Good day and thank you for standing by. Welcome to the Outset Medical First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today Jim Mazzola Head of Investor Relations. Please go ahead.

Okay. Thanks Victor. Good afternoon everyone and welcome to our first quarter 2025 earnings call. Here with me today are Leslie Trigg, Chair and Chief Executive Officer; and Nabeel 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. And this call is being recorded and will be archived on the Investors' section of our website. It's 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 the risks and uncertainties associated with our business, please refer to the risk factors section of Outset's public filings with the SEC including our latest annual and quarterly reports. And with that, I'll turn the call over to Leslie.

Thanks Jim. Good afternoon everyone and thank you for joining us. Outset's results in the first quarter reflect the strong progress we've made with our commercial transformation the durable competitive advantage of Tablo in both the acute and home settings, and the meaningful impact our operational execution is having on our path to profitability. Console sales grew meaningfully over last quarter, utilization remains strong, and we demonstrated continued operating leverage. Starting at the top. Revenue for the first quarter of $29.8 million, reflected 6% growth from the first quarter of last year. We were very pleased with the composition of revenue, which included 23% sequential growth in console revenue, which is a key metric for us this year as we look to sustainably reignite console growth. We continue to see strong utilization across the Tablo installed base, which resulted in another strong quarter of recurring revenue. Recurring revenue of $22.7 million grew 20% over the first quarter of last year. Once Tablo consoles are placed they're used. And this utilization frequency keeps us right on track to exit the fourth quarter on a run rate of more than $100 million annually in recurring revenue alone. I mentioned last quarter that it took Outset 4.8 years to reach 1 million cumulative treatments and then an incremental 17 months to reach 2 million cumulative treatments. This quarter we shipped our 3 millionth treatment and it took us not another 17 months, but just over 12 months to get there. We also continue to be pleased with the progress we are making with non-GAAP gross margin, which at 37.6%, continued to expand year-over-year as we sold more treatments and service across a larger installed base. Normalizing for the lower absorption of manufacturing overhead which we've previously discussed we would have seen non-GAAP gross…

Thanks, Leslie. Hello everyone. Revenue for the first quarter of $29.8 million, grew 6% over the first quarter of 2024 due to higher recurring revenue across a larger installed base. Product revenue of $21.3 million, consisting of console revenue of $7.1 million and consumable revenue of $14.2 million grew 4% from $20.4 million in the prior year. Importantly, console revenue grew 23% sequentially. Service and other revenue of $8.5 million grew 9% from $7.7 million in the prior year period. Recurring revenue from the sale of Tablo treatments and service was $22.7 million an increase of 20% over the first quarter of 2024. Now moving to gross margin and operating expenses, which as a reminder reflects our non-GAAP results. Please refer to the reconciliation of GAAP to non-GAAP measures which can be found in today's earnings release. Gross margin of 37.6% for the first quarter continued its nearly five-year upward progression increasing 650 basis points from 31.1% in the prior year period. This growth was underpinned by progress in both product and service and other gross margin. Product gross margin increased 860 basis points year-over-year to 48.4%. Service and other gross margin was 10.3% increasing 230 basis points from 8% in the prior year period. As I mentioned last quarter when we provided guidance for the year, gross margin is adversely affected in the short term due to lower absorption of manufacturing overhead as a result of our reduced console build plan and efforts to reduce inventory levels. Absent, the impact of under absorption of manufacturing overhead, which dampened gross margin by approximately 230 basis points in the quarter, we would have seen non-GAAP gross margin right around 40% and product gross margin above 50% for the first time. Operating expenses of $24.6 million declined by 30% from the prior…

[Operator Instructions] Our first question will come from the line of Marie Thibault from BTIG. Your line is open.

Hi, good afternoon. Thanks for taking the questions and congrats to the team on a very nice quarter here. Would love to get a little more detail on the turnaround in the console selling process. I think in the past, Leslie, you've talked about the new sales force reaching tenure here in the first half of this year. So I'd love to understand, if you think all of the potential disruption to the commercial team is sort of behind us at this point. And then any more details on kind of the increase in the console installed base? Was the console revenue beat, was that largely volume? Or was pricing ASPs a significant help too?

Hi Marie, thanks for the question and thanks for the acknowledgment. On the -- maybe I'll tackle sales transformation first and then kick it over to Nabeel on your volume versus ASP question on the console growth. On the sales transformation, I mean first and foremost I'll say that the team here has made a remarkable amount of progress in a relatively short period of time. And second, I'll say that, it's really paying off. Our commercial org looks different, feels different, operates very differently today as a result. And yes, you stated it correctly, the tenure within our team continues to grow. We cited that on our last earnings call as a tailwind for 2025. And that's helped. That has helped. I think as a result, we saw consistent performance in Q1 across the country and also pretty consistent and significant contributions to pipeline growth across the country as well, which was really great to see. In addition to the sales team changes and improvements, I'd also cite a number of different new proprietary sales tools that we're using. Of course, our new sales process, kind of, the depth and breadth and inspection-centric approach we're taking to forecast accuracy as I just said did contribute to improvements in forecast accuracy and also a lot more visibility into how deals are progressing through the sales process. I think the last part of your question was about are we on track? Or when do we think this will be kind of firmly behind us? In the past, we've communicated our expectation or my expectation at least that this transformation will be fully complete in the first half of 2025. And based on what we're seeing that projection is very much intact. I mean, obviously, it'll be really important to continue to…

