Outset Medical Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2025

There are 8 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Outset Medical First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your speaker today, Jim Mazzola, Head of Investor Relations. Please go ahead.

Speaker 1

Okay. Thanks, Victor. Good afternoon, everyone, and welcome to our first quarter twenty twenty five earnings call. Here with me today are Leslie Trigg, Chair and Chief Executive Officer and Nabil Ahmed, Chief Financial Officer. We issued a news release after the close of market today, can be found on the investor pages of outsetmedical.com.

Speaker 1

This call is being recorded and will be archived on the Investors section of our website. It's our intent that all forward looking statements made during today's call will be protected under the Private Securities Litigation Reform Act of 1995. These statements relate to expectations or predictions of future events, are based on our current estimates and various assumptions, and involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied. Outset assumes no obligation to update these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of Outset's public filings with the SEC, including our latest annual and quarterly reports.

Speaker 1

And with that, I'll turn the call over to Leslie.

Speaker 2

Thanks, Jim. Good afternoon, everyone, and thank you for joining us. HealthSet's results in the first quarter reflect the strong progress we've made with our commercial transformation, the durable competitive advantage of Tableau in both the acute and home settings, and the meaningful impact our operational execution is having on our path to profitability. Console sales grew meaningfully over last quarter, utilization remained strong, and we demonstrated continued operating leverage. Starting at the top, revenue for the first quarter of twenty nine point eight million dollars reflected 6% growth from the first quarter of last year.

Speaker 2

We were very pleased with the composition of revenue, which included 23% sequential growth in console revenue, which is a key metric for us this year as we look to sustainably reignite console growth. We continue to see strong utilization across the Tableau installed base, which resulted in another strong quarter of recurring revenue. Recurring revenue of $22,700,000 grew 20% over the first quarter of last year. Once Tableau consoles are placed, they're used. And this utilization frequency keeps us right on track to exit the fourth quarter on a run rate of more than $100,000,000 annually in recurring revenue alone.

Speaker 2

I mentioned last quarter that it took OUTSET four point eight years to reach 1,000,000 cumulative treatments and then an incremental seventeen months to reach 2,000,000 cumulative treatments. This quarter, we shipped our three millionth treatment, and it took us not another seventeen months, but just over twelve months to get there. We also continue to be pleased with the progress we are making with non GAAP gross margin, which at 37.6 continued to expand year over year as we sold more treatments and service across a larger installed base. Normalizing for the lower absorption of manufacturing overhead, which we've previously discussed, we would have seen non GAAP gross margin of approximately 40% for the quarter, right on our path to the next milestone of 50%. Turning to our end markets.

Speaker 2

Our results in the quarter were again driven by continued penetration within acute care providers who have made the decision to reduce costs and improve patient care by insourcing their dialysis service lines. The clinical, financial, and operational advantages Tableau can deliver continue to resonate with the full range of acute providers from community and critical access hospitals to regional IDNs and national health systems. For example, one large regional IDN customer deployed their one hundredth Tableau during the quarter as part of a system wide in sourcing implementation and continues to expand Tableau's use across multiple facilities in several states. At one of the largest health systems in The U. S, we recently expanded our footprint from insourcing dialysis in the acute setting to standing up a new dialysis service line at one of their skilled nursing facilities.

Speaker 2

We're early in this rollout, but excited by the acute to subacute expansion potential within this and other large health systems that are using Tableau inpatient and beginning to evaluate it for use at the subacute facilities in their network. Reflecting on the quarter, we were very pleased to observe continued progress with our sales transformation across both process and people. Our pipeline grew substantially again in the quarter, reflecting contributions from our enhanced capital sales team and sales process, and growing market recognition of Tableau's right to win. Our team is becoming increasingly proficient at educating stakeholders at all levels of an enterprise about the benefits Tableau can deliver, not only financially, but also clinically and operationally, and our forecast accuracy has improved. During the quarter, we added new customers adopting Tableau for the first time and also saw existing customers buy more Tableau to expand their use to new locations.

