Outset Medical, Inc.

Good day, and thank you for standing by. Welcome to the Onset Medical Fourth Quarter and Full Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1 on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star, then 0. I would now like to hand the conference over to your host today, Jim Mazzulla. head of investor relations. Sir, please go ahead.

Okay, thank you, and good afternoon, everyone. Welcome to the Outset Medical fourth quarter and full year 2021 earnings call. Participating from the company today are Leslie Trigg, chair and chief executive officer, and Nabil Ahmed, chief financial officer. During the call, we will discuss our fourth quarter and 2021 operational and financial results, as well as provide our outlook for 2022. After our prepared remarks, we will host a question and answer session. We issued a news release after the close of the market today and updated our investor presentation, both of which can be found on the investor relations pages of outsetmedical.com. This call is being recorded and will be archived in the investor section of our website. I'd also like to remind you that it is our intent that all forward-looking statements made during today's call will be protected under the Private Securities Litigation Reform Act of 1995. Any statements that relate to expectations or predictions of future events, market trends, results, or performance are forward-looking statements. All forward-looking statements are based on our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. OUTSET assumes no obligation to update these statements. For 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 Securities and Exchange Commission, including Outset's latest annual and quarterly reports. With that, let me now turn the call over to Leslie.

Good afternoon, everyone, and thank you for joining us to review our fourth quarter and full year 2021 results. Before I begin, I'd like to introduce and welcome Jim Mazzola, who recently joined us as Vice President of Investor Relations. Jim brings two decades of medtech and life sciences experience to our team, and we look forward to his contributions as we continue to grow our business. The fourth quarter capped off a truly exceptional year for Outset, during which we saw record revenue growth, meaningful progress toward gross margin expansion, success with our land and expand acute strategy, and tangible growth in home console placements, as evidenced by a tripling of our home installed base. This momentum resulted in fourth quarter total revenue of $28.2 million, representing 63% growth year-over-year, and resulted in full year 2021 revenue of $102.6 million, representing 105% growth year-over-year. Our business again proved resilient as we continued to grow through COVID-19. Our success in the fourth quarter extended beyond revenue, with console bookings hitting a historic high. We exited 2021 with 1,251 consoles in backlog, compared to 551 in backlog exiting 2020, with a significant portion of our 2021 exit backlog consisting of consoles intended for use in the home. This backlog provides us with significant visibility and confidence in our 2022 revenue trajectory. As Nabil will touch on in his discussion of our fiscal year 2022 revenue guidance, we are projecting another strong year ahead with good visibility to continued sales growth within acute care customers and an inflection in units deployed for home use. In addition to growing the top line, we remain confident in reaching our gross margin expansion goals, specifically our 2025 goal to achieve gross margins of approximately 50%. Turning now to a review of our success in the acute market, the fourth quarter and full year 2021 exceeded our expectations with transformational progress in terms of new sales agreements, expanding within existing customers, and console shipments. Importantly, we saw our land and expand strategy validated as customers consistently expressed interest in expanding their Tableau fleets to new sites across their networks as they experienced the economic, clinical, and workflow benefits that Tableau provides. For example, one regional health system in the southeast was paying nearly $400 per treatment with an outsourced service provider prior to adopting Tableau. Following a successful Tableau implementation, the hospital benefited from a 70% reduction in per treatment costs and an estimated $6 million in savings over the past three years. The economic and operational benefits this health system saw with Tableau resulted in an expansion to multiple additional hospitals in their network. In addition to Tableau's cost reduction benefits, We are also seeing recent adoption due to its ease of use, which has enabled some hospitals to recover from unexpected terminations of service from outsourced dialysis providers struggling with their own staffing shortages. During 2021, we achieved our goal of signing sales agreements with seven of the eight largest U.S. health systems. Our team also successfully drove a meaningful expansion of our commercial footprint across the United States as we landed sales agreements with roughly a third of the top 100 largest regional health systems, setting us up well for ongoing expansion in 2022 and beyond. This success enabled us to more than double the size of our acute install base while significantly expanding our backlog and setting a strong foundation for 2022. In addition to our success generating new orders, We also continue to see Tableau XT's clinical value to patients and operational workflow benefits to nurses resonating with customers. This is evidenced by another quarter of strong XT attachment rate, thanks in part to the clinical validation we received for XT through our EXTEND study, which demonstrated an impressively low clotting rate of just 4%, despite treatment times that averaged 23.5 hours. Our commercial success in the acute market last year taught us that Tableau solves important problems not only for the nation's largest health system, but also for smaller hospitals with fewer than 100 beds. Given our strong traction in this segment of the market, which we had previously excluded from our TAM estimate, we now believe that our immediately addressable U.S. market opportunity for the acute setting is $300 million larger than initially projected. putting the total U.S. TAM at 2.5 billion. I'd like to add that our success in these smaller hospitals is meaningful on a very human level as well. Tableau is creating health access equity in often rural communities where patients may not have had or may be at risk of losing access to dialysis care. In states like Texas and Oklahoma, small hospitals have adopted Tableau to start offering inpatient dialysis to patients who previously would have had to travel hours away to receive care. We've also seen small hospitals use Tableau to in-source dialysis in order to preserve a dialysis service line their community members otherwise would have lost. We care about patients first and are proud to serve the need wherever and whenever it exists. As we look ahead, we are only single digit penetrated in acutes and we have a tremendous runway in terms of new customer acquisition, particularly as we're observing hospitals of all sizes seeing value in Tableau. We feel we are still just at the tip of the iceberg on the acute side.