Outset Medical, Inc.

Good day and thank you for standing by. Welcome to the Outset Medical First Quarter 2022 Earnings Conference Call. At this time, all participant lines are in listen-only mode. After the presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star then 1 on your telephone keypad. Please be advised today's conference may be recorded. If you require operator assistance during the call, please press star then 0. I'd now like to hand the conference over to your host today, Jim Mazzola, Head of Investor Relations.

Okay, good afternoon, everyone, and welcome to our first quarter 2022 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 first quarter operational and financial results, as well as provide an update on 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 Litigations 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. 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 Securities and Exchange Commission, including our latest annual and quarterly reports. With that, I will now turn the call over to Leslie.

Thanks, Jim. Good afternoon, everyone, and thank you for joining us to review our first quarter 2022 results. Since our last update in February, the outset team has continued to execute well across our strategic initiatives. We delivered our seventh consecutive quarter of strong top line growth led by continued momentum in the acute market as we achieved continued positive performance on growth margin expansion and made substantial progress toward our home and selection objectives for 2022. with the number of home consoles shipped in the first quarter exceeding our expectations. Total revenue for the first quarter was $30.6 million, representing 33% year-over-year growth and 8.5% growth sequentially. We benefited from strong console demand and strength in treatment utilization as we continue to capture share across acute care customers, accelerate home expansion, and broaden our install base. Overall, we maintain a high level of visibility into our business, supported by a robust backlog and strong pipeline, grounded in broad interest in Tableau, and we remain confident in our near and longer-term outlooks. I want to begin today by discussing our results in-home, where we made very strong progress against our expansion strategy, with Q1 results putting us ahead of schedule relative to our 2022 objectives. There are four metrics we look at as a measure of home growth performance. First, the number of home programs where we are ahead of plan. Second, the number of new patients who went home with Tableau where, again, we are ahead of plan. Third, how quickly patients can train on Tableau where we have a significant advantage over our competition. And fourth, the number of patients who stay at home on Tableau where we remain meaningfully higher than competitors' retention rates. On our last call, we highlighted that home consoles accounted for a significant portion of our Q4 exit backlog and our expectation that the home business would inflect beginning this year. We are pleased to report that shipments to customers at home exceeded our internal expectations in the first quarter and represented a significant portion of total first quarter shipments. In addition, we are ahead of schedule in initiating new home programs with providers against our goal to establish 100 programs exiting 2022. And importantly, we continue to deliver a highly differentiated patient and caregiver experience, resulting in an industry-leading retention rate, which we believe is essential to sustainably high long-term growth. This early momentum reinforces our conviction on delivering 2022 home revenue of roughly mid-teens as a percentage of our total revenue. To get there, we plan to continue to expand our footprint with our two customer segments, progressive dialysis clinic operators focused on substantially growing their home program, and health systems standing up new home dialysis service lines. This past quarter, we launched a new program specifically aimed at the second customer segment, health systems. The proprietary turnkey solution is called Destination Homes. and it provides a roadmap for health systems to send patients home quickly and seamlessly. Through Destination Home, Outset brings a team of qualified partners that accelerate each step of standing up the service line, from facility requirements to accreditation and certification to ongoing patient care management in the home. With one quarter behind us, we're pleased with the level of traction we're seeing. From a clinical and patient experience perspective, the data speaks for itself. In early April, three new datasets related to treatment with Tableau at Home were presented at the 2022 National Kidney Foundation Spring Clinical Meeting in Boston. These studies highlighted patient and nephrologist views on home hemodialysis adoption and the hidden costs of peritoneal dialysis. In the first dataset presented, a national survey of 202 dialysis patients found that 72% viewed the features of Tableau as a significant clinical improvement in home hemo, and 77% said that Tableau's features would make them more likely to try home hemo. Moreover, a second national survey of 184 nephrologists found that 77% said the features of Tableau were a significant improvement over existing home hemo devices, and importantly, 98% said these features would make them more likely to recommend home hemo to their patients. From prior studies and research, we found that patients identify flexibility in treatment frequency, the availability of dialysis on demand, automated data and remote monitoring, ease of use, and reduction in storage requirements as paramount decision-making considerations when choosing a home hemodialysis device. Tableau provides a compelling answer to these considerations. All of its innovative features also translate into fast training time, which historically has been a barrier to getting patients to adopt home hemo. Across the spectrum of patients who have been trained on Tableau, the average training time remains 10 sessions or less compared to four to six weeks with the incumbent machine. The third presentation at NKF was a data set that evaluated the confluence of clinical and economic outcomes related to PD failure. Market data shows that PD fails 50% of patients within two years. And the data presented at NKF show that PD failure is associated with a nearly 100% risk of hospitalization during the six months preceding discontinuation. The study found that over $72,000 is spent per patient in the three months before and the three months after a patient's transition off PD. Further, after the transition from PD to in-center