Speaker 2

As we look ahead to the rest of the year in the acute end market, we remain confident in our pipeline and see evidence of continued strong market demand powered by increased Tableau brand awareness and the consistency of the results our technology and our team produces. Insourcing with Tableau saves hospitals money. It has a relatively low acquisition cost and a short payback period. Clinically, a growing number of acute care customers are sharing reductions in hospital acquired infections, lower length of ICU stays, and higher nurse satisfaction rates post insourcing with Tableau. While federal funding cuts have made the healthcare environment more dynamic since we provided guidance in February, customers are conveying to us that the financial and clinical case for insourcing with Tableau remains compelling as they prioritize their capital expenditures for 2025.

Speaker 2

This customer feedback fueled our confidence in Outset's plan for the rest of the year, a plan that remains unchanged and on track. Turning now to the home end market, we expanded Tableau's use among mid sized dialysis providers and successfully contracted with one of the last remaining MDOs that hadn't yet adopted Tableau. Patient demand continues to play a key role in Tableau's home adoption, and to that end, we again drove industry leading retention rates above 90% at ninety days. As we said, change in the home setting will take a bit longer than the ramp we're seeing in the acute setting, but we continue to make steady progress and remain driven by the stories from people who tell us their lives have been changed for the better by having access to Tableau at home or in a post acute setting. From an operational perspective, the actions we have already taken to remove approximately $80,000,000 of annualized spend delivered leverage in the quarter with our lowest non GAAP operating loss since our IPO.

Speaker 2

I want to reiterate that we are aggressively executing against a clear path to profitability that starts with top line growth, includes gross margin expansion, is reinforced through our disciplined spend management, and shows up in the significant reduction in cash use we project for 2025 and the leverage we see to the bottom line. Also related to our operational progress, we were pleased with the vote results from our special meeting of stockholders held on March 5, which enabled us to complete the recapitalization of the company that we announced in January. On April 11, we filed our proxy statement for the annual meeting of stockholders scheduled for June 2. In this proxy, we are asking shareholders to approve a one time increase in our stock pool for employee grants, as well as a share pool increase under our employee stock purchase plan. Both of these important programs are necessary to help us ensure we keep our team's interests tightly aligned with investors' interests and to continue to attract and retain top talent at outset as we reignite growth and build for the long term.

Speaker 2

One final operational note, we spoke on last quarter's call about a special tariff exemption outset received in January for medical devices that serve a chronically disabled population. With some of the new tariffs now in place, we can confirm that Tableau, Tableau cart, and Tableau consumables remain exempt under this special protocol. Additionally, we continue to have a tariff exemption under the USMCA and further contingencies such that we continue to expect no impact from proposed or implemented tariffs at this time. We remain very bullish on the competitive advantages Tableau and its established ecosystem offer customers in the acute and home settings. We've demonstrated time and again that once Tableau is deployed, it's used consistently, and this consistent use drives strong, growing, and predictable recurring revenue.

Speaker 2

We have demonstrated that Tableau delivers compelling clinical, financial, and operational benefits to providers in the acute, subacute, and home settings. Moreover, the competitive moat around Tableau continues to deepen. Our growing installed base is extending our reach across the country. Our proprietary data analytics ecosystem powered by Tableau's integration with Epic and Cerner and the 3,000,000 data points sent to the cloud after every treatment, every Tableau, every day, uniquely enables us to deliver value added clinical and operational insights and efficiencies to our customers. Our proprietary know how around insourcing allows us to partner with hospitals as a solution, not just a product.

Speaker 2

Our exceptional at scale field service team drives a customer satisfaction score consistently above 95%. And our portfolio of referenceable customers continues to grow, helping to drive market adoption. With the Tableau installed base performing more than 1,000,000 treatments annually and growing, we estimate that there is still a half a billion dollars in recurring revenue yet to be realized from the current installed base alone. I'll close by reiterating our optimism for the year ahead. We entered the year with extraordinary clarity on the vital few priorities for Outset.

