. L. No. 116-94, signed into law December 20, 2019, fully repealed the Affordable Care Act’s “Cadillac Tax” on certain 17 high-cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share (repeal effective in 2021), and the medical device excise tax on non-exempt medical devices.
The Further Consolidated Appropriations Act of 2020, Pub. L. No. 116-94, signed into law December 20, 2019, fully repealed the Affordable Care Act’s “Cadillac Tax” on certain high-cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share (repeal effective in 2021), and the medical device excise tax on non-exempt medical devices.
The federal healthcare fraud statute imposes liability for, among other things, knowingly and willfully executing, or attempting to execute, a 13 scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for healthcare benefits, items or services by a healthcare benefit program, which includes both government and privately funded benefits programs.
The federal healthcare fraud statute imposes liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for healthcare benefits, items or services by a healthcare benefit program, which includes both government and privately funded benefits programs.
The Tablo cartridge consists of a user-friendly pre-configured blood, saline, and infusion tubing. The Tablo cartridge requires only two connections to operate as compared to other machines that require stringing, hanging, snapping and tapping multiple lines. In our home IDE trial, patients were able to set up the Tablo cartridge and dialysate concentrates in less than 12 minutes, on average.
Tablo cartridge consists of a user-friendly pre-configured blood, saline, and infusion tubing. Tablo cartridge requires only two connections to operate as compared to other machines that require stringing, hanging, snapping and tapping multiple lines. In our home IDE trial, patients were able to set up Tablo cartridge and dialysate concentrates in less than 12 minutes, on average.
We do not consider peritoneal dialysis (PD) to be competitive to our products given the differences in treatment modality, that PD is clinically limited due to patients with certain pre-existing conditions such as congestive heart failure and obesity and that PD is regarded as a “temporary” modality since approximately 80% of patients are on the therapy for less than three years.
We do not consider peritoneal dialysis (PD) to be competitive to our products given the differences in treatment modality, that PD is clinically limited to patients with certain pre-existing conditions such as congestive heart failure and obesity and that PD is regarded as a “temporary” modality since approximately 80% of patients are on the therapy for less than three years.
In the United States, a patent’s term may, in certain cases, be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the United 6 States Patent and Trademark Office (USPTO) in examining and granting a patent, or it may be shortened if a patent is terminally disclaimed over a commonly owned patent or a patent naming a common inventor and having an earlier expiration date.
In the United States, a patent’s term may, in certain cases, be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the United States Patent and Trademark Office (USPTO) in examining and granting a patent, or it may be shortened if a patent is terminally disclaimed over a commonly owned patent or a patent naming a common inventor and having an earlier expiration date.
Additionally, after a trial begins, we, the FDA or the IRB could suspend or terminate a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the anticipated benefits. 10 Post-market Regulation After a device is cleared or approved for marketing, numerous and pervasive regulatory requirements continue to apply.
Additionally, after a trial begins, we, the FDA or the IRB could suspend or terminate a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the anticipated benefits. Post-market Regulation After a device is cleared or approved for marketing, numerous and pervasive regulatory requirements continue to apply.
The device sponsor must then fulfill more rigorous PMA 8 requirements, or can request a risk-based classification determination for the device in accordance with the “de novo” process, which is a route to market for novel medical devices that are low to moderate risk and are not substantially equivalent to a predicate device.
The device sponsor must then fulfill more rigorous PMA requirements, or can request a risk-based classification determination for the device in accordance with the “de novo” process, which is a route to market for novel medical devices that are low to moderate risk and are not substantially equivalent to a predicate device.
If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, and/or exclusion from government funded healthcare programs, such as Medicare and Medicaid.
If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, 13 imprisonment, and/or exclusion from government-funded healthcare programs, such as Medicare and Medicaid.
Specifically, the Supreme Court held that because the Plan’s terms apply uniformly to all covered individuals, the Plan does not “differentiate in the benefits it provides” to individuals with ESRD or “take into account” whether an individual is entitled to or eligible for Medicare, and thus does not violate the MSPA.
Specifically, the Supreme Court held that because the Plan’s terms apply uniformly to all covered individuals, the Plan does not “differentiate in the 17 benefits it provides” to individuals with ESRD or “take into account” whether an individual is entitled to or eligible for Medicare, and thus does not violate the MSPA.
Reimbursement in the Critical Care Setting For Medicare patients, both acute kidney failure and fluid overload therapies provided in an in-patient hospital setting are reimbursed under Medicare Part A through the Hospital Inpatient Prospective Payment System using the Medicare Severity Diagnosis Related Group System (MS-DRG).
Reimbursement in the Critical Care Setting For Medicare patients, both acute kidney failure (AKI) and fluid overload therapies provided in an in-patient hospital setting are reimbursed under Medicare Part A through the Hospital Inpatient Prospective Payment System using the Medicare Severity Diagnosis Related Group System (MS-DRG).
If it is necessary to dispatch an FSE, we can use TabloDash to help ensure they arrive with the correct parts to complete the repair, and are also able to address any preventive maintenance predicted by our algorithms, all during the same visit.
If it is necessary to dispatch an FSE, we can use TabloDash to help ensure they arrive with the correct parts to complete the repair and are able to address any preventive maintenance predicted by our algorithms, all during the same visit.
A medical device may be eligible for de novo classification if the manufacturer first submitted a 510(k) premarket notification and received a determination from the FDA that the device was not substantially equivalent or a manufacturer may request 9 de novo classification directly without first submitting a 510(k) premarket notification to the FDA and receiving a not substantially equivalent determination.
A medical device may be eligible for de novo classification if the manufacturer first submitted a 510(k) premarket notification and received a determination from the FDA that the device was not substantially equivalent, or a manufacturer may request de novo classification directly without first submitting a 510(k) premarket notification to the FDA and receiving a not substantially equivalent determination.
In addition, the FDA will generally conduct a pre-approval inspection of the applicant or its third-party manufacturers’ or suppliers’ manufacturing facility or facilities to ensure compliance with the QSR. PMA devices are also subject to the payment of user fees.
In addition, the FDA will generally conduct a pre-approval inspection of the applicant or its third-party 8 manufacturers’ or suppliers’ manufacturing facility or facilities to ensure compliance with the QSR. PMA devices are also subject to the payment of user fees.
Of these competitors, Fresenius is the largest, and is vertically integrated, both manufacturing dialysis products and operating dialysis clinics along with providing inpatient dialysis services to hospitals and health systems. Additionally, companies with dialysis machine development programs include Medtronic plc (Medtronic).
Of these competitors, Fresenius is the largest, and is vertically integrated, both manufacturing dialysis 5 products and operating dialysis clinics along with providing inpatient dialysis services to hospitals and health systems. Additionally, companies with dialysis machine development programs include Medtronic plc (Medtronic).
We cannot be sure that our pending patent applications or future patent applications will result in issued patents or that any patents that have issued or might issue in the future will protect our current or future products, provide us with any competitive advantage or will not be challenged, invalidated, or circumvented.
We cannot be sure that our pending patent applications or future patent applications will result in issued patents or that any patents that have issued 6 or might issue in the future will protect our current or future products, provide us with any competitive advantage or will not be challenged, invalidated, or circumvented.
FDA Premarket Clearance and Approval Requirements Unless an exemption applies, each medical device commercially distributed in the United States requires either FDA clearance of a 510(k) premarket notification, approval of a de novo application, or approval of a premarket approval (PMA).
FDA Premarket Clearance and Approval Requirements 7 Unless an exemption applies, each medical device commercially distributed in the United States requires either FDA clearance of a 510(k) premarket notification, approval of a de novo application, or approval of a premarket approval (PMA).
We may also compete against these outsourced dialysis providers. In such instances, we believe our ability to compete effectively will depend on our ability to demonstrate Tablo’s economic, clinical, compliance and operational benefits relative to outsourcing dialysis services.
We may also compete against these outsourced dialysis providers. In such instances, we believe our ability to compete effectively will depend on our ability to demonstrate Tablo’s economic, clinical and operational benefits relative to outsourcing dialysis services.
For example, the Budget Control Act of 2011, among other things, resulted in reductions in payments to Medicare providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect into 2031 unless additional Congressional action is taken, with the exception of a temporary suspension of the 2% cut in Medicare payments from May 1, 2020 through July 1, 2022 due to the COVID-19 pandemic.
For example, the Budget Control Act of 2011, among other things, resulted in reductions in payments to Medicare providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect into 2032 unless additional Congressional action is taken, with the exception of a temporary suspension of the 2% cut in Medicare payments from May 1, 2020 through July 1, 2022 due to the COVID-19 pandemic.
While a final rule has not yet been issued, 14 if adopted, these proposed changes may require us to update our HIPAA policies and procedures to comply with the new requirements.
While a final rule has not yet been issued, if adopted, these proposed changes may require us to update our HIPAA policies and procedures to comply with the new requirements.
Current FDA Regulatory Status We currently have regulatory clearances required to market the Tablo Hemodialysis System in the U.S. for use in patients with acute and/or chronic renal failure, with or without ultrafiltration, in an acute or chronic care facility. The Tablo Hemodialysis System is also indicated for use in the home and observed by a trained individual.
Current FDA Regulatory Status We currently have regulatory clearances required to market Tablo in the U.S. for use in patients with acute and/or chronic renal failure, with or without ultrafiltration, in an acute or chronic care facility. Tablo is also indicated for use in the home and observed by a trained individual.
Performance Management, Career Development and Engagement We have a structured approach for employee performance management, development and growth. Managers generally have two key performance conversations per year with their team members. Our year-end performance conversation is focused on evaluating the success and learnings of the past year. Our mid-year performance conversation is focused on skill development and future growth opportunities.
Performance Management, Career Development and Engagement We have a structured approach for employee performance management, development and growth. Managers generally have two key performance conversations per year with their team members. Our year-end performance conversation is focused on evaluating the success and learning of the past year. Our mid-year performance conversation is focused on skill development and future growth opportunities.
Equipped with this information, our FSEs can visit sites knowing they have the correct parts and consumables to address the issues reported, and those that are yet to come. In effect, this contributes to a reduction in service hours and an increase in device uptime.
Equipped with this information, our FSEs can visit sites knowing they have the correct parts and consumables to address the issues reported, and sometimes even those that are yet to come. In effect, this contributes to a reduction in service hours and an increase in device uptime.
Private Insurance Finally, some patients may have coverage through private insurance, for example through a marketplace plan set up under the Affordable Care Act or through an employer or union group health plan. Private insurance reimbursement is generally higher than government reimbursement, but private insurance coverage and reimbursement vary by sponsor and plan.
Private Insurance Finally, some patients may have coverage through private insurance, for example through a marketplace plan set up under the Affordable Care Act or through an employer or union group health plan. Private insurance reimbursement is generally higher than government reimbursement, but private insurance coverage and reimbursement varies by sponsor and plan.
However, to the extent that providers continue to prescribe more than three home dialysis treatments per week and Medicare contractors determine they will not pay for such additional treatments, use of the Tablo system could be adversely impacted.
However, to the extent that providers continue to prescribe more than three home dialysis treatments per week and Medicare 15 contractors determine they will not pay for such additional treatments, use of Tablo could be adversely impacted.
With the above features and benefits in mind, we believe the Tablo Hemodialysis System is well-positioned as a differentiated, all-in-one solution enabling transformational dialysis across the continuum of care, from hospital to home, in one of the largest, most expensive, least changed areas of healthcare. 5 Competition There are a number of dialysis machine manufacturers in the United States, Europe and Asia.
With the above features and benefits in mind, we believe Tablo is well-positioned as a differentiated, all-in-one solution enabling transformational dialysis across the continuum of care, from hospital to home, in one of the largest, most expensive, least changed areas of healthcare. Competition There are a number of dialysis machine manufacturers in the United States, Europe and Asia.
In the in-patient setting under Medicare, dialysis and ultrafiltration (UF) are not directly reimbursed, but rather are paid for out of the amount paid to inpatient hospitals in connection with the patient's application MS-DRG for his/her admission.
In the in-patient setting under Medicare, dialysis and ultrafiltration (UF) are not directly reimbursed, but rather are paid for out of the amount paid to inpatient hospitals in connection with the patient's applicable MS-DRG for his/her admission.
We believe through Tablo’s unique advantages it is easier and faster for patients to learn, and simpler for patients to operate at home, which may position us well against existing competitors. We believe these factors will reduce patient burn-out, thereby extending patient retention, increasing home hemodialysis growth and improving associated margin for providers.
We believe through Tablo’s unique advantages it is easier and faster for patients to learn, and simpler for patients to operate at home, which may position us well against existing or future competitors. We believe these factors will reduce patient or caregiver burn-out, thereby extending patient retention, increasing home hemodialysis growth and improving associated margin for providers.
Using currently available technology, most patients who receive home dialysis have been prescribed to receive more than three treatments per week. The Tablo system can allow providers to prescribe as few as three home dialysis treatments per week.
Using currently available technology, most patients who receive home dialysis have been prescribed to receive more than three treatments per week. Tablo can allow providers to prescribe as few as three home dialysis treatments per week.
This is all made possible by our growing team of experienced software, data science, and machine learning engineers. Tablo leverages cloud technology to make it possible for providers to monitor devices and treatments remotely, perform patient and population analytics, and automate clinical recordkeeping.
This is all made possible by our growing team of experienced software, data science, and machine learning engineers. Tablo leverages cloud technology to make it possible for providers to monitor devices remotely, view treatment data, perform patient and population analytics, and automate clinical recordkeeping.
Ahmed held various positions of increasing responsibility at Ernst & Young LLP from 1997 to 2004 and at eBay, Inc. from 2004 to 2008. Mr. Ahmed holds a Bachelor of Commerce from Laurentian University and an M.B.A. from The Wharton School, University of Pennsylvania. John L. Brottem 20 John L.
Ahmed held various positions of increasing responsibility 19 at Ernst & Young LLP from 1997 to 2004 and at eBay, Inc. from 2004 to 2008. Mr. Ahmed holds a Bachelor of Commerce degree from Laurentian University and an M.B.A. from The Wharton School, University of Pennsylvania. John L. Brottem John L.
Our workforce hails from across industries, including technology, medical devices, life sciences and retail management. As of December 31, 2022, our manufacturing facility in Tijuana, Mexico had 210 full-time team members on-site across quality, engineering, manufacturing, supply chain, and support functions. TACNA facilitates the hiring of new team members and is responsible for human resource functions and payroll processing.
Our workforce hails from across industries, including technology, medical devices, life sciences and retail management. As of December 31, 2023, our manufacturing facility in Tijuana, Mexico had 300 full-time team members on-site across quality, engineering, manufacturing, supply chain, and other support functions. TACNA facilitates the hiring of new team members and is responsible for human resource functions and payroll processing.
Under the program, we are eligible to receive priority review and interactive communications from the FDA regarding device development and clinical trial protocols, all the way through to commercialization decisions. Clinical Trials Clinical trials are almost always required to support a PMA and are sometimes required to support a 510(k) submission.
Under the program, a manufacturer is eligible to receive priority review and interactive communications from the FDA regarding device development and clinical trial protocols, all the way through to commercialization decisions. Clinical Trials 9 Clinical trials are almost always required to support a PMA and are sometimes required to support a 510(k) submission.
Government officials continue to focus their enforcement efforts on the federal Anti-Kickback Statute and the sales and marketing activities of medical device manufacturers and other healthcare companies, and routinely bring cases against individuals or entities who allegedly offer unlawful inducements to potential or existing customers in an attempt to procure their business.
Government officials continue to focus their enforcement efforts on the sales and marketing activities of medical device manufacturers and other 12 healthcare companies, and routinely bring cases under the federal Anti-Kickback Statute and False Claims Act against individuals or entities who allegedly offer unlawful inducements to potential or existing customers in an attempt to procure their business.
Information About Our Executive Officers The following table sets forth information concerning our executive officers and directors as of the date of this Annual Report: Name Age Position(s) Executive Officers Leslie Trigg 52 President, Chief Executive Officer and Chair of the Board Nabeel Ahmed 47 Chief Financial Officer John L.
