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 Renee 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 Investors 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 extending 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 Tablo 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 Tablo 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 continued to see consistent utilization across the Tablo installed 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 Tablo 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 console placements during the quarter. Tablo 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 Tablo consoles. What is gratifying to us is to see the strong support insourcing with Tablo 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 Tablo recently joined Outset 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 Tablo 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 Tablo from patients and their providers is growing steadily in this very large market. While we still expect home to evolve more gradually than the acute end market, we made another important advance during the quarter by finalizing an agreement with the third largest midsized dialysis organization. Through this agreement, approximately 15,000 dialysis patients across 30 states will have access to Tablo. 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 close. 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 stages 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 Tablo can deliver, not only financially, but also clinically and operationally. During the quarter, we added new customers adopting Tablo 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 Tablo remains compelling as they prioritize their capital expenditures for 2025. Insourcing with Tablo 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 strength indicates that customers see Tablo appropriately priced for 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 Tablo 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 disciplined spend management and 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. Tablo, TabloCart, and Tablo 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 Tablo continues to deepen. Our growing installed 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 the 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 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 Tablo 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.

Thank you, Leslie, and good afternoon, everyone. I have enjoyed digging into the business during the two months since I joined Outset in early June, and I'm very happy to walk you through our financial results today. I look forward to meeting more of you in the coming weeks. Revenue for the second quarter of $31.4 million grew 15% over the second quarter of 2024. The increase was driven largely by console volume and mix, including sales to acute customers, which carry a higher average selling price due to the additional features attached to each unit. Product revenue of $23.1 million, consisting of console revenue of $8.9 million and consumable revenue of $14.2 million grew 20% from $19.2 million in the prior year. Importantly, console revenue grew sequentially and year-over-year. Service and other revenue of $8.3 million grew 2% from $8.2 million in the prior year period. Recurring revenue from the sale of Tablo consumables and service was $22.5 million, an increase of 11% over the second quarter of 2024. Next, I'll walk through our gross margin and operating expenses for the quarter. Please refer to the table in today's earnings release for a reconciliation of GAAP to non-GAAP measures. Non-GAAP gross margin expanded another 110 basis points from last year, reaching 38.4% for the quarter even with a 100 basis point headwind from the under-absorption of manufacturing overhead. Product gross margin increased nearly 400 basis points year-over-year to 48.9%. Service and other gross margin was 6.9% compared to 13.6% we reported in the second quarter of 2024 due to the short-term investments we made in parts supply. We are making progress against our plan to optimize inventory levels and gradually increase production, which further mitigates the gross margin impact of the manufacturing under absorption we have discussed all year. For the year, I expect a headwind of approximately 150 basis points, which will have a diminishing effect in 2026. Excluding these factors, gross margin is approaching 40% and product gross margin is approaching 50%. All to say, we are right on track towards our next milestone of 50% gross margin. Moving to operating expenses. We continue to see the positive impact of reductions the company primarily made during the second half of 2024. For the quarter, non-GAAP operating expenses declined 19% to $25.4 million compared to the second quarter of 2024. Non-GAAP operating loss was $13.4 million, 36% below the operating loss of $21 million in the prior year period. Net loss of $18.5 million was 46% lower than the second quarter of 2024. These measures reflect the positive results of our drive to profitability. Moving to our balance sheet. We ended the quarter with $187.4 million in cash, cash equivalents, short-term investments and restricted cash. Low cash use this year reflects the progress we are making on gross margin, operating expenses and inventory levels. We anticipate cash use will step up entering next year as we increase inventory purchasing and ramp production, with the first quarter of any year expected to be our highest cash-consuming quarter due to incentive compensation payouts. We continue to believe our cash balances are sufficient through cash flow breakeven. Turning to our guidance for 2025. As Leslie mentioned, we are pleased to be in a position to raise our revenue guidance for the year from $115 million to $125 million to a range of $122 million to $126 million. We are very confident in our outlook and yet intend to maintain a level of conservatism as we monitor the macro environment and work through this year of execution. Moving down the income statement. We continue to expect gross margin for the full year in the high 30% range. Excluding the impact of under-absorption, we continue to anticipate gross margin exiting the year above 40% in the fourth quarter of 2025. Although gross margin may fluctuate on a quarter-to-quarter basis as a result of our product mix, we continue to expect the path to 50% will be driven by higher margin recurring revenue across a larger installed base, service leverage, and our console cost-down program. We anticipate operating expenses in 2025 in the low $90 million range. The combination of revenue growth, gross margin expansion and expense discipline means that we continue to expect to use under $50 million in cash in 2025, which is less than half we used in 2024. With that, I think we're ready for Q&A. Operator, please open the lines.