Speaker 2

Our team is determined to deliver on three priorities in 2025. Number one, grow console revenue. Utilization is strong on the consoles we place, creating an even more valuable recurring revenue stream as we expand the installed base and gain scale in what remain two of the largest market opportunities in healthcare. Second, increased gross margin. This has been a bright spot for Outset, and we've increased gross margin by nearly 30 percentage points since our first year following the IPO.

Speaker 2

With product margin nearing 50%, service gross margin increasing with scale, and continued efficiencies in our plan, we see a clear path to 50% and beyond. Third, driving to profitability. Our non GAAP operating loss this quarter was the lowest it's ever been as a public company, and our plan calls for it to significantly narrow in 2025, putting us in a strong position to reach cash flow breakeven and profitability within a near term planning horizon. We fully understand the importance of consistent execution during this pivotal year and intend to remain heads down and focused on doing the work. Accordingly, we don't want to get ahead of ourselves with just one quarter down in the year and intend to maintain our conservative approach to guidance.

Speaker 2

That said, we are confident about our outlook and believe we are set up very well for the remaining three quarters of the year. Providers, including the largest health systems in the country, are seeing the enormous clinical, financial, and operational advantages that insourcing with Tableau can deliver. The market opportunity remains wide open for us and we continue to gain ground, adding new healthcare facilities to our growing customer base and driving treatment expansion. I want to close by thanking our entire team for their commitment to the patients we serve, in addition to their commitment to driving growth, managing spend, and reaching our shared goal of profitability. And with that, I will turn it over to Nabil.

Speaker 3

Thanks, Leslie. Hello, everyone. Revenue for the first quarter of twenty nine point eight million dollars grew 6% over the first quarter of twenty twenty four due to higher recurring revenue across a larger installed base. Product revenue of $21,300,000 consisting of console revenue of $7,100,000 and consumable revenue of $14,200,000 grew 4% from $20,400,000 in the prior year. Importantly, console revenue grew 23% sequentially.

Speaker 3

Service and other revenue of $8,500,000 grew 9% from $7,700,000 in the prior year period. Recurring revenue from the sale of Tableau treatments and service was $22,700,000 an increase of 20% over the first quarter of twenty twenty four. Now, moving to gross margin and operating expenses, which as a reminder, reflects our non GAAP results. Please refer to the reconciliation of GAAP to non GAAP measures, which can be found in today's earnings release. Gross margin of 37.6 for the first quarter continued its nearly five year upward progression, increasing six fifty basis points from 31.1% in the prior year period.

Speaker 3

This growth was underpinned by progress in both product and service and other gross margin. Product gross margin increased eight sixty basis points year over year to 48.4%. Service and other gross margin was 10.3%, increasing two thirty basis points from 8% in the prior year period. As I mentioned last quarter, when we provided guidance for the year, gross margin is adversely affected in the short term due to lower absorption of manufacturing overhead, as a result of our reduced console build plan and efforts to reduce inventory levels. Absent the impact of under absorption of manufacturing overhead, which dampened gross margin by approximately two thirty basis points in the quarter, we would have seen non GAAP gross margin right around 40% and product gross margin above 50% for the first time.

Speaker 3

Operating expenses of $24,600,000 declined by 30% from the prior year period, driven by our ongoing focus on expense management. Non GAAP operating loss was $13,400,000 40 9 percent below our operating loss in the prior year period, and at the lowest level since our IPO. Net loss was $22,800,000 or $3.24 per share, 22% lower than the first quarter of twenty twenty four. These measures reflect the positive results of our drive to profitability. Moving

Operator

to our balance

Speaker 3

sheet, we ended the quarter with $192,300,000 in cash, cash equivalents, short term investments and restricted cash. Based on our current projections, we continue to believe this level of cash gets us through cash flow breakeven. Turning to our guidance for 2025, which we initially provided on the February call. With one positive quarter down, we continue to expect revenue for the full year to be between 115,000,000 to $125,000,000 Our intent here is to remain conservative as we work through this year of execution. As a reminder, the midpoint of this range implies the installed base and recurring revenue both grow by roughly 10%.