hemodialysis, hospitalizations remain higher for former PD patients over time. Today, just 3% of patients transitioning off PD will start home hemo, despite the fact that they are already successfully managing kidney disease in the home. Collaborating with our provider partners, we see an opportunity in the future to create programs that access this upstream patient population and transition more of them to home hemo with Tableau, driving both cost savings through hospitalization reduction and quality of care benefits for patients. In all, we continue to see rapidly growing demand for Tableau as an enabling technology for home programs, fueled by exceptional clinical outcomes, overwhelmingly positive patient experiences and retention, and the increasingly recognized economic benefits for patients and providers. Most importantly, we are proud of the impact Tableau and Team Tableau have had on patients and their families. I recently visited several patients dialyzing at home with Tableau. First and foremost, what I observed was confidence, control, and autonomy. I listened to them describe how much more convenient home dialysis was, that it had given them their life back because they now had the freedom to decide when they wanted to dialyze. They were freed from a clinic schedule they didn't choose. They were free to pick up their kids, free to take care of others, free to work again. As one patient put it, clinic was a cattle call. I was constantly rushed, stressed, and had to orient my schedule around it. Being at home, I can take my time. I want to live my life. Perhaps even most importantly, I heard pride in their voices, pride that they owned their care, that they were independent and self-reliant. This autonomy translates into self-worth and identity in ways that change lives, families, and communities over time. I heard about Tableau being easy to learn and easy to use, and I watched people set it up for treatment with confidence. These visits also reinforce that the patient experience does not begin and end with the device. What I learned was that the experience for patients is tied both to the people and the product. Empathic listening, patience, genuine care about the person behind the patient. The art of how we support patients is a big part of our secret sauce, or now it's not so secret, as well as something we believe creates protective competitive advantage along with our technology. We are excited for all of you to also get a firsthand view into the patient experience through an educational webinar for investors we have planned for June 1st from 1 to 2 p.m. Pacific, 4 to 5 p.m. Eastern. We have two patients, a caregiver, and a leading nephrologist scheduled to participate in a panel discussion where we will also give you the opportunity to ask questions. We will release additional details in the coming weeks. As we accelerate home adoption, we also continue to see strong growth among our acute care customers. Unlike large, expensive capital equipment, the upfront investment for Tableau is relatively small, with a payback period typically measured in months, not years. As a result, hospital executives have much greater visibility to and certainty of a near-term ROI compared to other types of capital equipment. The combination of Tableau's low capital, high return value proposition has been a key driver of our continued momentum and consistent performance to fight inconsistent hospital operating environments. In the first quarter, we made headway with new sales agreements and expansion sales within our existing customer base as our land and expand strategy continued to progress. A key highlight for the quarter was landing the eighth of the eight largest national health systems. Another area where we continue to see commercial success with new sales agreements is within hospitals with fewer than 100 beds. On our last call, we highlighted how 2021 taught us that Tableau solved important problems not only for the nation's largest health systems, but also for smaller hospitals, which in many cases are part of larger health systems where Tableau is already in use. We also continue to learn about hospitals contending with challenges due to their outsourced dialysis providers struggling with staffing shortages. As we discussed in February, some hospitals are receiving service price increases, some are receiving service level decreases, and some are receiving surprise service contract terminations. In one circumstance, we were contacted by a hospital and asked to install Tableau and train its nurses within 72 hours. Our service and training team successfully met the challenge and had the hospital's own staff running Tableau treatments later that same day. In short, Tableau has proven to be a valuable solution as it allows hospitals to finally control their own destiny from cost to staffing to compliance. In concert with console placement, a vital part of our commercial strategy is to drive utilization across the install base, and we were pleased to see strong utilization during the quarter, evidence that our recurring revenue model is working well. We are pleased to see ASPs holding steady as our install base grows and we pull through a larger volume of higher margin consumables. In addition to our commercial success, our team continues to make impressive progress on gross margin expansion, delivering non-GAAP gross margin of 14.8% in Q1. We're very proud of our teams across the business in how they've effectively managed through a continually challenging macro supply chain environment and sector volatility during the quarter. Testament to this team, we have not missed a single day of demand. With no console or cartridge shortages, even as the business has continued its strong growth trajectory. We continue to have healthy inventory positions where it matters, and our backlog is reflective not of supply chain or production constraints, but of strong demand that is scheduled for delivery on the customer's timeline. In summary, the first quarter of 2022 was marked by a strong start to home inflection, revenue performance, and progress toward our gross margin goals. I'm once again very proud of the entire Outset team, and our ability to consistently deliver strong and predictable financial and operational performance. We remain highly confident in our ability to deliver against the 2022 objectives that we laid out on our last call, as we provide a transformative technology to reduce the dialysis burden for patients and all those who support them. With that, I'll now turn the call over to Nabeel to review our financials and provide more granularity on our expectations and key drivers for the remainder of 2022.