Outset Medical, Inc. Commitments Disclosure
6. Commitments and Contingencies
Leases
In September 2019, the Company entered into an operating lease agreement for its facility and office space in San Jose, CA that commenced in April 2020 and expires in March 2027. This operating lease contains a free rent period and an escalation clause. The landlord provided the Company with a tenant improvement allowance of up to $2.0 million. The Company issued an irrevocable standby letter of credit in the amount of $0.3 million in lieu of a cash security deposit. The letter of credit is fully secured by cash held at the bank in a restricted account.
In May 2020, the Company entered into an operating lease agreement for its manufacturing facility in Tijuana, Mexico that commenced in May 2020. This operating lease contains a free rent period and an escalation clause. The Company issued an irrevocable standby letter of credit in the amount of $3.0 million, in lieu of a cash security deposit. The letter of credit is fully secured by cash held at the bank in a restricted account. In December 2025, the Company determined that it was reasonably certain that the Company would exercise one of the two five-year renewal options and re-measured the related operating lease liabilities with the adjustment to the ROU assets accordingly. With the expected renewal, the lease will expire in .
In May 2023, the Company entered into on an operating lease agreement for office space in Tijuana, Mexico for certain research and development and general and administrative activities. The lease will expire in 2028.
All three building leases include renewal options at the election of the Company to renew or extend the lease. The Company evaluates renewal options at lease inception and on an ongoing basis and includes renewal options that it is reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities.
In December 2025, the Company entered into a master lease agreement for vehicles and expects that the individual underlying vehicle leases will be commenced in 2026. The Company issued an irrevocable standby letter of credit in the amount of $0.5 million in lieu of a cash security deposit. The letter of credit is fully secured by cash held at the bank in a restricted account.
The components of lease costs were as follows (in thousands):
|
|
Years ended December 31, |
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|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Operating lease costs |
|
$ |
1,892 |
|
|
$ |
1,892 |
|
|
$ |
1,837 |
|
Variable lease costs |
|
|
423 |
|
|
|
351 |
|
|
|
435 |
|
Short-term lease costs |
|
|
35 |
|
|
|
115 |
|
|
|
94 |
|
Total lease costs |
|
$ |
2,350 |
|
|
$ |
2,358 |
|
|
$ |
2,366 |
|
The weighted-average remaining lease term and discount rate were as follows:
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|
December 31, |
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|
|
2025 |
|
|
2024 |
|
||
Weighted-average remaining lease term (in years) |
|
|
4.1 |
|
|
|
2.4 |
|
Weighted-average discount rate |
|
10.4% |
|
|
8.8% |
|
||
The maturity of the Company’s operating lease liabilities as of December 31, 2025 were as follows (in thousands):
Years Ending December 31: |
|
|
|
|
2026 |
|
$ |
2,058 |
|
2027 |
|
|
1,503 |
|
2028 |
|
|
729 |
|
2029 |
|
|
696 |
|
2030 |
|
|
717 |
|
2031 |
|
|
487 |
|
Total lease payments |
|
|
6,190 |
|
Less: imputed interest |
|
|
(1,180 |
) |
Present value of operating lease liabilities |
|
$ |
5,010 |
|
Operating lease liabilities, current |
|
$ |
1,739 |
|
Operating lease liabilities, noncurrent |
|
$ |
3,271 |
|
Purchase Commitments
The Company’s commitments as of December 31, 2025 were $38.3 million relating to the Company’s open purchase orders and contractual obligations that occur in the ordinary course of business, including commitments with contract manufacturers and suppliers for which the Company has not received the goods or services, commitments for capital expenditures, consulting activities for which the Company has not received the services, and subscription of software services. Although open purchase orders are considered enforceable and legally binding, the terms generally allow the Company the option to cancel within a reasonable period, reschedule, and adjust its requirements based on its business needs prior to the delivery of goods or performance of services.