Yeah. Marie it's Nabeel. With respect to console, the sequential improvement came largely from volume. Now in terms of ASP, we're still pleased with ASP in the quarter. Our team does a great job, has done a great job on pricing discipline. We haven't historically discounted a lot of it in the quarter and that continues to be the case in the first quarter. And obviously mix is important for us. And ASP on acute as you know is higher because those frequently shipped with PRO+ and Cart. But again really pleased with ASP and thanks to the team on both ASP and strong volumes.

All right. Very encouraging all of that. Thank you for the detail. I guess, I'd like to understand a little bit more about the selling process as you move into the subacute space. What are some of the, I guess, proof points or evidence that they look for? Is it very similar to selling into acute? How would you characterize both the process what they look for and maybe some of the time lines that are required for decision-making? Thanks for taking the question.

Yeah, of course, that's a great question. The headline is very, very similar to acute and that has allowed us to drive a lot of sales force productivity. It's also very similar on the back end. It's one sales team. It's one clinical support team. It's one field service team. And so I think that's really important to note. But to get a little bit more specific for you in the ways in which it is similar the sales process, first and foremost most of these post-acute/subacute facilities have traditionally been outsourcing their dialysis to a third-party provider. So that's similar in the acute, which leads to the second similarity the value proposition is the same. They are looking for number one cost reduction; and number two improved clinical care. Those subacute facilities in the past also have struggled and been frustrated by the heavy, heavy cost of outsourcing it and experiences where their patients oftentimes had to wait many times for hours and hours for a third-party provider nurse to show up on site and be able to deliver the treatment that they want their patients to be able to receive immediately when that care is needed. And that's exactly what insourcing and sort of taking control of their own destiny through Tablo enables them to accomplish. In terms of the sales process cycle time, I would say also, pretty similar to acute. Of course, it depends on the size of the deployment. We have been very successful so far with LTACs and rehabs, who have gone for enterprise-level standardization of Tablo and insourcing across their networks. And so that's also been a real bright spot for us and has tracked similarly to the way that these larger acute regional and national health systems are thinking about standardizing with Tablo insourcing across their enterprise in the same fashion.

Thank you so much.

Yes.

Thank you. And one moment for our next question. Our next question will come from the line of Josh Jennings from TD Cowen. Your line is open.

Hi. Good afternoon. Nice start to the year. I was hoping -- I think you answered this question mostly Leslie but just thinking about the risk of macro headwinds that hospitals may be facing in the coming quarters and who knows how long. Previously when hospitals were under pressure coming out of the pandemic, the clinical and economic value proposition of Tablo in the acute setting for in-hospital kind of rose to the top. And maybe just remind us of the success you had then and how Tablo is the right device at the right time even in kind of a recessionary environment. And do your competition -- the outsourced third-party competition for in-service dialysis lines, I mean their costs, I believe would potentially rise and expenses could be even more dramatically higher for -- if the hospitals continue to outsource. Sorry, a long-winded question. Hope you get the gist but wanted to just touch on that.

I think you said all of that far better than I could. So I'm just going to say ditto. No, I'm kidding. Yes, let me take that maybe piece by piece. So far we have not observed any changes in the hospital capital spending climate period. So I'd say nothing that has affected us to-date. And I say that kind of as we sit here with roughly one month down in Q2 in addition to backward looking into Q1. We, obviously, are all keeping a very close eye on any changes that may affect that, but whether it's Medicaid or tariff impacts on pricing but nothing so far that has affected our results to-date, nothing that affects our outlook moving forward. And one reason for that also is something you just brought up and I'm glad you recognized it is we are advantaged, because Tablo's value proposition is an economic one. We not only save hospitals money but we save hospitals money in a very tangible way. This is not theoretical. This is not you can save 25% of one hour of nursing time maybe three years in the future. I mean this is day one $1 very tangible savings with a short payback period. Most of our customers will report back that they have received a return on capital invested inside of 12 months. We had a couple of customers actually that came in just over the last quarter and talked to our employees here. Both of them talked about beating their internal expectations, their internal ROI expectations by many, many months, whereas they had projected 12 months and maybe they got the return in three or four months. So I think that while hard dollar cost reduction is obviously of evergreen interest to health systems, I think as…

Excellent. And one follow-up. Just wanted to -- with the sales transformation kind of near completion and the strategy bearing fruit, I just wanted to get a handle on just what you're seeing in terms of attrition and it seems like it's very low. And then also just the plans to build on the commercial foundation and the infrastructure here are you planning on adding? And do you feel like the sales force and the multiple layers are kind of where they need to be as you look to achieve your guidance this year and then continue to grow in 2026? Thanks.