Information About Our Executive Officers The following table sets forth information concerning our executive officers and directors as of the date of this Annual Report: Name Age Position(s) Executive Officers Leslie Trigg 53 President, Chief Executive Officer and Chair of the Board Nabeel Ahmed 48 Chief Financial Officer John L.
We applied for and received CRA TPNIES in connection with the Tablo Hemodialysis System use by one patient per one machine in the home, pursuant to which Medicare will pay 65% of the Medicare Administrative Contractor-determined pre-adjusted per treatment amount for two calendar years beginning in CY 2022.
We applied for and received CRA TPNIES in connection with the use of Tablo by one patient per one machine in the home, pursuant to which Medicare paid 65% of the Medicare Administrative Contractor-determined pre-adjusted per treatment amount for two calendar years beginning in CY 2022.
We had an aggregate of 39 issued patents in Australia, Canada, China, France, Germany, Hong Kong, Japan, Spain, Sweden and the United Kingdom, as well as 19 pending patent applications in Australia, Brazil, Canada, China, the European Patent Office, Hong Kong, Japan, and under the Patent Cooperation Treaty.
We had an aggregate of 39 issued patents in Australia, Canada, China, France, Germany, Hong Kong, Japan, Spain, Sweden and the United Kingdom, as well as 35 pending patent applications in Australia, Brazil, Canada, China, the European Patent Office, Hong Kong, Japan, Saudi Arabia, United Arab Emirates and under the Patent Cooperation Treaty.
Although we believe we are in material compliance with the QSR and will be able to address the observations identified in the Form-483 in a timely manner, there is no guarantee that subsequent inspections of our facility by the FDA or other regulatory authorities will not result in similar observations with respect to our quality system, which could adversely affect our business.
Although we believe we are in material compliance with the QSR and have addressed the observations identified in the Form-483, there is no guarantee that subsequent inspections of our facility by the FDA or other regulatory authorities will not result in similar observations with respect to our quality system, which could adversely affect our business.
Our intellectual property includes specific algorithms for the Tablo console, including those related to pressure sensors, blood leakage and pump control loops. Patents As of December 31, 2022, we had 21 issued U.S. patents, as well as 10 pending U.S. patent applications.
Our intellectual property includes specific algorithms for Tablo console, including those related to pressure sensors, blood leakage and pump control loops. Patents As of December 31, 2023, we had 22 issued U.S. patents, as well as 7 pending U.S. patent applications.
Current and future healthcare reform legislation and policies could also have a material adverse effect on our business and financial condition. 18 Human Capital Resources As of December 31, 2022, we had 518 full-time employees, with 47% in our field sales and service teams and 53% in the rest of the company.
Current and future healthcare reform legislation and policies could also have a material adverse effect on our business and financial condition. Human Capital Resources As of December 31, 2023, we had 480 full-time employees, with 48% in our field sales and service teams and 52% in the rest of the company.
Laws similar to the California laws have passed in Virginia, Colorado, Connecticut, and Utah and have been proposed in other states and at the federal level. To the extent these laws apply to our operations, they may ultimately have conflicting requirements that would further complicate compliance.
Laws similar to the California laws have passed or have been proposed in several other states and also have been proposed at the federal level. To the extent these laws apply to our operations, they may ultimately have conflicting requirements that would further complicate compliance.
In October 2022,we submitted a 510(k) notification to the FDA seeking clearance of a new software version intended to offer new commercial features and enhancements designed to improve the reliability and serviceability of Tablo, as well as other previously implemented modifications.
For example, in October 2022,we submitted a 510(k) notification to the 11 FDA seeking clearance of a new software version intended to offer new commercial features and enhancements designed to improve the reliability and serviceability of Tablo, as well as other previously implemented modifications. In June 2023, the FDA cleared this 510(k) application.
However, these exceptions and safe harbors are narrowly drawn, and there is no exception or safe harbor for many common business activities like educational grants or reimbursement support programs.
However, these exceptions and safe harbors are narrowly drawn, and there is no exception or safe harbor for many common business activities like the provision of meals, educational grants or reimbursement support programs, among others.
Although there are limited exemptions for PHI and the CCPA’s implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future, the CCPA may increase our compliance costs and potential liability.
Although there are limited exemptions for PHI and the CCPA’s implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future, the CCPA may increase our compliance costs and potential liability. Additional compliance investment and potential business process changes may be required.
While Medicare Advantage plans must provide at least the same level of coverage for Medicare beneficiaries as traditional Medicare, reimbursement to dialysis facilities is most often higher than traditional Medicare with a wide range of variability in payment rates to providers.
While Medicare Advantage plans must provide at least the same level of coverage for Medicare beneficiaries as traditional Medicare, reimbursement to dialysis facilities is most often higher than traditional Medicare with a wide range of variability in payment rates to providers. Reimbursement rates depend on each Medicare Advantage plan’s contracts and network agreements with each dialysis facility.
TabloHub TabloHub is designed to be a one-stop shop for providers that allows customers to monitor treatments in real-time across their fleet, visualize historical treatment records and statistics, see system disinfection and service records, search documentation, read news about Tablo, and perform various trainings. It is accessible from virtually anywhere, using a smart phone, tablet, or a web browser.
TabloHub TabloHub is designed to be a one-stop shop for providers that allows customers to monitor treatments in real-time across their fleet, visualize historical treatment records and statistics, see system disinfection and service records, search documentation, read news about Tablo, and perform various training.
This includes products, like Tablo, that are not directly reimbursed but are purchased and used in a service paid for by such programs. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
This includes products, like Tablo, that are purchased and used in a service that is paid for by such programs. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. Further, the term “remuneration” has been broadly interpreted to include anything of value.
Further, with home dialysis as a growing trend in the industry and issuance of the executive order and the ETC Model final rule, a failure to implement our expansion into home dialysis could have a material adverse impact on our business.
Further, with home dialysis as a growing trend in the industry, a failure to implement our expansion into home dialysis could have a material adverse impact on our business.
Manufacturers are also required to report ownership and investment interests held by the physicians described above and their immediate family members. The data are sent to the Center for Medicare and Medicaid Services (CMS) for public disclosure on the Open Payments website. Failure to timely report information in accordance with the Sunshine Act may result in significant financial penalties.
Manufacturers are also required to report ownership and investment interests held by the physicians described above and their immediate family members. The data are sent to the Center for Medicare and Medicaid Services (CMS) for public disclosure on the Open Payments website.
MyTablo MyTablo is a version of TabloHub designed for patients who are dialyzing at home or performing self-care at a clinic. Through the MyTablo portal, patients have the ability to access training materials and download their own treatment reports.
MyTablo MyTablo is a version of TabloHub designed for patients who are dialyzing at home or performing self-care at a clinic. Using MyTablo, patients can access training and download their treatment reports.
In addition, various federal and state legislative and regulatory bodies, or self-regulatory organizations, may expand current laws or regulations, enact new laws or regulations or issue revised rules or guidance regarding privacy, data protection and consumer protection. For instance, the California Consumer Privacy Act (CCPA) became effective on January 1, 2020.
In addition, various federal and state legislative and regulatory bodies, or self-regulatory organizations, may expand current laws or regulations, enact new laws or regulations or issue revised rules or guidance regarding privacy, data protection and consumer protection.
We recently introduced TabloCart, a non-medical accessory for the Tablo Hemodialysis System that provides added maneuverability and optional prefiltration storage. • Tablo Cartridge . A proprietary, disposable single use pre-strung cartridge that easily clicks into place, minimizing steps, touch points and connections, allowing for set up of treatment supplies in less than 12 minutes.
In 2022, we introduced TabloCart with storage drawer, an accessory for Tablo that has 360° wheels for maneuverability and additional storage. • Tablo Cartridge . A proprietary, disposable single use pre-strung cartridge that easily clicks into place, minimizing steps, touch points and connections, allowing for set up of treatment supplies in less than 12 minutes.
Manufacturing, Supply Chain and Logistics We direct the manufacturing and supporting supply chain, distribution and logistics for the Tablo console, the Tablo cartridge and other consumables (electrolyte concentrates and plastic tubing that transports the concentrates into Tablo to enable on-demand dialysate production).
Manufacturing, Supply Chain and Logistics We direct the manufacturing and supporting supply chain, distribution and logistics for Tablo console, Tablo cartridge and other consumables (electrolyte concentrates and plastic tubing that transports the concentrates into Tablo to enable on-demand dialysate production). We operate under a Quality Management System that has been certified to ISO 13485 Medical Device Quality Management System standard.
Prior to that, he was Senior Vice President and General Manager, Gyn Surgical Products from December 2009 to August 2012 and Vice President of Sales and Marketing, Gyn Surgical Products from October 2007 to December 2009 with Hologic, Inc., a medical technology company. Mr. Williamson holds a B.B.A. from University of Massachusetts Amherst and an M.B.A. from Bentley University. 21
Bard (now part of Becton, Dickinson and Company) from August 2012 to December 2017. Prior to that, he was Senior Vice President and General Manager, Gyn Surgical Products from December 2009 to August 2012 and Vice President of Sales and Marketing, Gyn Surgical Products from October 2007 to December 2009 with Hologic, Inc., a medical technology company. Mr.
Specifically, the ETC Model will adjust certain ESRD facilities’ treatment base rates under the ESRD Prospective Payment System and managing clinicians’ monthly Medicare capitation payments to incentivize greater use of home dialysis and kidney transplants.
Specifically, the ETC Model adjusts certain ESRD facilities’ treatment base rates under the ESRD Prospective Payment System and managing clinicians’ monthly Medicare capitation payments to incentivize greater use of home dialysis and kidney transplants. CMS continues to propose modifications to the ETC Model as it evaluates the model against the agency’s stated goals for the program.
On October 31, 2022, CMS published the final rule for Calendar Year (CY) 2023, which increased the base reimbursement rate per dialysis treatment to $265.57, an increase of $7.67 over the CY 2022 base rate of $257.90.
On November 6, 2023, CMS published the final rule for Calendar Year (CY) 2024, which increased the base reimbursement rate per dialysis treatment to $271.02, an increase of $5.45 over the CY 2023 base rate of $265.57.
We consider a discrete number of these suppliers, located in the United States, Mexico, Europe and Asia, as critical providers of components such as pumps, motors, valves and PCBA boards. We are currently undertaking a second source qualification process for the majority of these critical components.
The number of suppliers required for Tablo console production is in excess of 200 worldwide. We consider a discrete number of these suppliers, located in the United States, Mexico, Europe and Asia, as critical providers of components such as pumps, motors, valves and PCBA boards.
Our work environment is goal-driven, and we believe in paying for outstanding performance and future potential. We offer competitive, market-based salaries, an annual cash bonus program tied to individual and company performance, a broad-based equity incentive compensation program including an employee stock purchase plan, a comprehensive benefits package, team incentives and peer incentives.
We offer competitive, market-based salaries, an annual cash bonus program tied to individual and company performance, a broad-based equity incentive compensation program including an employee stock purchase plan, a 401(k) retirement savings plan with company match, a comprehensive benefits package, team incentives and peer incentives.
Healthcare Fraud and Abuse Laws Certain U.S. federal healthcare fraud and abuse laws apply by virtue of the fact that our customers will submit claims for our products and services that are reimbursed, in whole or in part, by Medicare, Medicaid, or other federal healthcare programs (as that term is defined at 42 U.S.C. § 1320a- 7b(f)).
Healthcare Fraud and Abuse Laws Certain U.S. federal healthcare fraud and abuse laws apply to our business because our customers submit claims for payment for our products and services to federal healthcare programs (as that term is defined at 42 U.S.C. § 1320a–7b(f)), such as Medicare and Medicaid.
The FDA stated that the source of the NDL PCBAs and NDL PCBs is from the silicone tubing used as a part of the hydraulics in those machines and the dialysate lines.
The FDA stated that the source of the NDL PCBAs and NDL PCBs is from the silicone tubing used as a part of the hydraulics in those machines and the dialysate lines. Although Tablo was not the subject of the FDA’s Letter to Healthcare Providers, the FDA reached out to Outset regarding the tubing used in Tablo.
Further, the term “remuneration” has been broadly interpreted to include anything of value. The Affordable Care Act (ACA) healthcare reform legislation specified that any claims submitted as a result of a violation of the federal Anti-Kickback Statute constitute false claims and are subject to enforcement under the federal False Claims Act, which is discussed in more detail below.
The Patient Protection and Affordable Care Act and the Health Care Reconciliation Act of 2010, as amended (collectively, the ACA), specified that any claims submitted as a result of a violation of the federal Anti-Kickback Statute constitute false claims and are subject to enforcement under the federal False Claims Act, which is discussed in more detail below.
As an organization, one of our top priorities is to maintain the wellbeing of our employees and their families. Our comprehensive benefits program is designed to help employees balance their work lives and personal lives. We maintain a whole person wellbeing approach, providing resources to support physical, financial, professional and social wellbeing.
Our comprehensive and competitive benefits program is designed to help employees balance their work lives and personal lives by giving them a sense of peace of mind related to their healthcare. We maintain a whole person wellbeing approach, providing resources to support physical, mental, financial, professional and social wellbeing.
Brottem 49 General Counsel and Secretary Stacey Porter 48 Chief People Officer Jean-Olivier Racine 41 Chief Technology Officer Martín Vazquez 53 Chief Operating Officer Steve Williamson 50 Chief Commercial Officer Leslie Trigg Leslie Trigg has served as our President and Chief Executive Officer and a member of our board of directors since November 2014 and as Chair of our Board since February 2022.
Brottem 50 General Counsel and Secretary Marc Nash 35 Senior Vice President, Operations and R&D Jean-Olivier Racine 42 Chief Technology Officer Steve Williamson 51 Chief Commercial Officer Leslie Trigg Leslie Trigg has served as our President and Chief Executive Officer and a member of our board of directors since November 2014 and as Chair of our Board since February 2022.
We intend to increase the quantity of Tablo cartridges produced at this facility as we ramp our cartridge manufacturing capabilities during the remainder of the year, while continuing to rely on one or more of our contract manufacturers as additional sources for cartridge production.
Ltd. (Infus), a contract manufacturer with two facilities in Thailand. We intend to continue to increase the quantity of Tablo cartridges produced in-house at our manufacturing facility in Mexico, while continuing to rely on one or more of our contract manufacturers as additional sources for cartridge production.
Through the Tablo application programming interface (API), providers can integrate Tablo with their Electronic Medical Records (EMR) to receive treatment data and flowsheets automatically to reduce manual record keeping, which in turn, helps reduce record-entry errors and auditing risks.
It is accessible from any device equipped with a web browser, be it a smart phone, a tablet, or a computer. Through the Tablo application programming interface (API), providers can integrate Tablo with their Electronic Medical Records (EMR) to receive Tablo treatment data and flowsheets automatically. This helps reduce manual record keeping, record-entry errors, and auditing risks.
FCA liability is potentially significant in the healthcare industry because the statute provides for treble damages and mandatory penalties for each false claim submitted or statement made.
FCA liability is potentially significant in the healthcare industry because the statute provides for treble damages and mandatory penalties for each false claim submitted or statement made, which currently set at $13,946 up to $27,894 per false claim or statement for penalties assessed after January 15, 2024.
We are committed to providing a safe workplace and we comply with applicable health and safety laws and regulations. We strictly prohibit any violent or threatening behavior on our premises or during any work-related activities. Our employees participate in applicable emergency response training and periodic drills to help maintain awareness of security, safety and emergency response protocols.