Litigation
On August 29, 2024, a purported stockholder class action lawsuit (the Porcelli Complaint), Porcelli v. Outset Medical, Inc., et al., 5:24-cv-06124-EJD, was filed in the U.S. District Court for the Northern District of California, against the Company, its Chief Executive Officer, and then-Chief Financial Officer. On October 18, 2024, a second purported stockholder class action lawsuit (the Plymouth Complaint; together with the Porcelli Complaint, the Class Actions), Plymouth County Retirement Association v. Outset Medical, Inc., et al., 5:24-cv-06124-HSG, was filed in the same court. The second lawsuit also named the Company’s prior Chief Financial Officer as a defendant (together with the CEO and then-CFO, the Class Defendants). The Porcelli Complaint alleged that, between August 1, 2022 and August 7, 2024, defendants made materially false or misleading statements in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (Exchange Act) regarding the Company’s business, operations, and prospects related to the sale and marketing of the Tablo Hemodialysis System and TabloCart with Prefiltration, including concerning the impact of certain FDA processes for these products on the Company’s revenue growth. The Plymouth Complaint alleged similar violations between September 15, 2020 and August 7, 2024. On March 18, 2025, the court consolidated the Class Actions into one action captioned In re Outset Medical, Inc. Securities Litigation, Case No. 5:24-cv-06124-EJD, appointing a Lead Plaintiff and Lead Counsel. The Lead Plaintiff filed its consolidated amended complaint on June 6, 2025. The Class Defendants filed a motion to dismiss the consolidated amended complaint on August 14, 2025, the Lead Plaintiff filed its opposition on October 6, 2025, and the Class Defendants filed their reply in support of the motion to dismiss on November 17, 2025. A hearing on the Class Defendants’ motion to dismiss took place on January 22, 2026. The court took the matter under submission and has not yet issued a ruling.
On November 29, 2024, an Outset stockholder purporting to act on behalf of the Company filed an action in the U.S. District Court for the Northern District of California against current and former members of Outset’s Board of Directors and certain of its officers (the Derivative Defendants), alleging that the Derivative Defendants breached their fiduciary duties to the Company in connection with the same alleged events and alleged materially false and misleading statements asserted in the Class Actions described above. Three additional substantively duplicative actions were filed in the U.S. District Court for the Northern District of California on April 28, 2025, May 8, 2025, and June 16, 2025. The complaints seek unspecified monetary damages and other relief. On July 17, 2025, the court entered a stay of all derivative actions pending the outcome of the Class Defendants’ motion to dismiss the consolidated amended complaint.
The cases are at a very early stage and the Company cannot currently estimate the loss or the range of possible losses it may experience in connection with this litigation.
In addition, from time to time, the Company may become involved in other legal proceedings or investigations, which could have an adverse impact on its reputation, business and financial condition and divert the attention of the Company’s management from the operation of the Company’s business.
Indemnifications
In the ordinary course of business, the Company often includes standard indemnification provisions in its arrangements with its partners, customers and suppliers. Pursuant to these provisions, the Company may be obligated to indemnify such parties for losses or claims suffered or incurred in connection with its service, breach of representations or covenants, intellectual property infringement or other claims made against such parties. These provisions may limit the time within which an indemnification claim can be made. It is not possible to determine the maximum potential amount under these indemnification obligations due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. To date, the Company has not incurred any material costs as a result of such indemnification obligations and has not accrued any liabilities related to such obligations in these financial statements.About Commitments Disclosures
Commitments and contingencies disclosures catalog a company's off-balance-sheet obligations and legal exposures — purchase commitments, guarantee arrangements, pending litigation, and regulatory proceedings. These items represent potential future cash outflows that may not appear as liabilities on the balance sheet until they become probable and estimable.
Key signals: litigation reserves and disclosed loss ranges quantify management's estimate of legal exposure, but unquantified "reasonably possible" losses often represent the larger risk. Watch for changes in language around pending cases — shifts from "remote" to "reasonably possible" or increases in estimated loss ranges signal deteriorating outcomes. Unconditional purchase obligations and take-or-pay contracts create fixed cost structures that reduce operational flexibility. Guarantee arrangements for subsidiaries or joint ventures can create cascading obligations. Compare the total commitment schedule against projected free cash flow to assess whether the company can meet its obligations without additional financing.