Speaker 3

Moving down the income statement, we continue to expect gross margin for the full year in the high 30% range. As we discussed on last quarter's call, the rates of expansion will be affected as we burn down our inventory levels and under absorb manufacturing overhead. Excluding the impact of under absorption, we would anticipate company gross margin exiting the year above 40% in the fourth quarter of twenty twenty five. We plan to continue to quantify this impact to non GAAP gross margin each quarter to help you model the trajectory. Although gross margin may fluctuate on a quarter to quarter basis as a result of our product mix, we remain right on track to meet our next gross margin milestone of 50%.

Speaker 3

Again, fundamental gross margin expansion is driven by recurring revenue from a larger installed base, service leverage, and our console cost down programs. We continue to anticipate OpEx in 2025 of roughly $90,000,000 The combination of expected revenue growth, continued gross margin expansion, and ongoing OpEx and working capital discipline means that we expect to use under $50,000,000 in cash in 2025, which is less than half the $103,000,000 we used in 2024. To close, we demonstrated in the first quarter how the strong elements of our strategy work together to deliver lasting value for providers, patients, and shareholders. The differentiated value proposition of Tableau, our recurring revenue business model, expanding gross margin, and disciplined expense management all contributed to a strong quarter. With that, I think we're ready for Q and A.

Speaker 3

Operator, please open the lines.

Operator

Thank you. Our first question will come from the line of Marie Thibault from BTIG. Your line is open.

Speaker 4

Hi. Good afternoon. Thanks for taking the questions, and and congrats to the team on a a very nice quarter here. Would love to get a little more detail on the, turnaround in the console selling process. I I think in the past, Leslie, you've talked about, the new sales force reaching tenure here in the first half of this year.

Speaker 4

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, you know, was that largely volume or was pricing ASPs a significant help too?

Speaker 2

Hi, Marie. Thanks for the question and thanks for the acknowledgement. On the maybe I'll tackle sales transformation first and then kick it over to Nabil on your volume versus ASP question on the console growth. On the sales transformation, mean, first and foremost, I'll say that the team here has made a remarkable amount of progress in a relatively short period of time. And second, I'll say that it's really paying off.

Speaker 2

Our commercial org looks different, feels different, operates very differently today as a result. Yes, you stated it correctly, the tenure within our team continues to grow. We cited that on our last earnings call as a tailwind for 2025, And that's helped. That has helped. I think as a result, we saw consistent performance in Q1 across the country, and also pretty consistent and significant contributions to pipeline growth across the country as well, which is really great to see.

Speaker 2

In addition to the sales team changes and improvements, I'd also cite a number of different new kind of proprietary sales tools that we're using. Of course, our new sales process, kind of the depth and breadth and kind of inspection centric approach we're taking to forecast accuracy, as I just said, did contribute to improvements in forecast accuracy, and also a lot more visibility into how deals are progressing through the sales process. I think the last part of your question was about, are we sort of on track or when do we think this will be kind of firmly behind us? In the past, we've communicated our expectation or my expectation at least that this transformation will be fully complete in the first half of 'twenty five. And based on what we're seeing, that projection is very much intact.

Speaker 2

I mean, it'll be really important to continue to see additional quarters of similarly positive execution. But from where we sit today, all indicators are green. And maybe I'll just make one other comment and turn it over to Nabil on the console question. But in terms of the indicators, what we continue to watch, first and foremost, is customer demand. And customer demand remains strong.

Speaker 2

I think for a couple of reasons. One, our existing customers really are seeing the benefits and the payback of insourcing with Tableau. And actually, in an increasing way, that with others. We are seeing some momentum drivers as a greater and greater number of facilities adopt Tableau. It's many, many hundreds of health care facilities across the country.

Speaker 2

And those results in a cumulative fashion are really starting to bubble up. Two, I mentioned increased Tableau brand awareness. We're finding that when we enter into new conversations with potential new customers, they actually already know what Tableau is, they know who Outset is, And that's actually a little different for us in a positive way compared to past years. We're also continuing to closely monitor not only the pipeline of opportunities, of course, the overall size and the quality, but also the mix. And we are seeing a really kind of a cool mix of new, I would call it kind of marquee brand named health systems, as well as existing customers that are looking to further expand on the basis of the results that they've seen with Tableau.

