Outset Medical, Inc. Q3 FY2025 earnings call

• Significant progress in sales process transformation but work remains on deal timing. • Hospital demand for insourcing dialysis growing, with Tableau console sales up 8%, pipeline and average deal size increasing. • Gross margin neared 40% non-GAAP, moving towards 50% milestone. • Commercial execution fell short, head of sales resigned, search underway with leadership change potentially causing internal disruption in Q4. • Clinical evidence supporting insourcing grew with new datasets at Kidney Week Conference, showing positive outcomes from customers like AdventHealth. • Progress towards cash flow breakeven and profitability, with plans including top-line growth, gross margin expansion, and disciplined spend management.

Revenue for the third quarter was $29.4 million. Product revenue was $20.6 million, including console sales of $8.3 million and consumable sales of $12.2 million. Service and other revenue was $8.9 million, growing 6% from the prior year. Recurring revenue from consumables and service was $21.1 million. Console sales increased 8% in the quarter, pipeline grew meaningfully, and average sales opportunity size increased over 20%.

• Revised 2025 revenue guidance to $115 million to $120 million from prior $122 million to $126 million. • Expect gross margin in the high 30% range for 2025. • Operating expenses expected to be in the low $90 million range for 2025. • Projected cash use in 2025 to be less than $50 million, a significant reduction from 2024's over $100 million.

• Potential internal disruption in Q4 due to leadership change in sales. • Uncertainty in predicting deal timing, especially with large enterprise-wide deals spanning multiple hospitals.

Q: How did the guidance trim come about, including factors like the large console opportunity flipping from Q3 to Q4 and the sales leadership change?

A: Renee M. Gaeta stated the primary driver was a large console opportunity flipping from Q3 to Q4, and Leslie L. Trigg mentioned factoring in the sales leadership change as a potential disruptive factor.

Q: What criteria are being used in hiring a new sales leader and what's the impact on 2026?

A: Leslie L. Trigg said criteria include background in capital equipment, enterprise sales, ability to convert health systems, strategic yet detail-oriented, and exceptional coaching. She noted the search is underway and hiring a new leader will help with deal timing predictability for 2026.

Q: What about the visibility and growth outlook for 2026, and the console and consumables order timing?

A: Leslie L. Trigg and Renee M. Gaeta discussed that demand remains growing, but execution on deal timing needs refinement. For consumables, it's about closer collaboration with customers on ordering patterns; for consoles, it's about refining deal close timing.

Q: Details on the head of sales resignation and its impact on guidance?

A: Leslie L. Trigg said the sales leader change happened after the quarter ended, and there could be distraction in the sales force leading to less selling time, which was factored into the guidance trim.

Q: Home channel performance and outlook?

A: Leslie L. Trigg mentioned stable high retention rates in home, growth in large MDO customers' home programs, and positive patient experiences.