Outset Medical, Inc.

Good day, and thank you for standing by. Welcome to the Outset Medical's second quarter 2025 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 the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jim Mazzola, Head of Investor Relations.

Good afternoon, everyone, and welcome to our second quarter 2025 earnings call. Here with me today are Leslie Trigg, Chair and Chief Executive Officer, and Rene Gaeta, 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 full 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.

Thanks, Jim. Good afternoon, everyone, and thank you for joining us. I would like to begin by sending a warm welcome to Renee, who joined us in early June. She has very quickly rolled up her sleeves, immersed herself in the business, and has already become a valuable strategic and operational partner. Turning to the second quarter results, we are pleased to report another strong quarter today and to raise our guidance range for the year. With the progress we made during the second half of 2024 and now through the first half of 2025, we have momentum that reflects the growing demand for the clinical, financial, and operational benefits that Tableau can deliver as well as the internal work we have done to improve our commercial execution. Revenue in the second quarter of $31.4 million grew 15% over last year, driven by another quarter of strong Tableau console sales and consistent utilization. A key goal for this year was to sustainably reignite console growth, and with two quarters down, our team is executing very well. Console sales again increased sequentially and also grew over the second quarter of last year. We also continue to see consistent utilization across the Tableau install base, which contributed to recurring revenue of $22.5 million in the quarter, 11% over the second quarter of last year. This included a 17% increase in consumable revenue. Once Tableau consoles are placed, they're used. and this utilization keeps us right on track to exit the fourth quarter on a run rate of more than $100 million annually in recurring revenue. Gross margin expansion remains a cornerstone of our path to profitability and an area where we again executed well during the quarter. Non-GAAP gross margin reached 38.4%, expanding more than one percentage point from last year, even as we managed through the lower absorption of manufacturing overhead that we've previously discussed. This progress keeps us right on path to the next milestone of 50%. Turning to our end markets, our results in the quarter were again driven by penetration within acute care providers. Including new consult placements during the quarter, Tableau is now in use at more than 900 acute and subacute sites in the United States. Additionally, we closed a new enterprise agreement with one of the largest national health systems in the country during the second quarter, which provides access to well over 100 facilities with the potential to place many hundreds of Tableau consults. What is gratifying to us is to see the strong support insourcing with Tableau has earned among the dialysis nursing community. With examples of better patient care at a substantially lower cost, nurse leaders have emerged as huge champions for insourcing. In fact, the former CNO of one of our hospital customers that implemented insourcing with Tableau recently joined our set as our chief nursing officer. On several recent customer visits, I've had the opportunity to hear nurse leaders talk about how insourcing their dialysis service line with Tableau has dramatically reduced their rate of hospital-acquired infections and improved overall patient care by enabling, as several nursing leaders have put it, high nurse retention compared to the staffing challenges their outsourced providers struggled with, and an ability for their hospital nursing teams to care for the whole patient versus solely delivering a dialysis treatment. In the home end market, we also made excellent progress during the quarter. Interest in Tableau from patients and their providers is growing steadily in this very large market. While we still expect homes to evolve more gradually than the acute ed market, we made another important advance during the quarter by finalizing an agreement with the third largest midsize dialysis organization. Through this agreement, approximately 15,000 dialysis patients across 30 states will have access to Tableau. We now have agreements with all five of the largest MDOs in the United States. The success we are having commercially is a direct result of the work we took to transform our sales organization and process. Our progress includes restructuring, retraining, and enhancing our commercial organization, including by retooling our capital sales team and infusing an enterprise sales skill set. Second, we implemented an entirely new capital sales process with high specificity, accountability, and discipline. And third, we injected rigorous sales management inspection and tools at every step to improve capital sales forecasting and timing of clothes. We continue to see positive indicators that these efforts are paying off. For example, console sales in the second quarter returned to levels we last saw in early 2024. Forecast accuracy has improved. Our pipeline grew again in the second quarter, both sequentially and year over year. As we've grown the pipeline, we have also seen growth in the percentage of opportunities progressing to the later stage of the sales process, and most importantly, we continue to see strong conversion of opportunities to sales. As I said last quarter, our team has become proficient at educating stakeholders at all levels of an enterprise about the benefits Tableau can deliver not only financially, but also clinically and operationally. During the quarter, we added new customers adopting Tableau for the first time and also saw existing customers expand their use to new locations. As we look ahead to the rest of the year, we remain confident in our pipeline and strong market demand. While we continue to closely monitor any impact from proposed federal funding cuts in healthcare, customers tell us that the financial and clinical case for insourcing with Tableau remains compelling as they prioritize their capital expenditures for 2025. Insourcing with Tableau saves hospitals money, has a relatively low acquisition cost, and a short payback period. This customer feedback fuels our confidence in our plan for the rest of the year. From an operational perspective, we are pleased with how average selling price and utilization trended. We believe ASP's strength indicates that customers see Tableau appropriately priced the value expected and consistent utilization reinforces that once a unit is installed it's used and provides a long tail of recurring revenue related to utilization our manufacturing site has now produced more than 1.5 million tableau disposable treatments since we brought production in-house in 2023 this is important as we seek to deliver the highest levels of quality and gain scale to reduce production costs. As we've talked about for several quarters, our team is focused not only on reductions in cost of goods sold, but also in operating expenses. And the actions we took to remove approximately $80 million of annualized spend again delivered leverage in the quarter with another record low non-GAAP operating loss. We also used approximately 60% less cash than in the prior year period, keeping us right on track with our goal to use less than $50 million this year. I want to reiterate that we are aggressively executing against a clear path to cash flow breakeven and then profitability. This path begins with top-line growth and gross margin expansion. It includes discipline, spend management, and it shows up in both the significant reduction in cash use we project for 2025 and in the leverage we see to the bottom line. Lastly, from an operational perspective, I want to reiterate our prior comments about tariff exposure. Tableau, Tableau cart, and Tableau cartridges remain exempt from tariffs under a special exemption pertaining to equipment that supports the chronically disabled. Additionally, we continue to have tariff exemption under the USMCA and further contingencies such that we continue to expect no impact from proposed or implemented tariffs at this time. I'll close by reiterating our optimism for the opportunity ahead. We operate in two large end markets, and the competitive moat around Tableau continues to deepen. Our growing install base is extending our reach across the country. Our proprietary know-how around insourcing allows us to partner with hospitals as a solution, not just a product. Our exceptional field service team drives a customer satisfaction score consistently above 95%. Our portfolio of referenceable customers continues to grow, helping to drive market adoption. At the midpoint of an important year for Outset, our focus has not wavered from three vital priorities. One, grow console revenue. Two, expand the gross margin. And three, drive to profitability. With two quarters to go, we fully understand the importance of continued consistent execution during this pivotal year. We are confident about our outlook and believe we are set up very well for the second half and into 2026. 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. 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 Renee.