It's encouraging to see consistent progress on your key business priorities for the fourth consecutive quarter. I'd like to start by referencing your guidance, Leslie. You mentioned that you're set up very well for the second half of '25. If I'm interpreting the midpoint of your guidance correctly, it appears that the second half could be roughly equivalent to the first half in terms of sales, despite any differences between the third and fourth quarters. However, it seems like momentum is building. Am I understanding this correctly? Could you explain what factors are contributing to your cautious outlook?

Sure. I'm glad to share that we are pleased with how the year is progressing so far. As we began 2025, we communicated our intention to remain conservative in our guidance, given that this year is crucial for our execution. That said, we are thrilled to report strong performance in both console and recurring revenue during the first half of the year. Additionally, we believe we have a solid foundation for the second half, which has led us to increase our guidance range by $7 million, raising the lower end above the midpoint we set at the start of the year. To touch on your question regarding our positive outlook for the second half and beyond, I'll briefly highlight three key points. First, our commercial transformation is firmly taking hold. The team, tools, and processes we’ve improved are enhancing our pipeline management, forecasting, and our conversion of opportunities into contracts. Overall, everything is functioning better. Second, demand is increasing, with our pipeline showing growth both sequentially and year-over-year. Importantly, more deals are advancing to later stages, and there's good diversification in our pipeline, with an increasing number of enterprise-level deals, which means robust console numbers per deal. Lastly, console utilization remains high, which is incredibly important to us. I believe that high console utilization reflects how well we are delivering on our commitments to both patients and providers. Strong utilization supports a reliable and predictable recurring revenue stream, which is beneficial for our operations. Overall, we feel confident as we enter the second half and remain dedicated to the conservative guidance we set at the end of the year, while focusing on executing effectively in the upcoming quarters.

Thank you for the detailed insights. One aspect of your comments relates to the transition of the commercial strategy. Could you provide more information on our current status? If I recall correctly, you previously indicated that the sales force transition would be fully productive following the last reported quarter. Are we beyond the initial setup phase? Please help clarify this, and if there’s more to be done, what would indicate that we are past this phase? Additionally, I would like to know your perspective on how a trained and productive sales force may influence your outlook for the rest of 2025 and potentially set you up for the following year.

Sure. I'm happy to elaborate on that. Overall, our commercial organization has undergone significant positive changes in recent months. We saw these improvements reflected in both the first and second quarters. The new tools and revamped sales process are designed to enhance our success at the enterprise sales level. This has resulted in better forecast accuracy, clearer visibility, and more control over the sales process. Our team's ability to convert opportunities into contracts and revenue has also shown improvement. We will continue to keep a close watch on our progress. The key takeaway is that things are going well so far, and we are pleased with our advancements and confident about how this will impact the remainder of the year.

Congrats on a very nice quarter. I wanted to ask here a little bit more on some of the deal strength that you saw in the quarter. Absolutely understand that your deal pipeline is diversified, a lot coming from kind of enterprise sales. But just trying to understand how sustainable some of it is. And also, there was some commentary about strong ASPs on consoles. Of these new deals, is there a lot of uptake of some of your newer products or newer upgrades where you're able to get some of those higher ASPs, things like TabloCart and others?