Yes, of course. You also provided the -- an accurate answer to your question again which is yes, our attrition in the sales force is very, very low. In fact it was at a record low for us as we moved through Q1. So we're very proud of our team and our culture and our voluntary retention rate is a demonstration of that. That's point one. Point two. I think our sales team for now is exactly rightsized. When we look at the reminder, we have two components of our team. We have the capital sales team and that's bifurcated between regional capital, sales and national accounts. And then we have our clinical sales team. In both of those groups I think we are perfectly sized to do exactly what we need to do and keep the promises that we've made to investors in 2025 and beyond. We also are actually really seeing some nice increases in sales rep productivity and that's across the board. We're seeing significant increases in clinical sales productivity revenue per person as well as nice increases in capital sales revenue per person. And there is plenty of incremental headroom there for us to continue to take advantage of. Where you'll see us make some continued investments and this is not new. You will see us make continued investments in our field service team. I mentioned in our prepared remarks that our field service team continues to receive CSAT customer satisfaction, CSAT scores consistently above 95%. We measure that religiously every single quarter. The sample size on that is typically hundreds of respondents. And so we're very, very proud of the patient and the provider experience that we deliver. And our field service team is a massive part of that. That's the group, that's the team that our customers see on a daily basis. And those are the folks that they know and they lean on and they trust. So we will be making I would call incremental investments as needed as our volume and as our installed base continues to grow through 2025 and into 2026.

Okay. Thanks, again.

Yes.

Thanks, Josh.

Thank you. [Operator Instructions] Our next question will come from the line of Shagun Singh from RBC. Your line is open.

Thank you so much and congratulations on the beat. I was just wondering given the beat, why you didn't decide to adjust the guidance here? Also it has a pretty wide range. So where are you tracking the low end? Or is there greater confidence at the midpoint or the higher end? And then anything you can share on the cadence? Do you still expect to grow sequentially as you move through the year?

Thanks so much for the question and thanks for recognizing the strong start to the year. We felt really good about it. I mean there are three things taking a half step back to go forward here. And there are three things we really, really focused on delivering in the first quarter and the team delivered on all three. And those three were growing console revenue, done; expanding gross margin, done; keeping Outset on track to achieving profitability, done. And as we look ahead toward the rest of the year we intend to stay focused on and deliver on the exact same three priorities which are the promises that we've made to our shareholders. I am very confident that we'll be able to do that. And my confidence comes from number one, the continued growth in the pipeline that we saw in Q1, and the reflection of high demand both from new and existing customers and as I mentioned second, consistent performance from our capital sales team and that was across all territories, all parts of the country which reflects the return we're seeing here from our sales transformation. At the same time -- and I'm just giving you my two cents, and I'll turn it over to Nabeel to get more specific. But high level, the way I think about it is one good quarter is one good quarter, and we've got three more to go. We certainly don't want to get ahead of ourselves here. I don't want us to get ahead of ourselves. And so, while our outlook is positive, our enthusiasm is high, our guidance approach is going to remain conservative. But Nabeel, feel free to chime in.

Yes, Shagun. So look, we were really pleased with Q1. And as Leslie said, we are confident in our outlook. But we're one quarter down with three quarters of execution to go. We're simply being conservative here. And from a modeling perspective, we'd recommend you remain conservative as well. Now from a cadence for the rest of the year, we do continue to expect that revenue will build through the year. And again, look, we had planned to be conservative here, I'll say that again, and we will remain so. And we'd recommend again, that you're also conservative as you build your models.

Got it. And then, I think on the last call you had indicated that you were maybe not getting as much business or losing some because of some of the balance sheet issues. And I think, you've addressed those. You've also had a reverse stock split. Are you seeing any increased business momentum, as a result of that? And then just lastly, on console installed base growth, anything you're willing to share in terms of numbers or acute versus home? Thank you for taking the questions.

Absolutely. And maybe again, I'll kick it off here, Nabeel and you can chime in on the installed base growth. So Shagun short answer is, yes, I absolutely think it has helped us. It's -- our performance in Q1 was fundamentally driven by the benefits of all the hard work the team has put into, sales team, sales process, new tools and that remains unchanged. But yes, around the margin, is it helpful to remove -- why not? Absolutely. Is it helpful to remove three or four more customer questions or question marks? Absolutely. So, it was great to get that behind us and also great to get some of the regulatory challenges behind us as well. So, as we had noted in February, I felt like the theme of our February call was kind of cleared for takeoff. And I think the theme for Q2, for this call is we're on our way.

Shagun with respect to console placements, we disclosed that annually. What I can tell you today is that console revenue went up 23% from Q4. We're pleased with the number of consoles we shipped. And again on treatments, we had another strong quarter here.

Thank you.

Thank you. And I'm not showing any further questions in the queue. I would now like to turn the call back over to Leslie Trigg for any closing remarks.

Great. Thanks to everyone for joining today. I'd like to close again, by thanking our entire team for the meaningful difference they're making every day in the lives of dialysis patients. Have a great evening, everyone. Thanks, again.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.