Speaker 2

And lastly, we are continuing to monitor where are these deals in the sales process and are they progressing. As we look at our top forecasted deals for 2025, the majority of them are already in the last couple stages of our sales process, which again gives us a lot of confidence as we look forward. Comments on console?

Speaker 3

Yes. Marie, hey, De Beal. With respect to console, the sequential improvement came largely from volume. Now in terms of ASP, we're still pleased with ASP in the quarter. Our team does a great job, has done a great job on pricing discipline.

Speaker 3

We haven't historically discounted a lot in the quarter, and that continues to be the case in the first quarter. Now, obviously, mix is important for us, and ASP on acute, as you know, is higher because those frequently ship in Pro Plus and CART. But again, really pleased with ASP, and thanks to the team on both ASP and strong volumes.

Speaker 4

All right, very encouraging all of that. Thank you for the detail. I guess I'd like to understand a little bit more about the selling process as you move into the subacute space. What are some of the, I guess, proof points or evidence that they look for? Is it very similar to selling into acute?

Speaker 4

How would you sort of characterize both the process, what they look for and maybe some of the timelines that are required for decision making? Thanks for taking the question.

Speaker 2

Yeah, of course, that's a great question. The headline is very, very similar to acute and that has allowed us to drive a lot of Salesforce productivity. It's also very similar on the back end. It's one sales team, it's one clinical support team, it's one field service team. And so I think that's really important to note.

Speaker 2

But to get a little bit more specific for you in the ways in which it is similar, the sales process, First and foremost, most of these post acute, sub acute facilities have traditionally been outsourcing their dialysis to a third party provider, so that's similar in the acute, which leads to the second similarity, the value proposition is the same. They are looking for number one, cost reduction and number two, improved clinical care. Those subacute facilities in the past also have struggled and been frustrated by the heavy, heavy cost of outsourcing it, and experiences where their patients oftentimes had to wait many times for hours and hours for a third party provider nurse to show up on-site and be able to deliver the treatment that they want their patients to be able to receive immediately when that care is needed. And that's exactly what insourcing and sort of taking control of their own destiny through Tableau enables them to accomplish. In terms of the sales process cycle time, I would say also pretty similar to acute.

Speaker 2

Of course, it depends on the size of the deployment. We have been very successful so far with LTACHs and rehabs who have gone for enterprise level standardization of Tableau and insourcing across their networks. And so, that's also been a real bright spot for us and has tracked similarly to the way that these larger acute regional and national health systems are thinking about standardizing with Tableau and sourcing across their enterprise in the same fashion.

Speaker 5

Thank you so much.

Speaker 2

Yeah.

Operator

Thank you. And one moment for our next question. Our next question comes from the line of Josh Jennings from TD Cowen. Your line is open.

Speaker 6

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. You know, previously when hospitals were under pressure coming out of the pandemic, you know, the clinical and economic value proposition of Tableau 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 Tableau is the right device at the right time even in kind of a recessionary environment.

Speaker 6

And do your competition, the outsourced third party competition for in service dialysis lines, mean their costs I believe would potentially rise and expenses could be even more dramatically higher if the hospitals continue to outsource. Sorry, long winded question. Hope you get the gist, wanted to just touch on I

Speaker 2

think you said all of that far better than I could. So I'm just gonna say ditto. No, I'm kidding. Yeah, let me take that maybe piece by piece. So far, we have not observed any changes in the hospital capital spending climate period.

Speaker 2

So I say nothing that has affected us to date. And I say that kind of as we sit here with roughly one month down in Q2, in addition to backward looking into Q1. We obviously are all keeping a very close eye on any changes that may affect that, but whether it's Medicaid or tariff impacts on pricing, but nothing so far that has affected our results to date, nothing that affects our outlook moving forward. And one reason for that also is something you just brought up, and I'm glad you recognized it, is we are advantaged because Tableau's value proposition is an economic one. We not only save hospitals money, but we save hospitals money in a very tangible way.

