Outset Medical, Inc. Common Stock 2026 Q2 Earnings Call

Please go ahead. Good afternoon, everyone.

Welcome to Outset Medical's second quarter 2026 earnings call. Today's speakers are Leslie Trigg, Chair and Chief Executive Officer, and Renee Gaeta, Chief Financial Officer. The company issued a news release after the close of the market today, which can be found in the Investors section of outsetmedical.com. This call is being recorded and will be archived there as well. All forward-looking statements made during today's call are intended to be protected under the Private Securities Litigation Reform Act of 1995. Outset assumes no obligation to update these statements. For a list and description of the risks and uncertainties associated with the business, please refer to Outset's public filings with the Securities and Exchange Commission, including its latest annual and quarterly reports. With that, I'll open the call to Leslie Trigg.

Leslie? Good afternoon, everyone. Thank you for joining us.

The second quarter reflected steady execution across revenue, gross margin, operating expense discipline, and cash management. We continue to make meaningful commercial progress while advancing our mission to improve dialysis patient outcomes at a lower cost and with less complexity. We are confident that the impact of that progress will become increasingly evident over time. I'll begin today with financial performance in the second quarter. Revenue of $31.6 million was up 1% year-over-year and up 14% sequentially. Our ongoing margin expansion program delivered a non-GAAP gross margin of 42%, a significant improvement compared to last year. With the solid second quarter results, we are reiterating full-year 2026 revenue guidance of $125 million-$130 million. During the second quarter, we completed our highest number of successful new site implementations in several years.

At one system with several sites in Texas, our clinical excellence team trained over 100 nurses, who in turn supported 956 treatments in their first 60 days. Other successful implementations were completed at a new top 10 health system customer for Outset, as well as at hospitals that are part of large regional health systems and post-acute care facilities. What stands out most is what happened after the initial go-live implementation. Outset has established a clinical excellence team focused on helping our customers optimize the clinical, financial, and operational value of their Tablo insourcing programs over the long term. Each hospital customer is paired with a clinical excellence team member who works closely with them to identify the outcomes that matter most to their organization, and then trends, tracks, and shares those key performance indicators on a regular basis.

Tablo's unique data ecosystem powers this process, providing valuable treatment and clinical program insights to our customers. The impact of this structured approach to customer success is reflected in both customer satisfaction and customer expansion. During the quarter, we conducted an independent Voice of the Customer assessment, and when asked how likely they were to recommend Outset, our customers gave us an average score of 8.8 out of 10. Combined with the measurable results we continue to deliver, this strong level of customer advocacy is central to our forward commercial momentum and high customer retention and creates opportunities for continued growth across our installed base. We're increasingly seeing customers expand their use of Tablo, both by deploying the technology at additional sites across their health systems and by broadening use within existing facilities. A strong customer experience was instrumental in securing a meaningful recent commercial win.

We are privileged to have signed a $40 million refresh agreement with HCA Healthcare. The agreement reinforces HCA and Outset's long-term commitment to insourced dialysis, which extends through 2028. After carefully evaluating comparative outcomes, HCA opted to recommit to Tablo, underscoring the clinical and operational value that it continues to deliver across their nationwide system. The agreement provides a meaningful foundation of contracted backlog, enhancing our visibility and supporting revenue predictability. Under the refresh agreement, HCA facilities currently partnering with Outset for insourced dialysis will update their fleet. Importantly, the $40 million value does not include the potential to expand over time into additional HCA facilities not yet equipped with Tablo.

This marks our first refresh win, and that's an important milestone as we continue to capitalize on a refresh cycle that, over the next several years, may include roughly 3,000 consoles and up to $150 million in console revenue opportunity. Given customer confidentiality considerations, we're limited in the level of detail we can provide and don't intend to disclose HCA specific information today or going forward. That said, HCA is a recognized leader in healthcare, and we believe its continued commitment to Tablo serves as strong validation that over time can help support broader adoption across health systems of all sizes. We believe the introduction of the next generation Tablo system will provide a great opportunity to catalyze customer refresh decisions. Next gen Tablo combines hardware and software enhancements designed to improve performance and reliability with advanced cybersecurity capabilities that are increasingly crucial for health systems.

We're working on the pilot phase now in preparation for a successful broader launch, and we'll continue to share updates as we progress. Reflecting on the quarter's performance from a commercial perspective, the addition of Derick Elliott as our new Executive Vice President of Commercial has marked our next phase of commercial evolution. Over the last several years, we've standardized our sales process, built systems to support it, and refined our go-to-market strategy to create a more disciplined and predictable commercial engine. We are now scaling that foundation to increasingly execute with consistency, conversion, and impact. Our near-term objectives include further infusing the capital sales organization with the right quantity and quality of talent. We're expanding sales coverage to further accelerate our inroads into the top 250 health systems where we believe Tablo can deliver significant impact.

We believe we have the right combination of commercial rigor and clinical expertise to guide this next phase. Derick's impact is being reinforced by our Chief Nursing Officer, Brittni McGill, whose firsthand understanding of our customers' pain points and workflows brings an invaluable clinical perspective. We're excited about our commercial and clinical leadership and expect their complementary expertise to position us well to engage health systems, address their most pressing needs, and accelerate customer adoption and conversion. With that, I will turn the call over to Renee.

Thank you, Leslie, good afternoon, everyone. Total revenue in the second quarter was $31.6 million, up approximately 1% compared to the second quarter of last year. Product revenue was $21.9 million, down 5% against a challenging prior year growth comparison. Console revenue of $9.5 million grew 6% year-over-year. Consumable revenue of $12.4 million was down 12% against a double-digit growth comparison last year. Service and other revenue of $9.7 million grew 17% compared to last year on strong volumes and ASP increases. Recurring revenue, which includes consumables, service, implementation services, and freight, was $22.1 million, down 2% compared to last year. Turning next to the P&L. Please refer to the tables in today's earnings release for a reconciliation of GAAP to non-GAAP measures.

Second quarter non-GAAP gross margin was 42.2%, up over 380 basis points compared to last year, driven primarily by product cost improvements, reduced overhead, and service efficiencies. Product gross margin was 46.1%, down about 280 basis points compared to last year due to a higher mix of console sales within product revenue. Service and other gross margin was 33.4%, up over 2,400 basis points. Gross margin performance reflects strong execution and keeps us on track towards our next milestone of a 50% company-wide gross margin. Moving to operating expenses. Second quarter non-GAAP operating expenses of $25.8 million increased 1% compared to last year, in line with revenue growth. Non-GAAP operating loss was $12.4 million, an improvement of 7% compared to last year. These results reflect continued progress as we work to achieve profitability. Moving to the balance sheet.

We ended the quarter with $151 million in cash equivalents, short-term investments, and restricted cash. With ongoing expense discipline and working capital management, cash use was $9.5 million in the second quarter, keeping us on track to use less than $40 million in cash for the full year. Turning to our guidance for 2026. We continue to expect full year revenue of $125 million-$130 million, representing growth of 5%-9% over last year, with most of the growth expected in the third and fourth quarters. Importantly, our confidence in this outlook is supported by a strong commercial pipeline and the foundational contracted backlog provided by the HCA refresh agreement. With that, I will turn the call back over to Leslie.