Employee Health and Safety At Outset, safety is a priority and is part of everyone’s job. We are committed to providing a safe workplace and we comply with applicable health and safety laws and regulations. We strictly prohibit any violent or threatening behavior on our premises or during any work-related activities.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe following factors could result in harm to our business, reputation, revenue, financial results, and prospects, among other impacts: Risks Related to Our Business and Industry • Our history of net losses and expectation that we will continue to incur losses • Our ability to reduce manufacturing costs • Our ability to attain market acceptance for Tablo among providers and patients • Concentration of our revenues in a single product and concentration of a large percentage of our revenues from our largest customer • Risks associated with our international manufacturing operations • Our ability to expand into the home hemodialysis market and the expansion of the home hemodialysis market itself • Our reliance on third-party suppliers, including single source suppliers and contract manufacturers, and our ability to overcome manufacturing disruptions, including any supply chain disruptions resulting from the recent COVID-19 pandemic • Financial pressures faced by our customers including staffing shortages and increased costs and the resulting cost-containment efforts of our current and potential customers • The impact of the recent pandemic, natural or man-made disasters and similar events on our business • Our ability to continue innovating and improving Tablo, ensure strong product performance and reliability, offer high quality support, ensure proper training and use of Tablo, and increase our sales and marketing capabilities • Our ability to compete effectively with existing manufacturers and new entrants • Our ability to effectively manage privacy, information and data security risks, including our ability to adequately defend against, respond to and manage increasingly sophisticated cyberattacks in an increasingly complex cyber ecosystem • Our estimates of the sizes of the markets for Tablo • Our ability to accurately forecast customer demand and manage our inventory • Potential disruptions of service provided by third parties that host our cloud-based ecosystem and information technology systems • Potential litigation, including product liability claims, and the expense and potential unavailability of insurance coverage for any liabilities resulting from Tablo • Risks related to our credit agreements, including interest rate risk and our ability to meet certain covenants Risks Related to Government Regulation • Our ability to recover from disruptions to our business and operations as a result of the prior shipment hold on Tablo for home use • Our compliance with FDA and other medical device regulations applicable to our products and operations, including our ability to: comply with the post-market surveillance order recently issued by the FDA for Tablo; obtain and maintain necessary FDA regulatory clearance or approvals for Tablo, related products, or any future product modifications or new products; comply with ongoing FDA requirements, including related to the manufacturing, marketing and promotion of our products, and the ability of our suppliers to so comply; and manage the risks and expenses associated any clinical trials necessary to support future product submissions to the FDA • Impact of potential changes to scope of coverage and reimbursement rates for dialysis treatments or healthcare reform measures 22 • Impact of potential adverse medical events associated with Tablo, product failures or malfunctions, or our failure to report such events to the FDA • Our ability to comply with various laws and regulations regarding healthcare, data privacy and security, and environmental and occupational safety Risks Related to Our Intellectual Property • Our ability to obtain, maintain, protect and enforce our intellectual property rights, including our patents, copyrights, trademarks and trade secrets Risks Related to Ownership of Our Common Stock • Fluctuations in the market price of our common stock in response to numerous factors regardless of our operating performance • Influence of principal stockholders and management over matters subject to stockholder approval • Our organizational documents include certain provisions that may make a change of control more difficult, as well as exclusive forum requirements General Risks • General economic and financial market conditions • Substantial resources associated with complying with the laws and regulations affecting public companies • Our ability to attract and retain key personnel and maintain our corporate culture • Risks associated with potential future acquisitions or investments • Our ability to comply with anti-corruption, anti-bribery, anti-money laundering and similar laws • Our estimates or judgments relating to our accounting policies • Expectations relating to ESG factors The summary risk factors described above should be read together with the text of the full risk factors below and the other information set forth in this Annual Report, including our financial statements and the related notes and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as well as in other documents that we file with the SEC.
Biggest changeThe following factors could result in harm to our business, reputation, revenue, financial results, and prospects, among other impacts: Risks Related to Our Business and Industry • Our history of net losses and expectation that we will continue to incur losses • Our ability to achieve sustainable gross margins, including by reduce manufacturing and service costs • Our ability to attain market acceptance for Tablo among providers and patients • Concentration of our revenues in a single product and concentration of a large percentage of our revenues from a limited number of customers • Financial pressures faced by our customers including capital budget constraints, staffing shortages and increased costs • Our ability to expand into the home hemodialysis market and the expansion of the home hemodialysis market itself • Risks associated with our international manufacturing operations • Our reliance on third-party suppliers, including single source suppliers and contract manufacturers, and our ability to overcome any manufacturing or supply chain disruptions • Our ability to continue innovating and improving Tablo, ensure strong product performance and reliability, offer high quality support, ensure proper training and use of Tablo, and increase our sales and marketing capabilities • Our ability to compete effectively with existing manufacturers and new entrants • Our ability to effectively manage privacy, information and data security risks, including our ability to adequately defend against, respond to and manage increasingly sophisticated cyberattacks in an increasingly complex cyber ecosystem • Our estimates of the sizes of the markets for Tablo • Our ability to accurately forecast customer demand and manage our inventory • The impact of the recent pandemic, natural or man-made disasters and similar events on our business • Potential disruptions of service provided by third parties that host our cloud-based ecosystem and information technology systems • Potential litigation, including product liability claims, and the expense and potential unavailability of insurance coverage for any liabilities resulting from Tablo • Risks related to our credit agreements, including interest rate risk and our ability to access additional capital and/or meet certain covenants Risks Related to Government Regulation • Our ability to recover from disruptions to our business and operations as a result of the prior shipment hold on Tablo for home use • Our compliance with FDA and other medical device regulations applicable to our products and operations, including our ability to: resolve the warning letter we recently received from the FDA, comply with the post-market surveillance order recently issued by the FDA for Tablo and resume our distribution of TabloCart with Prefiltration pending the FDA’s review and clearance of the submitted 510(k) application; obtain and maintain necessary FDA regulatory clearance or approvals for Tablo, related products, or any future product modifications or new products; comply with ongoing FDA requirements, including related to the manufacturing, marketing and promotion of our products, and the ability of our suppliers to so comply; and manage the risks and expenses associated any clinical trials necessary to support future product submissions to the FDA • Impact of potential changes to scope of coverage and reimbursement rates for dialysis treatments or healthcare reform measures 21 • Impact of potential adverse medical events associated with Tablo, product failures or malfunctions, or our failure to report such events to the FDA • Our ability to comply with various laws and regulations regarding healthcare, data privacy and security, and environmental and occupational safety Risks Related to Our Intellectual Property • Our ability to obtain, maintain, protect and enforce our intellectual property rights, including our patents, copyrights, trademarks and trade secrets Risks Related to Ownership of Our Common Stock • Fluctuations in the market price of our common stock in response to numerous factors regardless of our operating performance • Influence of principal stockholders and management over matters subject to stockholder approval • Our organizational documents include certain provisions that may make a change of control more difficult, as well as exclusive forum requirements General Risks • General economic and financial market conditions • Substantial resources associated with complying with the laws and regulations affecting public companies • Our ability to attract and retain key personnel and maintain our corporate culture • Risks associated with potential future acquisitions or investments • Our ability to comply with anti-corruption, anti-bribery, anti-money laundering and similar laws • Our estimates or judgments relating to our accounting policies • Expectations relating to ESG factors The summary risk factors described above should be read together with the text of the full risk factors below and the other information set forth in this Annual Report, including our financial statements and the related notes and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as well as in other documents that we file with the SEC.
For example, we may be unable to sustain the savings associated with producing consoles our manufacturing facility with TACNA, or the benefits we anticipate will result from insourcing Tablo cartridge production at this same facility may not materialize or be as significant as projected or realized within the timeframe we currently estimate.
For example, we may be unable to sustain the savings associated with producing Tablo consoles at our manufacturing facility with TACNA, or the benefits we anticipate will result from insourcing Tablo cartridge production at this same facility may not materialize or be as significant as projected or realized within the timeframe we currently estimate.
If these assumptions about the home market are inaccurate and we are unable to increase our share of the home dialysis market by attracting new patients, or retain such market share once achieved, we would need to significantly change certain aspects of our business strategy, including the pricing of the Tablo console, associated consumables and support and maintenance, which could adversely affect our business, financial condition and results of operations.
If these assumptions about the home market are inaccurate and we are unable to increase our share of the home dialysis market by attracting new patients, or retain such market share once achieved, we would need to significantly change certain aspects of our business strategy, including the pricing of Tablo console, associated consumables and support and maintenance, which could adversely affect our business, financial condition and results of operations.
While the potential economic impact brought by, and the duration of any pandemic, epidemic or outbreak of an infectious disease, including COVID-19 or the resurgence of it, may be difficult to assess or predict, a recession or market correction resulting from the spread of an infectious disease, including COVID-19 or the resurgence of it, could materially affect our business.
While the potential economic impact brought by, and the duration of any pandemic, epidemic or outbreak may be difficult to assess or predict, a recession or market correction resulting from the spread of an infectious disease, including COVID-19 or the resurgence of it, could materially affect our business.
We may experience delays in our ongoing clinical trials for a number of reasons, which could adversely affect the costs, timing or successful completion of our clinical trials, including related to the following: 46 • we may be required to submit an IDE application to the FDA, which must become effective prior to commencing certain human clinical trials of medical devices, and the FDA may reject our IDE application and notify us that we may not begin clinical trials; • regulators and other comparable foreign regulatory authorities may disagree as to the design or implementation of our clinical trials; • regulators and/or an IRB, or other reviewing bodies may not authorize us or our investigators to commence a clinical trial, or to conduct or continue a clinical trial at a prospective or specific trial site; • we may not reach agreement on acceptable terms with prospective contract research organizations (CROs), and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; • clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs; • the number of subjects or patients required for clinical trials may be larger than we anticipate, enrollment in these clinical trials may be insufficient or slower than we anticipate, and the number of clinical trials being conducted at any given time may be high and result in fewer available patients for any given clinical trial, or patients may drop out of these clinical trials at a higher rate than we anticipate; • our third-party contractors, including those manufacturing products or conducting clinical trials on our behalf, may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all; • we might have to suspend or terminate clinical trials for various reasons, including the withdrawal of approval of an IDE by the FDA based on, for example, a finding that the subjects are being exposed to unacceptable health risks; • we may have to amend clinical trial protocols or conduct additional studies to reflect changes in regulatory requirements or guidance, which we may be required to submit to an IRB and/or regulatory authorities for re-examination; • regulators, IRBs, or other parties may require or recommend that we or our investigators suspend or terminate clinical research for various reasons, including safety signals or noncompliance with regulatory requirements; • the cost of clinical trials may be greater than we anticipate; • clinical sites may not adhere to the clinical protocol or may drop out of a clinical trial; • we may be unable to recruit a sufficient number of clinical trial sites; • regulators, IRBs, or other reviewing bodies may fail to approve or subsequently find fault with our manufacturing processes or facilities of third-party manufacturers with which we enter into agreement for clinical and commercial supplies, the supply of devices or other materials necessary to conduct clinical trials may be insufficient, inadequate or not available at an acceptable cost, or we may experience interruptions in supply; • approval policies or regulations of the FDA or applicable foreign regulatory agencies may change in a manner rendering our clinical data insufficient for approval; • our current or future products may have undesirable side effects or other unexpected characteristics; and • impacts of regional or global public health crises including the recent COVID-19 pandemic could adversely affect any clinical trials we are conducting or plan to conduct, including delays or difficulties in enrolling or onboarding patients, initiating clinical sites, or obtaining the requisite regulatory approvals, interruption of key clinical trial activities, or supply chain disruptions that delay or make it more difficult or costly to obtain the supplies and materials we need for clinical trials.
We may experience delays in our ongoing clinical trials for a number of reasons, which could adversely affect the costs, timing or successful completion of our clinical trials, including related to the following: • we may be required to submit an IDE application to the FDA, which must become effective prior to commencing certain human clinical trials of medical devices, and the FDA may reject our IDE application and notify us that we may not begin clinical trials; • regulators and other comparable foreign regulatory authorities may disagree as to the design or implementation of our clinical trials; • regulators and/or an IRB, or other reviewing bodies may not authorize us or our investigators to commence a clinical trial, or to conduct or continue a clinical trial at a prospective or specific trial site; • we may not reach agreement on acceptable terms with prospective contract research organizations (CROs), and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; • clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs; • the number of subjects or patients required for clinical trials may be larger than we anticipate, enrollment in these clinical trials may be insufficient or slower than we anticipate, and the number of clinical trials being conducted at any given time may be high and result in fewer available patients for any given clinical trial, or patients may drop out of these clinical trials at a higher rate than we anticipate; • our third-party contractors, including those manufacturing products or conducting clinical trials on our behalf, may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all; • we might have to suspend or terminate clinical trials for various reasons, including the withdrawal of approval of an IDE by the FDA based on, for example, a finding that the subjects are being exposed to unacceptable health risks; 46 • we may have to amend clinical trial protocols or conduct additional studies to reflect changes in regulatory requirements or guidance, which we may be required to submit to an IRB and/or regulatory authorities for re-examination; • regulators, IRBs, or other parties may require or recommend that we or our investigators suspend or terminate clinical research for various reasons, including safety signals or noncompliance with regulatory requirements; • the cost of clinical trials may be greater than we anticipate; • clinical sites may not adhere to the clinical protocol or may drop out of a clinical trial; • we may be unable to recruit a sufficient number of clinical trial sites; • regulators, IRBs, or other reviewing bodies may fail to approve or subsequently find fault with our manufacturing processes or facilities of third-party manufacturers with which we enter into agreement for clinical and commercial supplies, the supply of devices or other materials necessary to conduct clinical trials may be insufficient, inadequate or not available at an acceptable cost, or we may experience interruptions in supply; • approval policies or regulations of the FDA or applicable foreign regulatory agencies may change in a manner rendering our clinical data insufficient for approval; • our current or future products may have undesirable side effects or other unexpected characteristics; and • impacts of regional or global public health crises such as the recent COVID-19 pandemic could adversely affect any clinical trials we are conducting or plan to conduct, including delays or difficulties in enrolling or onboarding patients, initiating clinical sites, or obtaining the requisite regulatory approvals, interruption of key clinical trial activities, or supply chain disruptions that delay or make it more difficult or costly to obtain the supplies and materials we need for clinical trials.
For example: • others may be able to make products that are similar to Tablo or utilize similar technology but that are not covered by the claims of our patents or that incorporate certain technology in Tablo that is in the public domain; • we, or our future licensors or collaborators, might not have been the first to make the inventions covered by the applicable issued patent or pending patent application that we own now or may own or license in the future; • we, or our future licensors or collaborators, might not have been the first to file patent applications covering certain of our or their inventions; • others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; 54 • it is possible that our current or future pending patent applications will not lead to issued patents; • issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal challenges by our competitors or other third parties; • our competitors or other third parties might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; • we may not develop additional proprietary technologies that are patentable; • the patents of others may harm our business; and • we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property.
For example: • others may be able to make products that are similar to Tablo or utilize similar technology but that are not covered by the claims of our patents or that incorporate certain technology in Tablo that is in the public domain; • we, or our future licensors or collaborators, might not have been the first to make the inventions covered by the applicable issued patent or pending patent application that we own now or may own or license in the future; • we, or our future licensors or collaborators, might not have been the first to file patent applications covering certain of our or their inventions; • others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; • it is possible that our current or future pending patent applications will not lead to issued patents; • issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal challenges by our competitors or other third parties; • our competitors or other third parties might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; • we may not develop additional proprietary technologies that are patentable; • the patents of others may harm our business; and • we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property.
These provisions include the following: • establish a classified board of directors so that not all members of our board of directors are elected at one time; • permit the board of directors to establish the number of directors and fill any vacancies and newly-created directorships; • provide that directors may only be removed for cause and only by the affirmative vote of the holders of at least a majority of the voting power of all then outstanding shares of our capital stock; • require super-majority voting to amend some provisions in our amended and restated certificate of incorporation and bylaws; • authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan; • prohibit stockholders from calling special meetings of stockholders; • prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; • provide that the board of directors is expressly authorized to make, alter or repeal our bylaws; • restrict the forum for certain litigation against us to Delaware; and • establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.