Speaker 2

This is not theoretical. This is not you can save 25% of one hour of nursing time, maybe three years in the future. I mean, is day one dollar one, very tangible savings with a short payback period. Most of our customers will report back that they have received a return on capital invested inside of twelve months. We had a couple customers actually that came in just over the last quarter and talked to our employees here.

Speaker 2

Both of them talked about beating their internal expectations, their internal ROI expectations by many, many months, whereas they had projected twelve months and maybe they got the return in three or four months. So I think that while hard dollar cost reduction is obviously of evergreen interest to health systems, think as you point out, particularly in times of uncertainty or conservatism, it does tend to be the projects on the capital spending list that are tangible and near term that rise to the top. We did see that play out in COVID also to your excellent point, so we have some history here. And yes, I'll hesitate in speculating about how costs may rise for competitors, but purely based on logic, if their supplies cost tended to become elevated due to tariffs, if their labor costs tend to become elevated, that would be that probably would show up in elevated pricing for hospitals that are outsourcing, whereas outset is in control across the board. We control our supply chain.

Speaker 2

We noted in our script that we are fully protected as we sit here today from any tariff impact. So we've been able to reassure our customers of our ability to maintain pricing. And we're in control of the patient experience and the customer experience. And as a result, the financial and the clinical and the operational efficiencies and benefits that we deliver. So I think we are very, very well positioned no matter what climate we find ourselves in for the remainder of the year.

Speaker 6

Excellent. And one follow-up. Just wanted to with the sales transformation kind of near completion and the strategy bearing fruit, just wanted to get a handle on just what you're seeing in terms of attrition and it seems like it's very low. And then also just the plans to build on the commercial foundation and the infrastructure here. Are you planning on adding and you feel like the sales force and the multiple layers are kind of where they need to be as you look to achieve your guidance this year and then continue to grow in 2026?

Speaker 6

Thanks.

Speaker 2

Yes, of course. You also provided the accurate answer to your question again, which is yes, our attrition in the sales force is very, very low. In fact, it was at a record low for us as we moved through Q1. So we're very proud of our team and our culture and our voluntary retention rate is a demonstration of that. That's point one.

Speaker 2

Point two, I think our sales team for now is exactly right sized. When we look, and as a reminder, we have two components of our team. We have the capital sales team and that's bifurcated between regional capital sales and national accounts. And then we have our clinical sales team. In both of those groups, I think we are perfectly sized to do exactly what we need to do and keep the promises that we've made to investors in 2025 and beyond.

Speaker 2

We also are actually really seeing some nice increases in sales rep productivity, and that's across the board. We're seeing significant increases in clinical sales productivity, revenue per person, as well as nice increases in capital sales revenue per person. And there is plenty of incremental headroom there for us to continue to take advantage of. Where you'll see us make some continued investments and this is not new you will see us make continued investments in our field service team. I mentioned in our prepared remarks that our field service team continues to receive CSAT customer satisfaction, CSAT scores consistently above 95%.

Speaker 2

We measure that religiously every single quarter. The sample size on that is typically hundreds of respondents. And so we're very, very proud of the patient and the provider experience that we deliver. And our field service team is a massive part of that. That's the group, that's the team that our customers see on a daily basis, and those are the folks that they know and they lean on and they trust.

Speaker 2

So we will be making, I would call it, incremental investments as needed as our volume and as our installed base continues to grow through 'twenty five and into 2026.

Speaker 6

Fantastic. Thanks again.

Speaker 1

Yep. Thanks, Josh.

Operator

Thank you. Our next question will come from the line of Shagun Singh from RBC. Your line is open.

Speaker 5

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, whether you're 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?

Speaker 5

Do you still expect to grow sequentially as you move through the year?

Speaker 2

Thanks so much for the question. And thanks for recognizing the strong start to the year. We felt really good about it. I mean, were three things taking a half step back to go forward here. And there are three things we really, really focused on delivering in the first quarter and the team delivered on all three.

