SAN JOSE, CA – Outset Medical (TASE:PMCN), Inc. (NASDAQ:OM), a medical technology company with a market capitalization of $52 million, announced the closure of a private placement offering and the issuance of Series A Non-Voting Convertible Preferred Stock on Wednesday.
According to InvestingPro data, the company has been experiencing rapid cash burn, making this financing crucial for its operations. The company also reported the termination of its existing senior secured credit facilities and the creation of a new financial obligation with Perceptive Credit Holdings IV, LP.
The private placement, which closed today, involved the sale of 863,340 shares of Series A Preferred Stock to various investors, including members of management and the company's Board of Directors. This financing comes as the stock has seen significant volatility, with the share price falling nearly 80% over the past year, though InvestingPro analysis suggests the stock may be undervalued at current levels.
Concurrently, Outset Medical borrowed $100 million as an initial term loan from Perceptive Credit Holdings IV, LP, using the proceeds alongside its cash reserves to repay existing debts under its senior secured credit facilities with SLR Investment Corp. and Gemino Healthcare Finance, LLC, both dated November 3, 2022.
In addition to the loan, Outset Medical issued a warrant for the purchase of 5,625,000 shares of its common stock, with an exercise price of $0.80 per share. Should the company draw an additional delayed term loan of up to $25 million, further warrants will be issued for purchasing additional shares of common stock.
The company has amended its Articles of Incorporation in Delaware, detailing the rights and limitations of the Series A Preferred Stock. The shares accrue dividends at an annual rate of 8%, compounded annually, increasing by 2% each year if stockholder approval for conversion into common stock is not obtained.
The Series A Preferred Stock ranks senior to common stock in asset distributions upon company liquidation until stockholder approval for conversion is received. After approval, each share of Series A Preferred Stock will automatically convert into 250 shares of common stock, subject to ownership limitations.
This strategic financial restructuring aims to strengthen Outset Medical's balance sheet and support its continued growth in the electromedical and electrotherapeutic apparatus sector. While the company maintains a healthy current ratio of 6.49, analysts anticipate a sales decline in the current year.
The company's Q3 revenue reached $28.7 million, surpassing guidance with treatment revenue up by 14% and service revenue by 22%. Year-to-date recurring revenue increased by 23%, and the company raised its 2024 revenue guidance to approximately $112 million. Despite reporting a net loss of $20.2 million for the quarter, this was a marked improvement from the previous year, and the company's gross margin improved to 36.4%.
Outset Medical's resilience in the face of natural disasters and ongoing commercial transformation were also highlighted. The company remains optimistic about long-term growth, with a strong order pipeline and nearly half of its deals in advanced sales stages. However, no specific guidance for 2025 was provided during the call. The company's focus on improving sales processes and targeting is expected to yield full benefits in early 2025.
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