Outset Medical, Inc.

Good day and thank you for standing by. Welcome to the 2024 Third Quarter Outset Medical Conference Call. At this time, all participants are in only mode. After this speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand to raise. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like to hand the conference over to your first speaker today, Jim Mazzola of Investor Relations. Please go ahead.

Okay, thank you, and good afternoon, everyone. Welcome to our third quarter 2024 conference 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, which can be found on the investor pages of outsetmedical.com. This call is being recorded and will be archived on the investor section of our website. 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. 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 risks and uncertainties associated with our business, please refer to the risk factors section about the public filings with the Securities and Exchange Commission, including our latest annual and quarterly reports. With that, I'll turn the call over to Leslie.

Thanks, Jim. Good afternoon, everyone, and thank you for joining us. I want to begin by recognizing healthcare providers and their patients who are still recovering in the aftermath of Hurricanes Helene and Milton. We worked closely with several acute care customers to offer dialysis services with Tableau in affected areas. And as we saw during the pandemic, healthcare providers selflessly stepped up to serve the very vulnerable population of dialysis patients. Our thoughts and support remain with these healthcare heroes and the dialysis community as the Southeastern U.S. continues its recovery from the storm. Moving to our results, this quarter demonstrated the strength of our recurring revenue business model, our scale in the acute and subacute setting, a return to quarterly sequential growth, and strong year-over-year gross margin expansion. Third quarter revenue of $28.7 million was stronger than our guidance implied, driven by new and expansion customers and another record quarter for recurring revenue. While console sales were lower than the prior year for the factors we discussed last quarter, treatment revenue grew 14% and service revenue grew 22%, both pushing recurring revenue to an all-time high. Year-to-date recurring revenue increased 23% over the same period of 2023. We also saw average selling prices for our consoles improve by 18%, and non-GAAP gross margin expand by nearly 11 percentage points from Q3 of last year. The third quarter also marked good progress on our commercial transformation. As I highlighted last quarter, we learned that success with mainstream enterprise adopters in the acute setting requires a change in how we sell, who we sell to, and the process we use to get there. We identify the need to sell more broadly within the C-suite and establish commitment across a larger base of stakeholders deeper within the system to gain buy-in. This transformation has involved three shifts in our commercial approach. First, we've retooled our commercial team by infusing our capital sales team with individuals who have an enterprise sales profile and skill set. Second, we implemented a new capital sales process with high specificity, accountability, and discipline. And third, we injected rigorous sales management inspection at every step along the way to improve capital sales forecasting and the timing of close. We entered the fourth quarter with all three elements of this transformation largely complete. The key changes to our capital sales and leadership teams have been made. and our new sales process and forecast inspection rigor has been implemented. While we expect the full dividends of the sales transformation to manifest in the first part of 2025, we saw early signs of positive impact in Q3. Turning to our end markets, during the quarter, we continue to have success with acute care providers eager to insource their dialysis service line. We made progress with ongoing rollouts at several large health systems, and worked with new regional providers to stand up insourcing programs. Overall, the number of acute and subacute sites using Kablo grew 15% from the prior year period, and we continue to see impressive results following implementation of these programs. For example, our team supported the rapid insourcing of a dialysis service line at a 300-bed hospital in the South Central U.S. where the provider experienced a 300% increase in treatment growth following implementation and a 25% increase in successful treatments. These results help improve the quality of dialysis care while reducing waste and costs. We also helped a smaller hospital in a rural community stand up a new dialysis program, which resulted in a 30% increase in revenue from other services as patients no longer needed to be transferred to another facility for treatment. In the subacute setting, which represents one of the fastest growing segments of our install base, one of the nation's largest inpatient rehabilitation providers continued its system-wide rollout of insourcing with Tableau and now uses Tableau in more than 100 facilities performing 14,000 dialysis treatments per year. Sub-acute providers now comprise a roughly mid-teens percent of the Tableau installed base. In the home end market, we again saw industry-leading retention rates as we ramped Tableau use with new and existing providers. Our 90-day retention rate remained above 90% versus the 65% average reported with the incumbent home hemodialysis device. Our cumulative opt-off rate at one year remains at approximately 10%. The average tenure for patients dialyzing at home with Tableau is now more than one year, and our longest tenured patient has been dialyzing at home with Tableau for more than three years. We also see strong patient satisfaction and affinity for Tableau in our home registry data. Two weeks ago, at the American Society of Nephrology annual Kidney Week meeting, we published new data from this home study showing the vast majority of Tableau home patients are extremely likely to recommend home hemodialysis with Tableau to other end-stage kidney disease patients. On a scale from 1, indicating not likely, to 10, indicating extremely likely to recommend Tableau, the study showed a mean net promoter score of 9.2 at 6 months and 9.3 at 12 months. We're most proud of this type of data, real-world evidence from patients who report they feel better, are better able to manage daily activities, spend more quality time with family, and in some cases go back to work. Tableau not only helps providers improve care and save money, it also has very real and measurable impact on the lives of patients. High patient and caregiver net promoter scores are not only driving Tableau patient expansion, but also expansion in the number and depth of home program locations offering Tableau. The number of Tableau home program locations has increased 40% during the last 18 months, and the average size of these programs has continued to grow. In fact, one such home program recently reached a record 27 patients home on Tableau, and they're not done. As we reflect back on what's been a tough period for Outset and shareholders, we are mindful of the challenges and disappointments of the last year. And while one quarter's performance is one quarter's performance, we look toward Q4 and 2025 with confidence. Our installed base is approaching 6,000 consoles. Hundreds of facilities are using Tableau nationwide. Tens of thousands of nurses and thousands of physicians have been trained. Our evidence base has grown to more than 70 publications in abstract, and we are run rating to nearly a million treatments per year, which speaks to the compelling clinical, operational, and financial results Tableau is delivering, which in turn fuels the strength of our recurring revenue business model. And we look ahead with confidence on the bottom line as well. Gross margin continues to expand, and the decisive steps we've taken to reduce our operating expenses are paying off. in the form of lower cash usage and meaningful progress toward breakeven. I want to thank our entire team for their commitment to drive growth, lower expenses, and reach our shared goal of profitability. And with that, I will turn it over to Nabil.