These provisions include the following: • establish a classified board of directors so that not all members of our board of directors are elected at one time; • permit the board of directors to establish the number of directors and fill any vacancies and newly-created directorships; • provide that directors may only be removed for cause and only by the affirmative vote of the holders of at least a majority of the voting power of all then outstanding shares of our capital stock; 56 • require super-majority voting to amend some provisions in our amended and restated certificate of incorporation and bylaws; • authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan; • prohibit stockholders from calling special meetings of stockholders; • prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; • provide that the board of directors is expressly authorized to make, alter or repeal our bylaws; • restrict the forum for certain litigation against us to Delaware; and • establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.
The failure by us or one of our suppliers to comply with applicable statutes and regulations administered by the FDA and other regulatory bodies, or the failure to timely and adequately respond to any adverse inspectional observations or product safety issues, could result in, among other things, any of the following enforcement actions: 43 • FDA untitled letters, FDA Form 483s, FDA warning letters, it has come to our attention letters, fines, injunctions, consent decrees and civil penalties; • unanticipated expenditures to address or defend such actions • customer notifications for repair, replacement, refunds; • recall, detention or seizure of our products; • operating restrictions or partial suspension or total shutdown of production; • refusing or delaying our requests for 510(k) clearance or PMA approval of new products or modified products; • withdrawal of 510(k) clearances or PMA approvals that have already been granted; • refusal to grant export approval for our products; or • criminal prosecution.
The failure by us or one of our suppliers to comply with applicable statutes and regulations administered by the FDA and other regulatory bodies, or the failure to timely and adequately respond to any adverse inspectional observations or product safety issues, could result in, among other things, any of the following enforcement actions: • FDA untitled letters, FDA Form 483s, FDA warning letters, it has come to our attention letters, fines, injunctions, consent decrees and civil penalties; • unanticipated expenditures to address or defend such actions • customer notifications for repair, replacement, refunds; • recall, detention or seizure of our products; • operating restrictions or partial suspension or total shutdown of production; • refusing or delaying our requests for 510(k) clearance or PMA approval of new products or modified products; • withdrawal of 510(k) clearances or PMA approvals that have already been granted; • refusal to grant export approval for our products; or • criminal prosecution.
Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf under Delaware law, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (3) any action arising pursuant to any provision of the Delaware General Corporation Law (DGCL), our amended and restated certificate of incorporation or bylaws, (4) any other action asserting a claim that 57 is governed by the internal affairs doctrine, or (5) any other action asserting an “internal corporate claim,” as defined in Section 115 of the DGCL, shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware) in all cases subject to the court having jurisdiction over indispensable parties named as defendants.
Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf under Delaware law, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (3) any action arising pursuant to any provision of the Delaware General Corporation Law (DGCL), our amended and restated certificate of incorporation or bylaws, (4) any other action asserting a claim that is governed by the internal affairs doctrine, or (5) any other action asserting an “internal corporate claim,” as defined in Section 115 of the DGCL, shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware) in all cases subject to the court having jurisdiction over indispensable parties named as defendants.
If our third-party suppliers fail to deliver the required commercial quantities of materials on a timely basis and at commercially reasonable prices, and we are unable to find one or more replacement suppliers capable of production at a substantially equivalent cost in substantially equivalent volumes and quality on a timely basis, the continued commercialization of our Tablo system, the supply of our products to customers and the development of any future products will be delayed, limited or prevented, which could have material adverse effect on our business, financial condition and results of operations.
If our third-party suppliers fail to deliver the required commercial quantities of materials on a timely basis and at commercially reasonable prices, and we are unable to find one or more replacement suppliers capable of production at a substantially equivalent cost in substantially equivalent volumes and quality on a timely basis, the continued commercialization of Tablo, the supply of our products to customers and the development of any future products will be delayed, limited or prevented, which could have a material adverse effect on our business, financial condition and results of operations.
As there is not a uniform national standard for what constitutes medical justification, a clinic’s decision as to how much it is willing to spend on home dialysis equipment and services will be at least partly dependent on the number of weekly treatments prescribed for home dialysis, and if greater than three, the level of confidence the center has in the predictability of receiving reimbursement from Medicare for additional treatments per week based on submitted claims for medical justification.
As there is not a uniform national standard for what constitutes medical justification, a clinic’s decision as to how much it is willing to spend on home dialysis equipment and services will be at least partly dependent on the number of weekly treatments prescribed for home dialysis, and if greater than three, the level of confidence 39 the center has in the predictability of receiving reimbursement from Medicare for additional treatments per week based on submitted claims for medical justification.
The degree of market acceptance of Tablo will depend on a number of factors, including: • whether providers and others in the medical community consider Tablo to be a safe and cost-effective treatment method; • the potential and perceived advantages of Tablo over traditional machines; 24 • the potential and perceived advantages of Tablo relative to our customers’ other capital and operating purchase requirements; • the cost of treatment, maintenance and upkeep using Tablo in relation to traditional machines; • the cost of treatment, and convenience and ease of use of Tablo in the acute setting relative to outsourcing dialysis services to third-party providers; • the convenience and ease of use of Tablo relative to traditional machines; • the effectiveness of our sales and marketing efforts for Tablo; • our ability to provide incremental data that show the clinical benefits and cost effectiveness of, and operational benefits from, Tablo; • any changes to the availability of coverage and adequate reimbursement for dialysis from payors, including government authorities; • pricing pressure, including from Group Purchasing Organizations (GPOs), seeking to obtain discounts on Tablo based on the collective buying power of the GPO members; • product labeling or product insert requirements by the FDA or other regulatory authorities; and • limitations or warnings contained in the labeling cleared or approved by the FDA or other authorities .
The degree of market acceptance of Tablo will depend on a number of factors, including: • whether providers and others in the medical community consider Tablo to be a safe and cost-effective treatment method; • the potential and perceived advantages of Tablo over traditional machines; • the potential and perceived advantages of Tablo relative to our customers’ other capital and operating purchase requirements; • the cost of treatment, maintenance and upkeep using Tablo in relation to traditional machines; 23 • the cost of treatment, and convenience and ease of use of Tablo in the acute setting relative to outsourcing dialysis services to third-party providers; • the convenience and ease of use of Tablo relative to traditional machines; • the effectiveness of our sales and marketing efforts for Tablo; • our ability to provide incremental data that show the clinical benefits and cost effectiveness of, and operational benefits from, Tablo; • any changes to the availability of coverage and adequate reimbursement for dialysis from payors, including government authorities; • pricing pressure, including from Group Purchasing Organizations (GPOs), seeking to obtain discounts on Tablo based on the collective buying power of the GPO members; • product labeling or product insert requirements by the FDA or other regulatory authorities; and • limitations or warnings contained in the labeling cleared or approved by the FDA or other authorities .
Disruptions or potential disruptions to our business from COVID-19 or a future pandemic include the inability of our suppliers to manufacture components and parts and to deliver these to us on a timely basis, or at all; disruptions in our production schedule and ability to manufacture and assemble products; inventory shortages or obsolescence; diversion of or limitations on employee resources that would otherwise be focused on the operations of our business; delays in growing or reductions in our sales organization, including through delays in hiring, lay-offs, furloughs or other losses of sales representatives; business adjustments or disruptions of or to certain third parties, including suppliers and customers; delays to any clinical trials we are conducting or plan to conduct; delays in our ability to timely submit 510(k) notifications or PMAs or PMA supplements, as applicable, and to obtain clearance or approval from the FDA to market our products; and additional government requirements or other incremental mitigation efforts that may further impact our or our suppliers’ capacity to manufacture Tablo.
Disruptions or potential disruptions to our business from a future pandemic include the inability of our suppliers to manufacture components and parts and to deliver these to us on a timely basis, or at all; disruptions in our production schedule and ability to manufacture and assemble products; inventory shortages or obsolescence; diversion of or limitations on employee resources that would otherwise be focused on the operations of our business; delays in growing or reductions in our sales organization, including through delays in hiring, lay-offs, furloughs or other losses of sales representatives; business adjustments or disruptions of or to certain third parties, including suppliers and customers; delays to any clinical trials we are conducting or plan to conduct; delays in our ability to timely submit 510(k) notifications or PMAs or PMA supplements, as applicable, and to obtain clearance or approval from the FDA to market our products; and additional government requirements or other incremental mitigation efforts that may further impact our or our suppliers’ capacity to manufacture Tablo.
Such a stock price decline could occur even when we have met any previously publicly stated revenue or earnings forecasts that we may provide. We do not intend to pay dividends for the foreseeable future and, as a result, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.
Such a stock price decline could occur even when we have met any previously publicly stated revenue or earnings forecasts that we may provide. 55 We do not intend to pay dividends for the foreseeable future and, as a result, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.
DaVita , the Supreme Court of the United States addressed the question of whether a group health plan that 40 provides limited benefits for outpatient dialysis – but does so uniformly for all plan participants – violates the MSPA, a law which makes Medicare a “secondary” payer to an individual’s existing insurance plan for certain medical services, including dialysis, when that plan already covers the same services.
DaVita , the Supreme Court of the United States addressed the question of whether a group health plan that provides limited benefits for outpatient dialysis – but does so uniformly for all plan participants – violates the MSPA, a law which makes Medicare a “secondary” payer to an individual’s existing insurance plan for certain medical services, including dialysis, when that plan already covers the same services.
For example, patients 47 may be discouraged from enrolling in our clinical trials if the trial protocol requires them to undergo extensive post-treatment procedures or follow-up to assess the safety and effectiveness of our products or if they determine that the treatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts.
For example, patients may be discouraged from enrolling in our clinical trials if the trial protocol requires them to undergo extensive post-treatment procedures or follow-up to assess the safety and effectiveness of our products or if they determine that the treatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts.
To the extent that our employees, consultants, contractors or collaborators use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions, which could have a material adverse effect on our business, financial condition and results of operations.
To the extent that our employees, consultants, contractors or collaborators use intellectual property owned by others in their work for us, disputes may arise 51 as to the rights in related or resulting know-how and inventions, which could have a material adverse effect on our business, financial condition and results of operations.
While we believe replacement suppliers exist for all materials, components and services necessary to continue manufacturing our Tablo system, establishing additional or replacement suppliers for any of these materials, components or services could be time-consuming and expensive, may result in interruptions in our operations and product delivery, may affect the performance specifications of our Tablo system or could require that we modify Tablo’s design.
While we believe replacement suppliers exist for all materials, components and services necessary to continue manufacturing Tablo, establishing additional or replacement suppliers for any of these materials, components or services could be time-consuming and expensive, may result in interruptions in our operations and product delivery, may affect the performance specifications of Tablo or could require that we modify Tablo’s design.
Because the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently or may be designed to remain dormant until a predetermined or other future event and often are not recognized until launched against a target, we and our partners may be unable to anticipate these techniques or to implement adequate preventative measures.
Because the techniques used to obtain unauthorized access, disable or 28 degrade service or sabotage systems change frequently or may be designed to remain dormant until a predetermined or other future event and often are not recognized until launched against a target, we and our partners may be unable to anticipate these techniques or to implement adequate preventative measures.
Expectations relating to ESG factors may impose additional costs and expose us to new risks. There is increasing focus from certain investors, customers and other stakeholders on ESG factors, including greenhouse gas emissions and climate-related risks; diversity, equity, and inclusion; responsible sourcing and supply chain; human rights and social 60 responsibility; and corporate governance and oversight.
Expectations relating to ESG factors may impose additional costs and expose us to new risks. There is increasing focus from certain investors, customers and other stakeholders on ESG factors, including greenhouse gas emissions and climate-related risks; diversity, equity, and inclusion; responsible sourcing and supply chain; human rights and social responsibility; and corporate governance and oversight.
The FDA or other regulators could delay, limit, or deny clearance or approval of a device for many reasons, including: • our inability to demonstrate to the satisfaction of the FDA or the applicable regulatory entity or notified body that the Tablo System, or any other future device, and any accessories are substantially equivalent to a legally marketed predicate device or safe or effective for their proposed intended use; • the disagreement of the FDA with the design or implementation of any clinical trials or the interpretation of data from preclinical studies or clinical trials; • serious and unexpected adverse device effects experienced by participants in our clinical trials; • the insufficiency of the data from preclinical studies or clinical trials to support clearance or approval, where required; • our inability to demonstrate that the clinical and other benefits of the device outweigh the risks; • the failure of our manufacturing process or facilities to meet applicable requirements; and • the potential for approval policies or regulations of the FDA or applicable foreign regulatory bodies to change significantly in a manner rendering our clinical data or regulatory filings insufficient for clearance or approval.
The FDA or other regulators could delay, limit, or deny clearance or approval of a device for many reasons, including: 41 • our inability to demonstrate to the satisfaction of the FDA or the applicable regulatory entity or notified body that Tablo, or any other future device, and any accessories are substantially equivalent to a legally marketed predicate device or safe or effective for their proposed intended use; • the disagreement of the FDA with the design or implementation of any clinical trials or the interpretation of data from preclinical studies or clinical trials; • serious and unexpected adverse device effects experienced by participants in our clinical trials; • the insufficiency of the data from preclinical studies or clinical trials to support clearance or approval, where required; • our inability to demonstrate that the clinical and other benefits of the device outweigh the risks; • the failure of our manufacturing process or facilities to meet applicable requirements; and • the potential for approval policies or regulations of the FDA or applicable foreign regulatory bodies to change significantly in a manner rendering our clinical data or regulatory filings insufficient for clearance or approval.
We may form or seek strategic alliances, make minority investments, create joint ventures or collaborations or enter into licensing or partnership arrangements with third parties that we believe will compliment or augment our sales and marketing and/or product development efforts with respect to Tablo. We may not be successful in our efforts to establish such collaborations for Tablo.
We may form or seek strategic alliances, make minority investments, create joint ventures or collaborations or enter into licensing or partnership arrangements with third parties that we believe will compliment or augment our sales and marketing and/or 36 product development efforts with respect to Tablo. We may not be successful in our efforts to establish such collaborations for Tablo.
We have incurred significant expense and devoted substantial management effort to complying with the requirements of Section 404 of the Sarbanes-Oxley Act, which we expect will continue. We may hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge, or incur expense associated with consultants, to support future growth.
We have incurred significant expense and devoted substantial management effort to complying with the requirements of Section 404 of the Sarbanes-Oxley Act, which we 58 expect will continue. We may hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge, or incur expense associated with consultants, to support future growth.
Repeated or prolonged system failures may reduce the attractiveness of Tablo to providers and patients and result in a decreased demand for Tablo, thereby adversely affecting our business, financial condition and results of operations. Moreover, negative publicity arising from these types of disruptions could damage our reputation and may adversely impact use of Tablo.
Repeated or prolonged system failures may reduce the attractiveness of Tablo to providers and patients and result in a decreased demand for Tablo, thereby 32 adversely affecting our business, financial condition and results of operations. Moreover, negative publicity arising from these types of disruptions could damage our reputation and may adversely impact use of Tablo.
In addition, our ability to deduct net interest expense may be limited if we have insufficient taxable income for the year during which the interest is incurred, and any future carryovers of such disallowed interest would be subject to the limitation rules similar to those applicable to NOLs and other attributes.
In addition, our ability to deduct net interest expense may be limited if we have insufficient taxable income for the year during which the interest is incurred, and any future carryovers of such disallowed interest would be subject to the 37 limitation rules similar to those applicable to NOLs and other attributes.
Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies on which our 48 operations may rely, including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.
Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies on which our operations may rely, including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.
The SLR Credit Facility Agreements also include a financial covenant that, beginning with the fiscal quarter ending December 31, 2023, requires us to either (i) maintain certain levels of cash and cash equivalents in accounts subject to control agreements in favor of Agent and ABL Lender of at least 50% of the sum of (a) the outstanding obligations under the SLR Term Loan Facility and (b) the amount of the Company’s accounts payable that have not been paid within 120 days from the invoice date thereof or (ii) generate net product and product related revenue (or maintain gross profit margins) in excess of specified amounts (or percentages) for applicable measuring periods.