Speaker 2

And those three were growing console revenue, done. Expanding gross margin, done. Keeping outset on track to achieving profitability, done. And as we look ahead toward the rest of the year, we intend to stay focused on and deliver on the exact same three priorities, which are the promises that we've made to our shareholders. I am very confident that we'll be able to do that.

Speaker 2

And my confidence comes from, number one, the continued growth in the pipeline that we saw in Q1 and the reflection of high demand both from new and existing customers. And as I mentioned, second, consistent performance from our capital sales team and that was across all territories, all parts of the country, which reflects the return we're seeing here from our sales transformation. At the same time, and I'm just giving you my 2¢, and I'll turn it over to Nabil to get more specific. But high level, the way I think about it is, one good quarter is one good quarter, and we've got three more to go. We certainly don't want to get ahead of ourselves here.

Speaker 2

I don't want us to get ahead of ourselves. And so while our outlook is positive, our enthusiasm is high, our guidance approach is going to remain conservative. But Nabil, feel free to chime in.

Speaker 3

Yes, Shagun. So look, we were really pleased with Q1, and as Leslie said, we are confident in our outlook. But we're one quarter down with three quarters of execution to go. We're simply being conservative here, and from a modeling perspective, we'd recommend you remain conservative as well. Now, from a cadence for the rest of the year, we do continue to expect that revenue will build through the year.

Speaker 3

And again, look, we had planned to be conservative here. I'll say that again. And we will remain so, and we'd recommend again that you're also conservative as you build your models.

Speaker 5

Got it. And then, again, I think on the last call you had indicated that you were, you know, maybe not getting as much business or losing some because, you know, of some of the balance sheet issues, and I think you've addressed those. You know, 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?

Speaker 5

Thank you for taking the questions.

Speaker 2

Absolutely, and maybe again, I'll kick it off here, Nabil, and you can chime in on the install base growth. So Shigun, short answer is yes, I absolutely think it has helped us. It's our performance in Q1 was fundamentally driven by the benefits of all the hard work the teams put into sales team, sales process, new tools, and that remains unchanged. But yes, around the margin, is it helpful to remove a why not? Absolutely.

Speaker 2

Is it helpful to remove three or four more customer questions or question marks? Absolutely. So it was great to get that behind us and also great to get some of the regulatory challenges behind us as well. So as we noted in February, I felt like the theme of our February call was kind of cleared for takeoff. And I think the theme for Q2 for this call is we're on our way.

Speaker 3

Shagun, with respect to console placements, we disclose that annually. What I can tell you today is that console revenue went up 23% from Q4. We're pleased with the number of consoles we shipped. And again, on treatments, we had another strong quarter here.

Speaker 5

Thank you.

Operator

Thank you.

Speaker 7

And I'm not showing any further questions in

Operator

the queue. I would now like to turn the call back over to Leslie Traig for any closing remarks.

Speaker 2

Great. Thanks to everyone for joining today. I'd like to close again by thanking our entire team for the meaningful difference they're making every day in the lives of dialysis patients. Have a great evening, everyone. Thanks again.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

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Key Takeaways

  • Outset reported Q1 revenue of $29.8 million, up 6% year-over-year, driven by 23% sequential console growth and 20% growth in recurring revenue to $22.7 million.
  • The company reached its three millionth treatment milestone in just over twelve months and achieved a non-GAAP gross margin of 37.6%, normalizing to ~40% amid its path to a 50% margin goal.
  • Demand remains strong across acute and home markets, with major health systems insourcing dialysis via Tableau, expanding into subacute facilities, and achieving >90% patient retention at 90 days.
  • Operational execution drove a non-GAAP operating loss of $13.4 million—the lowest since IPO—and Outlook 2025 remains unchanged with expected revenue of $115–125 million, high-30s gross margin, ~$90 million OpEx, and $50 million cash use.
  • Outset emphasizes its deepening competitive moat through proprietary EMR integrations, field service excellence (95%+ CSAT), and a growing installed base that represents an estimated $500 million of untapped recurring revenue.
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Earnings Conference Call
Outset Medical Q1 2025
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