Outset Medical, Inc. Q1 FY2025 earnings call

• Commercial transformation progress: Strong progress with commercial transformation, console sales grew meaningfully, utilization remained strong, and operating leverage was demonstrated.
• Revenue composition: First quarter revenue of $29.8 million had 6% growth from the prior year, with 23% sequential growth in console revenue. Recurring revenue of $22.7 million grew 20% year-over-year.
• Operational execution: Demonstrated continued operating leverage, lowest non-GAAP operating loss since IPO, and aggressive execution towards profitability with top line growth, gross margin expansion, and disciplined spend management.
• End markets: Acute care providers showed continued penetration with customers like a large regional IDN deploying 100th Tablo and expansion to subacute facilities; home end market saw expansion among midsized dialysis providers with industry-leading retention rates above 90% at 90 days.
• Stockholder matters: Completed recapitalization, filed proxy statement for annual meeting asking for stock pool increases for employee grants and stock purchase plan.
• Tariff exemptions: Tablo, TabloCart, and consumables remain exempt under special tariff exemption for medical devices serving chronically disabled population, and exempt under USMCA with no impact from proposed/tariffs currently.

Revenue for the first quarter was $29.8 million, reflecting 6% growth from the first quarter of last year. Product revenue was $21.3 million, consisting of console revenue of $7.1 million and consumable revenue of $14.2 million, growing 4% from the prior year, with console revenue seeing 23% sequential growth. Service and other revenue was $8.5 million, growing 9% from the prior year period. Recurring revenue was $22.7 million, an increase of 20% over the first quarter of last year. Gross margin was 37.6%, with product gross margin increasing 860 basis points year-over-year to 48.4% and service and other gross margin increasing 230 basis points to 10.3%. Revenue contribution: Console revenue was a key metric with 23% sequential growth, recurring revenue made up a significant portion at $22.7 million contributing to the overall revenue mix.

• Revenue: Expect full year revenue between $115 million to $125 million, remaining conservative. Midpoint implies installed base and recurring revenue growth by roughly 10%.
• Gross margin: Full year gross margin in high 30% range, excluding under absorption of manufacturing overhead, would anticipate company gross margin exiting the year above 40% in Q4 2025.
• Operating expenses: Anticipate OpEx in 2025 of roughly $90 million.
• Cash use: Expect to use under $50 million in cash in 2025, less than half of the $103 million used in 2024.

• Risks and uncertainties associated with the business are detailed in the risk factors section of Outset's public filings with the SEC, including those related to market competition, tariff impacts, and operational execution risks that could affect actual results differing from anticipated.

Q: Hi, good afternoon. Thanks for taking the questions and congrats to the team on a very nice quarter here. Would love to get a little more detail on the turnaround in the console selling process. I think in the past, Leslie, you've talked about the new sales force reaching tenure here in the first half of this year. So I'd love to understand, if you think all of the potential disruption to the commercial team is sort of behind us at this point. And then any more details on kind of the increase in the console installed base? Was the console revenue beat, was that largely volume? Or was pricing ASPs a significant help too?

A: Hi Marie, thanks for the question and thanks for the acknowledgment. On the sales transformation, the team has made remarkable progress, tenure within the team continues to grow, and new proprietary sales tools and process contribute. On console revenue, sequential improvement came largely from volume, ASP was strong with pricing discipline.

Q: Hi. Good afternoon. Nice start to the year. I was hoping -- I think you answered this question mostly Leslie but just thinking about the risk of macro headwinds that hospitals may be facing in the coming quarters and who knows how long. Previously when hospitals were under pressure coming out of the pandemic, the clinical and economic value proposition of Tablo in the acute setting for in-hospital kind of rose to the top. And maybe just remind us of the success you had then and how Tablo is the right device at the right time even in kind of a recessionary environment. And do your competition -- the outsourced third-party competition for in-service dialysis lines, I mean their costs, I believe would potentially rise and expenses could be even more dramatically higher for -- if the hospitals continue to outsource.

A: I think you said all of that far better than I could. So I'm just going to say ditto. No, I'm kidding. Yes, let me take that maybe piece by piece. So far we have not observed any changes in the hospital capital spending climate period. We are advantaged as Tablo's value proposition is an economic one with tangible savings and short payback period.

Q: Thank you so much and congratulations on the beat. I was just wondering given the beat, why you didn't decide to adjust the guidance here? Also it has a pretty wide range. So where are you tracking the low end? Or is there greater confidence at the midpoint or the higher end? And then anything you can share on the cadence? Do you still expect to grow sequentially as you move through the year?

A: Thanks so much for the question and thanks for recognizing the strong start to the year. We felt really good about it. We intend to stay focused on delivering on the three priorities of growing console revenue, expanding gross margin, and keeping Outset on track to achieving profitability. Our confidence comes from continued growth in the pipeline and consistent performance from the capital sales team. We are being conservative with guidance.

Q: Thank you for taking the questions. I was just wondering given the beat, why you didn't decide to adjust the guidance here? Also it has a pretty wide range. So where are you tracking the low end? Or is there greater confidence at the midpoint or the higher end? And then anything you can share on the cadence? Do you still expect to grow sequentially as you move through the year?

A: We were really pleased with Q1. But we're one quarter down with three quarters of execution to go. We're simply being conservative here. We do continue to expect that revenue will build through the year.

Q: Thank you for taking the questions. I think on the last call you had indicated that you were maybe not getting as much business or losing some because of some of the balance sheet issues. And I think, you've addressed those. You've also had a reverse stock split. Are you seeing any increased business momentum, as a result of that? And then just lastly, on console installed base growth, anything you're willing to share in terms of numbers or acute versus home?

A: Yes, I absolutely think it has helped us. Our performance in Q1 was fundamentally driven by the hard work of the team. Around console placements, console revenue went up 23% from Q4, and we're pleased with the number of consoles shipped and treatments.