The SLR Credit Facility Agreements also include a financial covenant that, beginning with the fiscal quarter ending December 31, 2023, requires us to either (i) maintain certain levels of cash and cash equivalents in accounts subject to control agreements in favor of Agent and ABL Lender of at least the sum of (a) 50% of the outstanding obligations under the SLR Term Loan Facility and (b) the amount of the Company’s accounts payable that have not been paid within 120 days from the invoice date thereof or (ii) generate net product and product related revenue in excess of specified amounts and maintain gross profit margins in excess of specified percentages, in each case, for applicable measuring periods.
Moreover, while certain members of our management team have some manufacturing experience, as an organization, we do not have any prior experience in this type of manufacturing arrangement, and we could 26 accordingly experience other risks, the nature and magnitude of which we are unable to assess precisely at this time.
Moreover, while certain members of our management team have some manufacturing experience, as an organization, we do not have any prior experience in this type of manufacturing arrangement, and we could accordingly experience other risks, the nature and magnitude of which we are unable to assess precisely at this time.
This may change, however, with the development of new medications designed to reduce the incidence of kidney transplant rejection, progress in using kidneys harvested from genetically engineered animals as a source of transplants as demonstrated by the first pig-to-human kidney transplant in September 2021, and other advances in kidney transplantation.
This may change, however, with the development of new medications designed to reduce the incidence of kidney transplant rejection, progress in using kidneys harvested from genetically engineered animals as a source of transplants as demonstrated by the first pig-to-human kidney transplant in 2021, and other advances in kidney transplantation.
We do not have direct control over the operations of the facilities of AWS or of our other cloud service providers and these facilities are 33 vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, cyber security attacks, terrorist attacks, power losses, telecommunications failures and similar events.
We do not have direct control over the operations of the facilities of AWS or of our other cloud service providers and these facilities are vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, cyber security attacks, terrorist attacks, power losses, telecommunications failures and similar events.
Should a carrier encounter delivery performance issues such as loss, damage or destruction of any systems, it would be costly to replace such systems in a timely manner and such occurrences may damage our reputation and lead to decreased demand for our Tablo system and increased cost and expense to our business.
Should a carrier encounter delivery performance issues such as loss, damage or destruction of any systems, it would be costly to replace such systems in a timely manner and such occurrences may damage our reputation and lead to decreased demand for Tablo and increased cost and expense to our business.
Even when a provider is the sole contracted supplier of a GPO or IDN for a certain product category, members of the GPO or IDN are generally free to purchase from other suppliers. Furthermore, GPO and IDN contracts typically are terminable without cause by the GPO or IDN upon 60 to 90 days’ notice.
Even when a provider is the sole contracted supplier of a GPO or IDN for a certain product category, members of the GPO or IDN are generally free to purchase from other suppliers. Furthermore, GPO and IDN contracts typically are 35 terminable without cause by the GPO or IDN upon 60 to 90 days’ notice.
They also impose additional administrative and compliance burdens on us. In particular, these laws influence, among other things, how we structure our sales and rental offerings, including discount practices, customer support, education and training 41 programs and physician consulting and other service arrangements.
They also impose additional administrative and compliance burdens on us. In particular, these laws influence, among other things, how we structure our sales and rental offerings, including discount practices, customer support, education and training programs and physician consulting and other service arrangements.
Our products may cause or contribute to adverse medical events or be subject to failures or malfunctions that we are required to report to the FDA, and if we fail to do so, we would be subject to sanctions that could harm our reputation, business, financial 44 condition and results of operations.
Our products may cause or contribute to adverse medical events or be subject to failures or malfunctions that we are required to report to the FDA, and if we fail to do so, we would be subject to sanctions that could harm our reputation, business, financial condition and results of operations.
Despite our efforts to retain valuable employees, members of our management, scientific and development teams may terminate their employment with us on short notice. Our employment arrangements with our employees provide for at-will employment, which means that any of our 58 employees could leave our employment at any time, with or without notice.
Despite our efforts to retain valuable employees, members of our management, scientific and development teams may terminate their employment with us on short notice. Our employment arrangements with our employees provide for at-will employment, which means that any of our employees could leave our employment at any time, with or without notice.
In addition, to the extent that our cloud and other service providers experience security breaches that result in the unauthorized or improper use of confidential information, employee 30 information or personal information, we may not be indemnified for any losses resulting from such breaches.
In addition, to the extent that our cloud and other service providers experience security breaches that result in the unauthorized or improper use of confidential information, employee information or personal information, we may not be indemnified for any losses resulting from such breaches.
In that event, our reputation could be damaged, and adoption of the products could be impaired. Although our policy is to refrain from statements that could be 45 considered off-label promotion of Tablo, the FDA or another regulatory agency could disagree and conclude that we have engaged in off-label promotion.
In that event, our reputation could be damaged, and adoption of the products could be impaired. Although our policy is to refrain from statements that could be considered off-label promotion of Tablo, the FDA or another regulatory agency could disagree and conclude that we have engaged in off-label promotion.
District Court for the Northern District of California alleging that the defendants violated federal securities laws by making false or misleading statements regarding the Company’s regulatory studies of the Tablo Hemodialysis System for at home use and the Company’s prospects related to the sale of the system for at home use.
District Court for the Northern District of California alleging that the defendants violated federal securities laws by making false or misleading statements regarding the Company’s regulatory studies of Tablo for at home use and the Company’s prospects related to the sale of the system for at home use.
In addition, our facility in Mexico and the facilities of our suppliers and manufacturers may be 31 harmed or rendered inoperable by such natural or man-made disasters, which may cause disruptions, difficulties or otherwise materially and adversely affect our business.
In addition, our facility in Mexico and the facilities of our suppliers and manufacturers may be harmed or rendered inoperable by such natural or man-made disasters, which may cause disruptions, difficulties or otherwise materially and adversely affect our business.
In addition, our patents also may become involved in inventorship, priority or validity disputes. To counter or defend against such claims can be expensive and time-consuming and could divert our attention from other functions and 53 responsibilities.
In addition, our patents also may become involved in inventorship, priority or validity disputes. To counter or defend against such claims can be expensive and time-consuming and could divert our attention from other functions and responsibilities.
Regardless of the merits or eventual outcome, liability claims may result in: 34 • decreased demand for Tablo; • harm to our reputation; • initiation of investigations by regulators, which could result in enforcement action against us or our contract manufacturers; • costs to defend the related litigation; • a diversion of management’s time and our resources; • substantial monetary awards to trial participants or patients; • product recalls, withdrawals or labeling, marketing or promotional restrictions; • loss of revenue; and • exhaustion of any available insurance and our capital resources.
Regardless of the merits or eventual outcome, liability claims may result in: • decreased demand for Tablo; • harm to our reputation; • initiation of investigations by regulators, which could result in enforcement action against us or our contract manufacturers; • costs to defend the related litigation; • a diversion of management’s time and our resources; • substantial monetary awards to trial participants or patients; • product recalls, withdrawals or labeling, marketing or promotional restrictions; • loss of revenue; and 33 • exhaustion of any available insurance and our capital resources.
Further, the examination process may require us to narrow the claims for our pending patent applications, which may limit the scope of patent protection that may be obtained if these applications issue. The scope of a patent may also be reinterpreted after issuance.
Further, the examination process may require us to narrow the claims for our pending patent applications, which may limit the scope of patent protection that may be obtained if these applications issue. The 50 scope of a patent may also be reinterpreted after issuance.
Our ability to accurately forecast demand for Tablo could be negatively affected by many factors, including our failure to accurately manage our expansion strategy, product introductions by competitors, an increase or decrease in customer demand for Tablo or for products of our competitors, our failure to accurately forecast customer acceptance of new products, potential disruption in our supply chain from regional or global public health crises including the recent COVID-19 pandemic, unanticipated changes in general market conditions or regulatory matters and weakening of economic conditions or consumer confidence in future economic conditions.
Our ability to accurately forecast demand for Tablo could be negatively affected by many factors, including our failure to accurately manage our expansion strategy, product introductions by competitors, an increase or decrease in customer demand for Tablo or for products of our competitors, our failure to accurately forecast customer acceptance of new products, potential disruption in our supply chain from regional or global public health crises such as the recent COVID-19 pandemic, unanticipated changes in general market conditions or regulatory matters and weakening of economic conditions or consumer confidence in future economic conditions.
An adverse change in interest rates for our borrowings could increase our future borrowing costs which may restrict our access to capital in the future and, ultimately, could adversely affect our financial condition and results of operations.
An adverse change in interest rates for our borrowings could increase our future borrowing costs which may restrict our access to capital in the future and, ultimately, could adversely affect our 34 financial condition and results of operations.
These risks could be difficult to eliminate or manage, and, if not addressed, could harm our business, financial condition and results of operations. Intellectual property rights do not necessarily address all potential threats.
These risks could be difficult to eliminate or manage, and, if not addressed, could harm our business, financial condition and results of operations. 53 Intellectual property rights do not necessarily address all potential threats.
In this case, we may ultimately be required to make additional changes to the Tablo System, we may need to submit a new 510(k) application or a PMA and obtain clearance or approval, we may be required to temporarily suspend shipment of, withdraw or recall Tablo until such clearance or approval is obtained (which may not happen in a timely manner or at all), and/or we may be subject to other enforcement actions or proceedings and litigation, all of which would materially and adversely disrupt and harm our business and future growth.
In this case, we may ultimately be required to make additional changes to Tablo, we may need to submit a new 510(k) application or a PMA and obtain clearance or approval, we may be required to temporarily suspend shipment of, withdraw or recall Tablo until such clearance or approval is obtained (which may not happen in a timely manner or at all), and/or we may be subject to other enforcement actions or proceedings and litigation, all of which would materially and adversely disrupt and harm our business and future growth.
If we are unable to continuously improve the performance and reliability of Tablo, broaden our installed base or if these initiatives are otherwise unsuccessful, we may fail to better leverage our field service team and drive down service costs per console within the timeframes we anticipate or at all, which could delay or prevent us from achieving sustainable gross margins, and adversely impact our financial condition, results of operation and future growth.
If we are unable to continuously improve the performance and reliability of Tablo, broaden our installed base or if these initiatives are otherwise unsuccessful, we may fail to better leverage our field service team and drive down service costs per console within the timeframe we anticipate or at all, which could delay or prevent us from achieving sustainable gross margins, and adversely impact our financial condition, results of operation and future growth.
To the extent that over three treatments per week are prescribed for Tablo patients and Medicare contractors determine they will not pay for additional treatments, adoption of the Tablo System could be impaired.
To the extent that over three treatments per week are prescribed for Tablo patients and Medicare contractors determine they will not pay for additional treatments, adoption of Tablo could be impaired.
We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners and customers in our markets of interest.
We may not be able to protect our rights to these trademarks and trade names, which we need to build name 52 recognition among potential partners and customers in our markets of interest.
Any of our facilities may be harmed or rendered inoperable by natural or man-made disasters, including earthquakes, wildfires, floods, nuclear disasters, riots, acts of terrorism or other criminal activities, infectious disease outbreaks or pandemic events, including the recent COVID-19 pandemic, power outages and other infrastructure failures, which may render it difficult or impossible for us to operate our business for some period of time.
Any of our facilities may be harmed or rendered inoperable by natural or man-made disasters, including earthquakes, wildfires, floods, nuclear disasters, riots, acts of terrorism or other criminal activities, infectious disease outbreaks or pandemic events, such as the recent COVID-19 pandemic, power outages and other infrastructure failures, which may render it difficult or impossible for us to operate our business for some period of time.
Based on our current planned operations, we expect our existing cash, cash equivalents and short-term investments, cash generated from revenues from our products and services, and proceeds received and currently available from the debt financing described in Note 7, Term Loans, to our audited financial statements included in this Annual Report, will be sufficient to meet our anticipated needs for at least the next 12 months from the date of this Annual Report.
Based on our current planned operations, we expect our existing cash, cash equivalents and short-term investments, cash generated from revenues from our products and services, and proceeds received from the debt financing described in Note 7, Term Loans, to our audited financial statements included in this Annual Report, will be sufficient to meet our anticipated needs for at least the next 12 months from the date of this Annual Report.
We rely heavily on providers of transport services for reliable and secure point-to-point transport of our Tablo system to our customers and for tracking of these shipments, and from time to time require warehousing for our products.
We rely heavily on providers of transport services for reliable and secure point-to-point transport of Tablo to our customers and for tracking of these shipments, and from time to time require warehousing for our products.
Significant delays in receiving clearance or approval or the failure to receive clearance or approval for any new products would have an adverse effect on our ability to expand our business.
Significant delays in receiving clearance or approval or the failure to receive clearance or approval for any new products or enhancements would have an adverse effect on our ability to expand our business.
Inadequate training of, and improper use of Tablo by, nurses, dialysis technicians, care partners and patients may lead to negative patient outcomes, affect adoption of Tablo and adversely affect our business.
Inadequate training of, and improper use of Tablo by, nurses, dialysis technicians, care partners and patients may lead to negative patient outcomes, affect use of Tablo and adversely affect our business.
If freight costs continue to escalate and/or remain high for a sustained period of time, our operating margins and results of operations would be adversely impacted. Similarly, strikes, severe weather, natural disasters or other service interruptions affecting delivery or warehousing services we use would adversely affect our ability to process orders for our Tablo system on a timely basis.
If freight costs escalate and/or remain high for a sustained period of time, our operating margins and results of operations would be adversely impacted. Similarly, strikes, severe weather, natural disasters or other service interruptions affecting delivery or warehousing services we use would adversely affect our ability to process orders for Tablo on a timely basis.
The success of Tablo depends in part on the proper training and use of Tablo by nurses and dialysis technicians in the acute setting or patients and care partners in the home setting.
The success of Tablo depends in part on the proper training and use of Tablo by nurses and dialysis technicians in the acute setting and patients and care partners in the home setting.
The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be promulgated that could prevent, limit or delay regulatory clearance or approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad.
The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be promulgated that could prevent, limit or delay regulatory clearance or approval of our product candidates or enhancements. We cannot predict the 45 likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad.
Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of planned or future products. It is impossible to predict whether legislative changes will be enacted or FDA regulations, guidance or interpretations changed, and what the impact of such changes, if any, may be.
Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of planned or future products or product enhancements. It is impossible to predict whether legislative changes will be enacted or FDA regulations, guidance or interpretations changed, and what the impact of such changes, if any, may be.
We use Amazon Web Services to support Tablo’s cloud connectivity and any disruption of service could interrupt or delay our ability to receive and deliver critical treatment and reporting information from and to providers and patients. We currently use AWS to host our cloud-based ecosystem. We also use other cloud service providers in our operations.
We use Amazon Web Services to support Tablo’s cloud connectivity and any disruption of service could interrupt or delay our ability to receive and deliver certain treatment and reporting information from and to providers and patients. We currently use AWS to host our cloud-based ecosystem. We also use other cloud service providers in our operations.
Companies are required to maintain certain records of recalls, even if they are not reportable to the FDA. Companies are required to maintain certain records of recalls and corrections, even if they are not reportable to the FDA.
Companies are required to maintain certain records of recalls, even if they are not reportable to the FDA. 44 Companies are required to maintain certain records of recalls and corrections, even if they are not reportable to the FDA.
If we fail to retain sales and marketing personnel and, as we grow, fail to increase our sales and marketing capabilities or develop broad awareness of Tablo in a cost-effective manner, we may not be able to generate revenue growth. We have limited experience marketing and selling Tablo.
If we fail to retain our sales and marketing personnel, fail to increase our sales and marketing capabilities or develop broad awareness of Tablo in a cost-effective manner, we may not be able to generate revenue growth. We have limited experience marketing and selling Tablo.
Any change in the laws or regulations that govern the clearance and approval processes relating to our current, planned and future products could make it more difficult and costly to obtain clearance or approval for new products or to produce, market and distribute existing products.
Any change in the laws or regulations that govern the clearance and approval processes relating to our current, planned and future products or product enhancements could make it more difficult and costly to obtain clearance or approval for new products or to produce, market and distribute existing products.
We began commercializing Tablo throughout the United States in 2018 and began the process to commercialize Tablo for home-based dialysis in 2020. Our limited commercialization experience makes it difficult to evaluate our current business and predict our future prospects.
We began commercializing Tablo throughout the United States in 2018 and began the process to commercialize Tablo for home-based dialysis in 2020. Our relatively limited commercialization experience makes it more difficult to evaluate our current business and predict our future prospects.
We 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.
For example, 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.
Violations of HIPAA may result in significant civil and criminal penalties. HIPAA also authorizes state attorneys general to file suit on behalf of their residents. Courts may award damages, costs and attorneys’ fees related to violations of HIPAA in such cases.
Violations of HIPAA may result in significant civil and criminal penalties. HIPAA also authorizes state attorneys general to file suits on behalf of their residents. Courts may award damages, costs and attorneys’ fees related to violations of HIPAA in such cases.
If we are unable to reduce our costs, if cost reductions or other anticipated benefits are less significant or less timely than projected or if we are unable to maintain our product pricing, we will not be able to achieve sustainable gross margins, which would adversely affect our ability to invest in and grow our business and adversely impact our business, financial condition and results of operations.
If we are unable to reduce our costs or if cost reductions or other anticipated benefits are less significant or less timely than projected, we will not be able to achieve sustainable gross margins, which would adversely affect our ability to invest in and grow our business and adversely impact our business, financial condition and results of operations.
Legislative or regulatory reforms may make it more difficult and costly for us to obtain regulatory clearance or approval of any future products and to manufacture, market and distribute our products after clearance or approval is obtained.
Legislative or regulatory reforms may make it more difficult and costly for us to obtain regulatory clearance or approval of any future products or product enhancements and to manufacture, market and distribute our products after clearance or approval is obtained.
If we achieve a certain net revenue milestone, calculated on a trailing six-month basis (First Revenue Milestone), on or before June 30, 2024 and the additional tranche under the SLR Revolver has been approved, we will be permitted to borrow up to $250.0 million under the SLR Credit Facilities.
If we achieve a certain net revenue milestone, calculated on a trailing six-month basis (First Revenue Milestone), on or before June 30, 2024 and the additional tranche under the SLR Revolver has been approved, we will be permitted to borrow up to an additional $50.0 million under the SLR Credit Facilities.
If any of our contract manufacturing partners’ facilities were disrupted, by labor disputes, work stoppages, public health crises such as the recent COVID-19 pandemic, riots, terrorism, vandalism, cyber security attacks, natural disaster or otherwise, it could cause substantial delays in our operations and result in our having insufficient Tablo cartridge in inventory to fulfill orders.
If either of our contract manufacturing partners’ facilities were disrupted, by labor disputes, work stoppages, public health crises such as the recent COVID-19 pandemic, riots, terrorism, vandalism, cyber security attacks, natural disaster, regulatory action or otherwise, it could cause substantial delays in our operations and result in our having insufficient Tablo cartridge in inventory to fulfill orders.
For example, precautionary measures designed and in recent years implemented to contain the spread and mitigate the impact of COVID-19, such as travel restrictions, “shelter-in-place” orders, quarantines and business shutdowns, have impacted, and may in the future impact, many of the regions in which we, our customers and our suppliers operate.
For example, precautionary measures designed and in recent years implemented to contain the spread and mitigate the impact of COVID-19, such as travel restrictions, “shelter-in-place” orders, quarantines and business shutdowns impacted many of the regions in which we, our customers and our suppliers operate.
In addition, we expect our general and administrative expenses to increase due to the additional costs associated with scaling our business operations and continuing to operate as a public company, including due to legal, accounting, insurance, exchange listing and SEC compliance, investor relations and other expenses.
In addition, we expect our general and administrative expenses to increase over the long-term due to the additional costs associated with scaling our business operations and continuing to operate as a public company, including due to legal, accounting, insurance, exchange listing and SEC compliance, investor relations and other expenses.
Our failure to comply with applicable regulatory requirements could result in enforcement action by any such agency, which may include any of the following sanctions: • adverse publicity, warning letters, untitled letters, it has come to our attention letters, fines, injunctions, consent decrees and civil penalties; 42 • repair, replacement, refunds, recall or seizure of Tablo; • operating restrictions, partial suspension or total shutdown of production; • denial of our requests for regulatory clearance or PMA approval of new products or services, new intended uses or modifications to existing products or services; • withdrawal of regulatory clearance or PMA approvals that have already been granted; or • criminal prosecution.
Our failure to comply with applicable regulatory requirements could result in enforcement action by any such agency, which may include any of the following sanctions: • adverse publicity, warning letters (such as the Warning Letter we received in July 2023), untitled letters, it has come to our attention letters, fines, injunctions, consent decrees and civil penalties; • repair, replacement, refunds, recall or seizure of Tablo; • operating restrictions, partial suspension or total shutdown of production; • denial of our requests for regulatory clearance or PMA approval of new products or services, new intended uses or modifications to existing products or services; • withdrawal of regulatory clearance or PMA approvals that have already been granted; or • criminal prosecution.
Our principal stockholders and management own a significant percentage of our stock and are able to exercise significant influence over matters subject to stockholder approval. Based on available information, we believe that, as of December 31, 2022, our executive officers, directors and 5% stockholders beneficially owned approximately 52% of the outstanding shares of capital stock.
Our principal stockholders and management own a significant percentage of our stock and are able to exercise significant influence over matters subject to stockholder approval. Based on available information, we believe that, as of December 31, 2023, our executive officers, directors and 5% stockholders beneficially owned approximately 59% of the outstanding shares of capital stock.
In addition, our services revenue is dependent in part on our FSEs, and any failure to maintain and grow, or adequately train, our team of FSEs could negatively impact our services revenue. In order to generate future growth, we plan to continue to expand and leverage our sales and marketing infrastructure to increase the number of customers that adopt Tablo.
In addition, our services revenue is dependent in part on our FSEs, and any failure to maintain, or adequately train, our team of FSEs could negatively impact our services revenue. In order to generate future growth, we plan to leverage and optimize our sales and marketing infrastructure to increase the number of customers that adopt Tablo.
The market price of our common stock has been and may continue to be highly volatile and may continue to fluctuate or decline significantly in response to numerous factors, many of which are beyond our control, including: • actual or anticipated changes in our operating results, and variations between our actual operating results and the expectations of securities analysts, investors and the financial community; • any forward-looking financial or operating information we may provide to the public or securities analysts, any changes in this information or our failure to meet expectations based on this information; 55 • actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company or our failure to meet these estimates or the expectations of investors; • additional shares of our common stock being sold into the market by us or our existing stockholders, or the anticipation of such sales; • hedging activities by market participants; • regulatory actions with respect to our products or our competitors’ products; • announcements by us or our competitors of significant products or features, technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments; • changes in operating performance and stock market valuations of companies in our industry, including our competitors; • price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; • lawsuits threatened or filed against us; • developments in new legislation and pending lawsuits or regulatory actions, including interim or final rulings by judicial or regulatory bodies; and • other events or factors, including those resulting from political conditions, election cycles, war or incidents of terrorism, or responses to these events.
The market price of our common stock has been and may continue to be highly volatile and may continue to fluctuate or decline significantly in response to numerous factors, many of which are beyond our control, including: • actual or anticipated changes in our operating results, and variations between our actual operating results and the expectations of securities analysts, investors and the financial community; • any forward-looking financial or operating information we may provide to the public or securities analysts, any changes in this information or our failure to meet expectations based on this information; • actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company or our failure to meet these estimates or the expectations of investors; • additional shares of our common stock being sold into the market by us or our existing stockholders, or the anticipation of such sales; • hedging activities by market participants; • regulatory actions with respect to our products or our competitors’ products, or announcements by us in relation to such regulatory actions (for example, the Warning Letter we received in July 2023 and our subsequent pause on the distribution of TabloCart with Prefiltration); • announcements by us or our competitors of significant products or features, technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments; • changes in operating performance and stock market valuations of companies in our industry, including our competitors; • price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; • lawsuits threatened or filed against us; • developments in new legislation and pending lawsuits or regulatory actions, including interim or final rulings by judicial or regulatory bodies; and • other events or factors, including those resulting from political conditions, election cycles, war or incidents of terrorism, or responses to these events.
We currently rely on our direct sales force to sell Tablo in the United States, and any failure to maintain and grow our direct sales force will negatively affect our business, financial condition and results of operations.
We currently rely on our direct sales force to sell Tablo in the United States, and any failure to maintain, leverage and optimize our direct sales force will negatively affect our business, financial condition and results of operations.
We recently launched a new 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 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.
Significant assumptions and estimates used in preparing our financial statements include those related to allowance for doubtful accounts, assessment of the useful life and recoverability of long-lived assets, warranty obligations, fair values of stock-based awards, warrants, contingent consideration, and income taxes.
Significant assumptions and estimates used in preparing our financial statements include those related to allowance for credit losses, assessment of the useful life and recoverability of long-lived assets, warranty obligations, fair values of stock-based awards, warrants, contingent consideration, and income taxes.
A pandemic, epidemic or outbreak of an infectious disease in the United States or worldwide, including the recent COVID-19 pandemic, could adversely affect our business. If a pandemic, epidemic or outbreak of an infectious disease occurs in the United States or worldwide, our business may be adversely affected.
A pandemic, epidemic or outbreak of an infectious disease in the United States or worldwide such as the recent COVID-19 pandemic could adversely affect our business. If a pandemic, epidemic or outbreak of an infectious disease occurs in the United States or worldwide, our business may be adversely affected.
As a result, any event that adversely affects Tablo or the market for Tablo and associated consumables could adversely affect our business, financial condition and results of operation. Our customers are facing staffing shortages, increased costs and other financial pressures that have had, and may continue to have, a negative impact on our revenue.
As a result, any event that adversely affects Tablo or the market for Tablo and associated consumables could adversely affect our business, financial condition and results of operation. Our customers are facing financial pressures including capital budget constraints, staffing shortages and increased costs, that have had, and may continue to have, a negative impact on our revenue.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIn addition, we lease 40,413 square feet for our corporate headquarters located in San Jose, California under a lease agreement that terminates in 2027. This facility supports research and development and general and administrative activities, as well as distribution for consoles and service parts.
Biggest changeItem 2. Pro perties. We currently lease 40,413 square feet of office space for our corporate headquarters located in San Jose, California under a lease agreement that terminates in 2027. This facility supports research and development and general and administrative activities.
Removed
Item 2. Pro perties. In May 2020, we entered into an operating lease agreement for our manufacturing facility in Tijuana, Mexico. This facility includes a main building with 48,437 square feet and a secondary space with 38,750 square feet. The initial term of this lease expires in 2026.
Added
In Tijuana, Mexico, we also lease 87,187 square feet of space for our manufacturing facility under a lease agreement that will expire in 2026 and 7,739 square feet of office space for certain research and development and general and administrative activities under a lease agreement that will expire in 2028.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, results of operations, financial condition or cash flows. Item 4. Mine Saf ety Disclosures. Not applicable. 61 PART II
Biggest changeWe are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, results of operations, financial condition or cash flows. Item 4. Mine Saf ety Disclosures. Not applicable. 63 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePursuant to applicable SEC rules, all values assume reinvestment of the full amount of all dividends, however no dividends have been declared on our common stock to date. The offering price of our common stock in our initial public offering (IPO), which had a closing stock price of $60.68 on September 15, 2020, was $27.00 per share.
Biggest changeThe graph assumes an investment of $100 on September 15, 2020 and its relative performance is tracked through December 31, 2023. Pursuant to applicable SEC rules, all values assume reinvestment of the full amount of all dividends, however no dividends have been declared on our common stock to date.
The following graph compares the cumulative total return on our common stock relative to the cumulative total returns of the NASDAQ Composite Index, the S&P Healthcare Equipment Select Industry Index (SPSIHE) and the NASDAQ Biotechnology Index for the period from September 15, 2020 (the first day of trading of our common stock) through December 31, 2022.
The following graph compares the cumulative total return on our common stock relative to the cumulative total returns of the NASDAQ Composite Index and the S&P Healthcare Equipment Select Industry Index (SPSIHE) for the period from September 15, 2020 (the first day of trading of our common stock) through December 31, 2023.
Holders of Common Stock As of January 31, 2023, there were 117 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.
Holders of Common Stock As of February 15, 2024, there were 102 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.
Note that historic stock price performance is not necessarily indicative of future stock price performance. 62 Recent Sales of Unregistered Securities None. Issuer Purchases or Equity Securities None. Item 6. [ R eserved]. 63
The offering price of our common stock in our initial public offering (IPO), which had a closing stock price of $60.68 on September 15, 2020, was $27.00 per share. Note that historic stock price performance is not necessarily indicative of future stock price performance. 64 Recent Sales of Unregistered Securities None. Issuer Purchases or Equity Securities None.
Removed
In our prior Form 10-Ks we utilized the NASDAQ Biotechnology Index as the industry index for comparison. In our performance graph below for the year ended December 31, 2022, we added SPSIHE, which will replace our comparison to the NASDAQ Biotechnology Index in future periods.
Removed
We believe that the new index provides for greater comparability as it is better aligned with our industry and business. Total return comparisons for both the prior index and new index are included in the performance graph below. The graph assumes an investment of $100 on September 15, 2020 and its relative performance is tracked through December 31, 2022.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following table sets forth, for the years indicated, our results of operations (in thousands): Years Ended December 31, 2022 2021 2020 Revenue: Product revenue $ 93,388 $ 84,312 $ 39,612 Service and other revenue 21,987 18,290 10,323 Total revenue 115,375 102,602 49,935 Cost of revenue: Cost of product revenue 82,510 84,639 57,035 Cost of service and other revenue 15,032 10,355 5,937 Total cost of revenue 97,542 94,994 62,972 Gross profit 17,833 7,608 (13,037 ) Operating expenses: Research and development 48,855 36,741 28,850 Sales and marketing 89,482 65,070 45,068 General and administrative 40,515 36,316 30,512 Total operating expenses 178,852 138,127 104,430 Loss from operations (161,019 ) (130,519 ) (117,467 ) Interest income and other income, net 3,291 498 526 Interest expense (3,566 ) (1,715 ) (2,891 ) Loss on extinguishment of term loan (1,367 ) — (1,567 ) Change in fair value of redeemable convertible preferred stock warrant liability — — (93 ) Loss before provision for income taxes (162,661 ) (131,736 ) (121,492 ) Provision for income taxes 295 199 — Net loss $ (162,956 ) $ (131,935 ) $ (121,492 ) Revenue Years Ended December 31, Change (dollars in thousands) 2022 2021 $ % Revenue: Product revenue $ 93,388 $ 84,312 $ 9,076 11 % Service and other revenue 21,987 18,290 3,697 20 % Total revenue $ 115,375 $ 102,602 12,773 12 % Product revenue increased by $9.1 million, or 11%, for the year ended December 31, 2022 as compared to the prior year.
Biggest changeResults of Operations In this section, we discuss the results of our operations for the year ended December 31, 2023 compared to the year ended December 31, 2022. 70 The following table sets forth, for the years indicated, our results of operations (in thousands): Years Ended December 31, 2023 2022 2021 Revenue: Product revenue $ 103,537 $ 93,388 $ 84,312 Service and other revenue 26,839 21,987 18,290 Total revenue 130,376 115,375 102,602 Cost of revenue: Cost of product revenue 74,454 82,510 84,639 Cost of service and other revenue 26,922 15,032 10,355 Total cost of revenue 101,376 97,542 94,994 Gross profit 29,000 17,833 7,608 Operating expenses: Research and development 57,307 48,855 36,741 Sales and marketing 96,232 89,482 65,070 General and administrative 45,231 40,515 36,316 Total operating expenses 198,770 178,852 138,127 Loss from operations (169,770 ) (161,019 ) (130,519 ) Interest income and other income, net 10,171 3,291 498 Interest expense (12,675 ) (3,566 ) (1,715 ) Loss on extinguishment of term loan — (1,367 ) — Loss before provision for income taxes (172,274 ) (162,661 ) (131,736 ) Provision for income taxes 523 295 199 Net loss $ (172,797 ) $ (162,956 ) $ (131,935 ) Revenue Years Ended December 31, Change (dollars in thousands) 2023 2022 $ % Revenue: Product revenue $ 103,537 $ 93,388 $ 10,149 11 % Service and other revenue 26,839 21,987 4,852 22 % Total revenue $ 130,376 $ 115,375 15,001 13 % Product revenue increased by $10.1 million, or 11%, for the year ended December 31, 2023 as compared to the prior year.
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, the Tablo® Hemodialysis System frees patients and providers from the burdensome infrastructure required to operate traditional dialysis machines.
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, Tablo® Hemodialysis System (Tablo) frees patients and providers from the burdensome infrastructure required to operate traditional dialysis machines.
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 66 using Tablo and, as full-time staff is hired, to help train and onboard those nurses.
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.
We continue to use our design, engineering, and manufacturing capabilities to further advance and improve the efficiency of our 67 manufacturing processes, which, if successful, we believe will lower production costs and enable us to increase our gross margin.
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 costs and enable us to increase our gross margin.
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.
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.
The net cash outflow from operating assets and liabilities was primarily due to an increase in inventories due to the timing of inventory purchases including advance purchases of inventory to mitigate supply chain disruptions, a decrease in accrued payroll and related benefits, an increase in accounts receivable due to timing of collections, a decrease in accounts payable due to timing of vendor payments, an increase in prepaid expenses and other assets, and a decrease in operating lease liabilities.
The net cash outflow from operating assets and liabilities was primarily due to an increase in inventories due to the timing of inventory purchases including advance purchases of inventory to mitigate supply chain disruptions, a decrease in accrued compensation and related benefits, an increase in accounts receivable due to timing of collections, a decrease in accounts payable due to timing of vendor payments, an increase in prepaid expenses and other assets, and a decrease in operating lease liabilities.
Our sales organization is comprised of our capital sales team, responsible for generating new customer demand for Tablo, and 64 our clinical sales team, responsible for driving utilization and fleet expansion of Tablo consoles at existing customer sites. In addition, our field service team provides maintenance services and product support to Tablo customers.
Our sales organization is comprised of our capital sales team, responsible for generating new customer demand for Tablo, and our clinical sales team, responsible for driving utilization and fleet expansion of Tablo at existing customer sites. In addition, our field service team provides maintenance services and product support to our customers.
In May 2022, we implemented a shipment hold on the distribution and marketing of Tablo for use in the home environment pending the FDA’s review and clearance of a 510(k) application we submitted for changes made since the device’s original March 2020 clearance.
Recent Developments In May 2022, we implemented a shipment hold on the distribution and marketing of Tablo for use in the home environment pending the FDA’s review and clearance of a 510(k) application we submitted for changes made since the device’s original March 2020 clearance.
Consumables, including Tablo cartridges, 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.
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.
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 compensation and personnel costs, regulatory fees, consulting services, laboratory supplies and materials expenses, and infrastructure costs including facilities, depreciation and information technology.
While we expect gross margin to increase over the long term, we also anticipate it will likely fluctuate from quarter to quarter. 69 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.
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 and health systems who are motivated to grow their home hemodialysis population, and who share our vision of creating a seamless and supported transition to the home.
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.
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, 2021 for reference to discussion of the year ended December 31, 2020, the earliest of the three fiscal years 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, 2022 for reference to discussion of the year ended December 31, 2022, the earliest of the three fiscal years presented.
We have generated meaningful evidence to demonstrate that providers can realize significant operational efficiencies, including reducing the cost of their dialysis programs by up to 80% in the ICU. In addition, Tablo has been shown to deliver robust clinical care.
We have generated meaningful evidence to demonstrate that providers can realize significant operational efficiencies, including reducing the cost of their dialysis programs by up to 80% in the intensive care unit. In addition, Tablo has been shown to deliver robust clinical care.
We believe that our existing cash, cash equivalents and short-term investments, cash generated from sales, and proceeds received and currently available from the recent debt financing described below under “Debt Obligations ‒ SLR Debt Financing”, will be sufficient to meet our anticipated needs for at least the next 12 months from the issuance date of this Annual Report.
We believe that our existing cash, cash equivalents and short-term investments, cash generated from sales, and proceeds received from the debt financing described below under “Debt 72 Obligations ‒ SLR Debt Financing”, will be sufficient to meet our anticipated needs for at least the next 12 months from the issuance date of this Annual Report.
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.
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.
We recently launched a new 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 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.
We repaid in full all amounts due under the SVB Term Loan, including the early repayment fee of $0.3 million and the final payment of $2.0 million, using a portion of the proceeds of the SLR Credit Facilities. Critical Accounting Policies and Estimates Our financial statements have been prepared in accordance with U.S. GAAP.
In November 2022, we terminated the SVB Term Loan and repaid in full all amounts due under such loan, including the early repayment fee of $0.3 million and the final payment of $2.0 million, using a portion of the proceeds of the SLR Credit Facilities. Critical Accounting Estimates Our financial statements have been prepared in accordance with U.S. GAAP.
We determine the 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 customer service agreements.
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.
Loss on Extinguishment of Term Loan 68 Loss on extinguishment of term loan is related to the repayment of the Perceptive Term Loan in July 2020 and the SVB Term Loan in November 2022, which included early prepayment and exit fees. Provision for Income Taxes Provision for income taxes primarily consists of foreign taxes in Mexico.
Loss on Extinguishment of Term Loan Loss on extinguishment of term loan is related to the repayment of the SVB Term Loan in November 2022, which included early prepayment and exit fees. Provision for Income Taxes Provision for income taxes primarily consists of foreign taxes in Mexico.
We expect our gross margin to increase over the long term to the extent that we are successful in our ability to lower the costs associated with the production and service of the Tablo console and consumables, that we generate recurring revenues from sales of our consumables, and that we can lower cost of service and other revenue as a percentage of revenue.
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.
Our field sales and service teams represent 47% of our total full-time employees as of December 31, 2022. The same sales organization and field service team drive Tablo penetration in both the acute and home markets.
Our field sales and service teams represent 48% of our total full-time employees as of December 31, 2023. The same sales organization and field service team drive Tablo penetration in both the acute and home markets.
If we achieve a certain net revenue milestone, calculated on a trailing six-month basis (First Revenue Milestone), on or before June 30, 2024 and the Additional Tranche (as defined below) under the SLR Revolver has been approved, we will be permitted to borrow up to $250.0 million under the SLR Credit Facilities.
If we achieve a certain net revenue milestone, calculated on a trailing six-month basis (First Revenue Milestone), on or before June 30, 2024 and the Additional Tranche (as defined below) under the SLR Revolver has been approved, we will be permitted to borrow up to an additional $50.0 million under the SLR Credit Facilities (i.e., a maximum amount of $250.0 million).
The net cash outflow from operating assets and liabilities was partially offset by an increase in deferred revenue due to the growth of our business and an increase in accrued expenses and other current 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 an increase in accrued expenses and other current liabilities.
If we achieve a subsequent additional net revenue milestone, calculated on a trailing six-month basis (Second Revenue Milestone), on or before June 30, 2025 and obtain lenders' credit approval, we will be permitted to borrow up to $300.0 million under the SLR Credit Facilities.
If we achieve a subsequent additional net revenue milestone, calculated on a trailing six-month basis (Second Revenue Milestone), on or before June 30, 2025 and obtain lenders' credit approval, we will be permitted to further borrow up to an additional $50.0 million under the SLR Credit Facilities (i.e., a maximum amount of $300.0 million).
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.
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.
Our gross profit has been and will continue to be, affected by a variety of factors, including market conditions that may impact our pricing; sales mix changes among consoles, consumables, and services; excess and obsolete inventories; our cost structure for manufacturing operations relative to volume; inbound freight costs, and product warranty obligations.
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.
The increase was primarily due to a $9.6 million increase in consumables revenue attributable to the growth in our console installed base.
The increase was primarily due to a $13.4 million increase in consumables revenue attributable to the growth in our console installed base.
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.
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.
For example, during 2022, our existing and potential customers faced increasing staffing shortages and 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.
During 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.
The gross margin percentage improved by 8.1 percentage points for the year ended December 31, 2022 as compared to the prior year. This improvement in gross margin was primarily driven by the impact of our console cost reduction activities and a higher average selling price for consoles.
The gross margin percentage improved by 6.7 percentage points for the year ended December 31, 2023 as compared to the prior year. This improvement in gross margin was primarily driven by the impact of cost reduction activities and a higher average selling price for both consoles and consumables.
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.
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.
As a result, we expect sales and marketing expenses to increase in absolute dollars in future periods. As a percentage of revenue, however, we expect sales and marketing expenses to continue to decrease over the long-term primarily as, and to the extent, our revenue grows.
As a percentage of revenue, however, we expect sales and marketing expenses to continue to decrease over the long-term primarily as, and to the extent, our revenue grows.
Net cash used in operating activities of $130.3 million for the year ended December 31, 2021 was due to a net loss of $131.9 million and a net cash outflow from the change in our operating assets and liabilities of $25.6 million, partially offset by the primary non-cash adjustments for stock-based compensation expense of $17.4 million, depreciation and amortization of $5.2 million, accretion of discount on investments of $2.0 million, non-cash lease expense of $1.0 million, provision for inventories of $1.0 million, and non-cash interest expense of $0.6 million.
Net cash used in operating activities of $145.7 million for the year ended December 31, 2022 was due to a net loss of $163.0 million and a net cash outflow from the change in our operating assets and liabilities of $21.1 million, partially offset by the primary non-cash adjustments for stock-based compensation expense of $27.2 million, depreciation and amortization of $5.2 million, provision for inventories of $2.6 million, loss on extinguishment of term loan of $1.4 million, non-cash lease expense of $1.1 million, accretion of discount on investments of $0.4 million, and non-cash interest expense of $0.4 million.
As of December 31, 2022, we had $100.0 million outstanding under the SLR Term Loan Facility. 72 SVB Term Loan We entered into the SVB Loan and Security Agreement with SVB in July 2020, which provides for a $30.0 million term loan (the SVB Term Loan).
No amounts were outstanding under the SLR Revolver as of December 31, 2023. SVB Term Loan We entered into the SVB Loan and Security Agreement with SVB in July 2020, which provides for a $30.0 million term loan (the SVB Term Loan).
The loss on extinguishment of term loan of $1.4 million was recognized for the repayment of the SVB Term Loan in 2022, which included early prepayment and exit fees. 70 Liquidity and Capital Resources Sources of Liquidity As of December 31, 2022, we had cash, cash equivalents, and short-term investments of $287.5 million, which are available to fund future operations, and restricted cash of $3.3 million, for a total cash, cash equivalents, restricted cash and short-term investments balance of $290.8 million.
The loss on extinguishment of term loan of $1.4 million in 2022 was recognized for the repayment of the SVB Term Loan, which included early prepayment and exit fees. Liquidity and Capital Resources Sources of Liquidity As of December 31, 2023, we had a total cash, cash equivalents, restricted cash and short-term investments balance of $206.7 million.
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 policies are most important to understanding and evaluating our reported financial results. Revenue Recognition We generate our revenue primarily from contracts with customers for the sale of products and services.
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. 74 Revenue Recognition Our contracts with customers often include multiple performance obligations, such as products and services.
If our customers continue to face prolonged staffing shortages, volatility, uncertainty, rising costs and financial pressures, whether due to the ongoing effects of the pandemic, general macroeconomic conditions or otherwise, it could ultimately adversely impact our ability to expand existing customer relationships or attract new customers of Tablo, and have a material adverse effect on our bookings, revenues, results of operations, and, ultimately, our future growth and profitability.
However, if our customers continue to face prolonged periods of rising interest rates, capital budget constraints, volatility, uncertainty, staffing shortages, rising costs and other financial pressures, whether due to general macroeconomic conditions 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.
Cash Flows Summary The following table summarizes the cash flows for each of the periods indicated (in thousands): Years Ended December 31, 2022 2021 2020 Net cash provided by (used in): Operating activities $ (145,729 ) $ (130,264 ) $ (99,015 ) Investing activities (66,295 ) (142,507 ) 3,947 Financing activities 72,898 160,147 385,682 Net increase (decrease) in cash, cash equivalents and restricted cash $ (139,126 ) $ (112,624 ) $ 290,614 Operating Activities Net cash used in operating activities of $145.7 million for the year ended December 31, 2022 was due to a net loss of $163.0 million and a net cash outflow from the change in our operating assets and liabilities of $21.1 million, partially offset by the primary non-cash adjustments for stock-based compensation expense of $27.2 million, depreciation and amortization of $5.2 million, provision for inventories of $2.6 million, loss on extinguishment of term loan of $1.4 million, non-cash lease expense of $1.1 million, accretion of discount on investments of $0.4 million, and non-cash interest expense of $0.4 million.
Cash Flows Summary The following table summarizes the cash flows for each of the periods indicated (in thousands): Years Ended December 31, 2023 2022 2021 Net cash (used in) provided by: Operating activities $ (131,373 ) $ (145,729 ) $ (130,264 ) Investing activities 83,026 (66,295 ) (142,507 ) Financing activities 43,652 72,898 160,147 Net decrease in cash, cash equivalents and restricted cash $ (4,695 ) $ (139,126 ) $ (112,624 ) Operating Activities 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.
Service and other revenue increased by $3.7 million, or 20%, for the year ended December 31, 2022 as compared to the prior year.
Service and other revenue increased by $4.9 million, or 22%, for the year ended December 31, 2023 as compared to the prior year.
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 redeemable convertible preferred stock and common stock, revenue from sales, debt financings, and proceeds from stock option exercises and employee stock purchases.
To date, we have financed our operations and capital expenditures primarily through sales of redeemable convertible preferred stock and common stock, revenue from sales, debt financings, and proceeds from employee exercises of stock options and employee stock purchase plan purchases.
We believe that transitioning production of a majority of Tablo cartridges during 2022 to a contract manufacturer in Mexico helped us achieve cost reductions through lower freight costs, and that our recent efforts to initiate production of cartridges in-house at our manufacturing facility in Mexico which we operate in collaboration with TACNA will help further our long-term gross margin expansion and supply continuity strategies and improve the flexibility of our operations.
Moreover, we believe that localizing production of a majority of Tablo cartridges in Mexico (to our Mexico-based contract manufacturer and, more recently, 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.
We plan to continue to invest in our research and development efforts, including hiring additional employees, to enhance existing products and develop new products. As a percentage of revenue, we expect research and development expenses to vary over time, depending on the level and timing of the enhancement of the existing products and new product development initiatives.
We plan to continue to invest in our research and development efforts to grow our economic and clinical evidence, enhance existing products and develop new products and service offerings and expect research and development expenses to vary over time, depending on the level and timing of the enhancement of the existing products and new product or service development initiatives.
Sales and marketing expenses increased by $24.4 million, or 38% for the year ended December 31, 2022 as compared to the prior year. The increase was primarily driven by higher headcount, resulting in increased payroll-related and stock-based compensation expense and increased infrastructure costs to support our growth.
Sales and marketing expenses increased by $6.8 million, or 8% for the year ended December 31, 2023 as compared to the prior year. The increase was primarily driven by compensation-related and stock-based compensation expense and infrastructure costs to support our growth. In addition, there were higher freight and marketing expenses due to an increase in sales and marketing activities.
Net cash used in investing activities of $142.5 million for the year ended December 31, 2021 was due primarily to purchases of investment securities of $178.4 million and purchases of property and equipment of $3.1 million, partially offset by the sales and maturities of investment securities of $39.0 million.
Net cash used in investing activities of $66.3 million for the year ended December 31, 2022 was due primarily to purchases of investment securities of $261.2 million and purchases of property and equipment of $8.3 million, partially offset by the maturities of investment securities of $203.2 million.
The SLR Revolving Credit Agreement provides for an asset-based revolving credit facility with aggregate revolving commitments of $25.0 million (the Initial Revolver Commitment). We may request to increase the aggregate revolving commitments by $25.0 million (the Additional Tranche) to an aggregate amount of $50.0 million, subject to ABL Lender’s approval.
We may request to increase the aggregate revolving commitments by $25.0 million (the Additional Tranche) to an aggregate amount of $50.0 million, subject to ABL Lender’s approval.
The increase in interest expense for the year ended December 31, 2022 as compared to the prior year was due to higher Prime Rate in 2022, which was the base interest rate used for the SVB Term Loan, and the higher interest expense and outstanding balance under the SLR Term Loan Facility.
The increase in interest expense for the year ended December 31, 2023 as compared to the prior year was due to the increase in interest rate and a full year of outstanding balance under the SLR Term Loan Facility in 2023 as compared to only two months of outstanding balance of such facility in 2022.
We use this data, in conjunction with our diagnostic and predictive algorithms, to determine failure types and, in some instances, predict failures before they occur. In effect, this contributes to a reduction in service hours and an increase in device uptime.
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.
Sales and Marketing Sales and marketing expenses primarily consist of compensation and personnel costs, including sales commissions and travel. Other sales and marketing expenses include marketing and promotional activities, government affairs, costs of outside consultants, customer services costs, and infrastructure costs including facilities, depreciation, and information technology.
Other sales and marketing expenses include marketing and promotional activities, government affairs, 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.
Tablo leverages cloud technology, making it possible for providers to monitor devices and treatments remotely, perform patient and population analytics, and automate clinical recordkeeping, while also enabling us to release features and enhancements through over-the-air updates. Tablo’s connectedness also allows it to continually stream more than 500,000 device performance data points after every treatment.
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.
Debt Obligations SLR Debt Financing On November 3, 2022 (the Closing Date), we entered into two senior secured credit facilities, which collectively provide for borrowings of up to $300.0 million: (i) a term loan facility pursuant to a loan and security agreement (the SLR Loan Agreement) among SLR Investment Corp., as collateral agent (Agent), the lenders from time to time party thereto (the Term Loan Lenders) and us (the SLR Term Loan Facility), and (ii) an 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).
Net cash provided by financing activities of $72.9 million for the year ended December 31, 2022 was due primarily to the net proceeds of $96.1 million from borrowings under the SLR Term Loan Facility and the proceeds of $8.0 million from employee exercises of stock options and employee stock purchase plan purchases, partially offset by the cash outflow of $31.2 million in repayment of the SVB Term Loan which included early prepayment and exit fees. 73 Debt Obligations SLR Debt Financing On November 3, 2022 (the Closing Date), 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 (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).
Pursuant to the terms and conditions of the SLR Loan Agreement, the Term Loan Lenders agreed to extend term loans to us in an aggregate principal amount of up to $250.0 million, comprised of (i) a term loan of $100.0 million (the Term A Loan), (ii) one or more term loans (in minimum increments of $20.0 million each) in the aggregate of up to $100.0 million (each, a Term B Loan) and (iii) one or more term loans in the aggregate of up to $50.0 million (each, a Term C Loan).
Under the SLR Loan Agreement, as subsequently amended on December 11, 2023, the Term Loan Lenders agreed to extend term loans to us in an aggregate principal amount of up to $250.0 million, comprised of (i) a term loan of $100.0 million (the Term A Loan), (ii) term loans in an aggregate principal amount of up to $100.0 million that was provided for in two increments, one of $33.5 million (the Term B-1 Loan) and one of $66.5 million (the Term B-2 Loan) and (iii) one or more term loans in an aggregate principal amount of up to $50.0 million (the Term C Loans).
Our product and services revenues are generated primarily through direct sales to customers in the United States. Product Revenue We generate product revenue from the sale, and to a lesser extent, leasing of our Tablo consoles and the sale of related consumables, including Tablo cartridges. Our Tablo consoles and consumables are generally sold without the right of return.
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.
Other Income (Expenses), Net Years Ended December 31, Change (dollars in thousands) 2022 2021 $ % Other income (expenses), net: Interest income and other income, net $ 3,291 $ 498 $ 2,793 561 % Interest expense (3,566 ) (1,715 ) (1,851 ) 108 % Loss on extinguishment of term loan (1,367 ) — (1,367 ) * Total other expenses, net $ (1,642 ) $ (1,217 ) (425 ) 35 % * Not meaningful The increase in interest income and other income, net, for the year ended December 31, 2022 as compared to the prior year was driven by higher interest rates and higher average short-term investments balance in 2022.
Other Income (Expenses), Net Years Ended December 31, Change (dollars in thousands) 2023 2022 $ % Other income (expenses), net: Interest income and other income, net $ 10,171 $ 3,291 $ 6,880 209 % Interest expense (12,675 ) (3,566 ) (9,109 ) 255 % Loss on extinguishment of term loan — (1,367 ) 1,367 * Total other expenses, net $ (2,504 ) $ (1,642 ) (862 ) 52 % The increase in interest income and other income, net, for the year ended December 31, 2023 as compared to the prior year was driven by higher interest rates.
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. We may offer additional goods or services to customers at the inception of customer contracts at prices not at SSP.
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.
Financing Activities Net cash provided by financing activities of $72.9 million for the year ended December 31, 2022 was due primarily to the net proceeds of $96.1 million from borrowings under the SLR Term Loan Facility and the proceeds of $8.0 million from employee exercises of stock options and employee stock purchase plan purchases, partially offset by the cash outflow of $31.2 million in repayment of the SVB Term Loan which included early prepayment and exit fees.
Financing Activities 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.
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, 2022 compared to the year ended December 31, 2021.
We have a full valuation allowance for deferred tax assets, including net operating loss carryforwards and tax credits related primarily to research and development.
The maximum amount we are permitted to borrow under the SLR Credit Facilities is subject to certain overall borrowing limitations. We are permitted to borrow up to $200.0 million under the SLR Credit Facilities on the Closing Date.
The maximum amount we are permitted to borrow under the SLR Credit Facilities is subject to certain overall borrowing limitations. As described in further detail below, we have already borrowed $200.0 million of term loans.
This increase was partially offset by a net $0.5 million decrease in console revenue which was primarily comprised of a $2.7 million decrease in console leasing revenue due to the expiration of certain lease agreements, substantially offset by a higher average selling price for consoles.
This increase was partially offset by a $3.3 million decrease in console revenue which was primarily comprised of a $1.7 million decrease in console leasing revenue due to the expiration of certain lease agreements and lower number of consoles sold in the current year as compared to the prior year.
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.
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. We have generally seen some stabilization in these challenging labor market dynamics for healthcare providers in 2023 as compared to the prior year.
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 will be subject to an increase in our interest expense which may negatively affect our cash flow. 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.
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 generate revenue primarily from the initial sale of Tablo consoles, and recurring sales of consumables, including the Tablo cartridge, which generates significant total revenue over the life of the console.
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.
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 to continue to invest in our sales and support teams, marketing, and shipping and handling costs.
As we continue to drive the expansion of Tablo, we expect shipping and handling costs to also increase. Additionally, we will continue to invest in infrastructure to support our growth. As a result, we expect sales and marketing expenses to increase in absolute dollars in future periods.
During late 2021, these supply chain disruptions escalated, and, as a result, we faced increased supply chain constraints, notably with the transportation of Tablo cartridges from our contract manufacturing partner in Southeast Asia.
We faced increased supply chain constraints during late 2021, resulting in increased transportation and related costs associated with delivering adequate supply of Tablo treatments to our customers from our contract manufacturing partner in Southeast Asia. During 2023, we saw moderation in these costs.
Our ability to successfully execute on this strategy, and thereby increase our revenue in the acute market, will depend in part on the success of our efforts to further evolve our commercial infrastructure and sales processes to support the growth of our business in the acute care market.
Our ability to successfully execute on this strategy, and thereby increase our revenue in the acute market, will depend on several factors.
In addition, the program may not generate sufficient returns to justify our investment, or may result in unanticipated costs, which could adversely impact our operating margins and results of operations. Components of Operating Results Revenue We generate our revenue primarily from the sale of products and services.
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.
However, there is no assurance that we will not continue to face supply chain constraints. Continued escalation of these supply chain disruptions 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.
However, we may face increased supply 68 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. Components of Operating Results Revenue We generate our revenue primarily from the sale of products and services.
Operating Expenses Years Ended December 31, Change (dollars in thousands) 2022 2021 $ % Operating expenses: Research and development $ 48,855 $ 36,741 $ 12,114 33 % Sales and marketing 89,482 65,070 24,412 38 % General and administrative 40,515 36,316 4,199 12 % Total operating expenses $ 178,852 $ 138,127 40,725 29 % Research and development expenses increased by $12.1 million, or 33%, for the year ended December 31, 2022 as compared to the prior year.
Operating Expenses Years Ended December 31, Change 71 (dollars in thousands) 2023 2022 $ % Operating expenses: Research and development $ 57,307 $ 48,855 $ 8,452 17 % Sales and marketing 96,232 89,482 6,750 8 % General and administrative 45,231 40,515 4,716 12 % Total operating expenses $ 198,770 $ 178,852 19,918 11 % Research and development expenses increased by $8.5 million, or 17%, for the year ended December 31, 2023 as compared to the prior year.
The net cash outflow from operating assets and liabilities was primarily due to an increase in inventories due to the timing of inventory purchases including advance purchases of inventory to meet anticipated demand and to mitigate supply chain disruptions, an increase in accounts receivable due to timing of collections, a decrease in accounts payable due to timing of vendor payments and a decrease in operating lease liabilities.
The net cash outflow from operating assets and liabilities was primarily due to an increase in accounts receivable due to 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.
General and Administrative General and administrative expenses primarily consist of compensation and personnel costs, accounting and legal expenses, general corporate expenses, employee recruiting and training costs, and infrastructure costs including facilities, depreciation, and information technology. We expect to incur additional general and administrative expenses due to increased costs for accounting, human resources, legal, insurance and investor relations.
General and Administrative General and administrative expenses primarily consist of personnel and related costs, accounting and legal expenses, general corporate expenses, employee recruiting and training costs, 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.
These increases were partially offset by lower consulting expenses.
These increases were partially offset by lower insurance expense and lower supplies and materials.
The increase was primarily due to services associated with the growth in our console installed base, which was offset by a decrease in service revenue from leased consoles due to the expiration of certain lease agreements. 69 Gross Profit and Gross Margin Years Ended December 31, Change (dollars in thousands) 2022 2021 $ % Gross profit and gross margin: Gross profit $ 17,833 $ 7,608 $ 10,225 134 % Gross margin 15.5 % 7.4 % Gross profit increased by $10.2 million, or 134%, for the year ended December 31, 2022 as compared to the prior year.
The increase was primarily due to services associated with the growth in our console installed base, which was partially offset by a $4.1 million decrease in service revenue from leased consoles due to the expiration of certain lease agreements.
In late July 2022, the FDA cleared our 510(k) application of Tablo for patient use in the home and we resumed marketing and shipping Tablo for home use. Driving adoption of Tablo in the acute care setting has been our primary focus to date.
In late July 2022, the FDA cleared our 510(k) application of Tablo for patient use in the home and we resumed marketing and shipping Tablo for home use. In July 2023, we received a warning letter (the “Warning Letter”) from the FDA that raised two observations.
These increases were primarily due to higher headcount, resulting in increased payroll-related and stock-based compensation expense and increased infrastructure costs to support our growth. In addition, there were higher consulting and travel expenses to support our product research and development activities.
This increase was primarily due to compensation-related and stock-based compensation expense, supplies and materials used to support our research and development efforts, and infrastructure costs to support our growth. These increases were partially offset by lower consulting expenses.
Third, we will continue to use our design, engineering and manufacturing capabilities to help further advance and improve the efficiency of our manufacturing processes and lower our costs of production. 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.
Further, we will continue to utilize our cloud-based data system, as well as enhanced product performance, to better support our field service team and drive down service costs per console.
In addition, there were higher freight, travel, consulting, and marketing expenses due to an increase in sales and marketing activities. General and administrative expenses increased by $4.2 million, or 12%, for the year ended December 31, 2022 as compared to the prior year.
These increases were partially offset by lower travel and consulting expenses. General and administrative expenses increased by $4.7 million, or 12%, for the year ended December 31, 2023 as compared to the prior year. The increase was primarily driven by compensation-related and stock-based compensation expense and consulting expenses.
For the years ended December 31, 2022, 2021 and 2020, sales of our consoles accounted for 56%, 63% and 66% of our revenue, respectively, sales of our consumables accounted for 25%, 19% and 13% of our revenue, respectively, and sales of services and other accounted for 19%, 18% and 21% of our revenue, respectively.
For the years ended December 31, 2023, 2022, and 2021, sales of our consumables accounted for 32%, 25% and 19% of our revenue, respectively, and sales of service and other accounted for 21%, 19% and 18% of our revenue, respectively. 66 We primarily sell our solutions through our direct sales organization, which covers most major metropolitan markets in the United States.
The Term C Loan(s) are available subject to the lenders’ credit approval and the achievement of the Second Revenue Milestone on or before June 30, 2025. The Term C Loan will remain available for funding until one business day prior to November 1, 2027.
As a result, the outstanding principal amount under the SLR Term Loan Facility is $200.0 million as of the date of this Annual Report. The Term C Loans are available subject to lenders’ credit approval and the achievement of the Second Revenue Milestone on or before June 30, 2025.
As a result of these and other initiatives, we expect general and administrative expenses to vary from period to period and increase in absolute dollars in future periods. However, 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.
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.
To demonstrate the cost advantages of Tablo in the home setting, we are continuing to collect additional patient clinical experience and outcomes data. We sell our solution through our direct sales organization, which covers most major metropolitan markets in the United States.
To demonstrate the cost advantages of Tablo in the home setting, we are continuing to collect additional patient clinical experience and outcomes data. 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.
As a result, we cannot predict what effect COVID-19, the associated containment measures, and the related supply chain disruptions will ultimately have on our business and result of operations, on our customers, or on our suppliers and vendors.
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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAn immediate 100 basis point change in the term SOFR 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 USD.
Biggest changeOn an annualized basis, a 100-basis point change in the term SOFR rate would change our interest expense by $2.0 million based upon our debt outstanding balance of $200 million as of January 31, 2024 (including the $66.5 million received in January 2024). Foreign Currency Exchange Risk Our expenses are generally denominated in USD.
However, as certain of our Mexico-based manufacturing operations incur costs that are denominated in MXN, we are exposed to the risk of currency fluctuations between USD and MXN. To date, foreign currency transaction gains and losses have not been material to our financial statements.
However, as certain of our Mexico-based manufacturing operations incur costs that are denominated in MXN and we held cash in MXN, we are exposed to the risk of currency fluctuations between USD and MXN. To date, foreign currency transaction gains and losses have not been material to our financial statements.
We do not believe that an immediate 10% increase or decrease in the relative value of USD to other currencies would have a material effect on operating results or financial condition. 74
We do not believe that an immediate 10% increase or decrease in the relative value of USD to other currencies would have a material effect on operating results or financial condition. 75
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 December 31, 2022, we had $100.0 million in variable rate debt outstanding under the SLR Term Loan Facility.
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 December 31, 2023, we had $133.5 million in variable rate debt outstanding under the SLR Term Loan Facility.
The SLR Term Loan Facility bears interest at a rate per annum equal to one-month term Secured Overnight Financing Rate (term SOFR (subject to a 2.75% floor), plus 5.15%. The SLR Term Loan Facility matures on November 1, 2027.
Subsequently, we borrowed and received an additional $66.5 million in January 2024. The SLR Term Loan Facility bears interest at a rate per annum equal to one-month term Secured Overnight Financing Rate (term SOFR) (subject to a 2.75% floor), plus 5.15%. The SLR Term Loan Facility matures on November 1, 2027.

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