Yes, thanks for the question, Marie. The answer is yes, but let me provide a bit more detail. We had strong average selling price performance due to a successful uptake of both TabloCart and the Tablo PRO+ software, which contributed to this strength. Additionally, our team has maintained excellent discipline regarding pricing. This average selling price performance is indicative of how our technology and proprietary ecosystem are benefiting customers. Particularly in acute and post-acute settings, customers are sharing substantial cost reductions and operational efficiencies with their peers. Furthermore, we are seeing improved clinical outcomes, as hospitals report significantly lower rates of central line-associated bloodstream infections and hospital-acquired infections after transitioning from an outsourced to an insourced model. We believe that our pricing strategy for Tablo, the team's disciplined execution, and the accessories and software options are all significant contributors to this average selling price strength. Regarding the durability and sustainability of our pipeline and future console sales, the console revenue we reported this quarter and anticipate in the second half is driven not only by strong average selling prices but also by robust console placements and uptake. This is crucial. Additionally, we are optimistic about our pipeline, highlighted by a large enterprise agreement signed this quarter, which involves multiple facilities and potentially hundreds of consoles over time. This agreement, along with engagement from both existing and new enterprise-level customers, could lead to an exciting growth rate in the future for many quarters ahead.

That's really encouraging, Leslie. Great to hear. And then I guess I'd like to ask a little bit about your hiring of a Chief Nursing Officer during the quarter. Great to see someone who believes in the Tablo story so much that they want to join the company. What will be her focus? Is it increasing home utilization? Is it increasing utilization in the acute care setting? Is it helping inside sales? What's kind of the focus of that role?

Yes, I'm really glad you asked about that. What we've learned, and I think we've talked about this a little bit in prior calls. One of the things that we learned as a team really over the last 12 to 18 months was just how critically important the role of the Chief Nursing Officer is in moving from outsourcing to insourcing of dialysis. We were finding over time that more and more of our sales processes were involving a CNO audience. They are the folks at the executive level that do ultimately own the implementation of the move from outsourcing to insourcing. And so it was really critically important that our team focused on the Chief Nursing Officer at any given hospital and that we become really good at explaining how the move really serves them and their nursing teams. And so now looking forward in this new hire of a Chief Nursing Officer, she will be really focused, first and foremost, on working with our sales organization and sharing her own experience in successfully moving from outsourcing to insourcing with many of the customers, the potential new customers in our pipeline and partnering with those CNOs to really explain and help them with the change management around that, and helping them understand kind of the key steps along the way from outsource to insource and what her keys to success were that did allow her hospital to materially lower their cost of dialysis, their complexity of dialysis, and also drive some pretty meaningful clinical improvements for patient care.

Great to see the strong quarter and the updated guidance. Leslie and Renee, would love to just touch on the enterprise channel or IDN opportunity. And I know you've had some big wins over the years, and those wins seem to continue in the first half of '25 and the pipeline is filling up with opportunities, the sales pipeline up with opportunity as well. Maybe just talk about the penetration in this IDN or enterprise channel and the go-forward opportunity a little bit more. I think you've touched on it already in some of your answers, Leslie, but I'd love to hear your build and just how big of an opportunity from here you see that enterprise channel. Clearly, it's a large one.

Thank you for the question, Josh. I'm glad to address it. Despite our recent successes in expanding our pipeline and closing new deals, I still view this as an early stage in terms of growth potential. Considering the total addressable market in both acute and subacute care, and to clarify, our subacute market includes LTAC rehabs. We currently penetrate the market at low double-digit levels. This is what excites me the most; we've made significant progress, yet with 900 sites now using Tablo across both acute and post-acute settings, it's remarkable that our market penetration is still in the low double digits, indicating that we have a lot of exciting opportunities ahead, particularly with a team capable and ready to seize them. Additionally, when thinking about the total addressable market, there's substantial interconnectivity to consider. Many health systems operate LTACs and rehabs, and several are expanding into skilled nursing facilities. Nephrologists often work in hospitals while also being involved in outpatient care and home settings. This interconnectivity at both the clinician and integrated delivery network levels significantly benefits us and helps drive our growth. One last observation that I find noteworthy is the recent trend of executive leaders moving between hospitals and health systems over the past 12 to 18 months. This has started to yield positive results for us, as when a Chief Nursing Officer transitions from one hospital to another—especially one that has successfully implemented Tablo—they carry their positive experiences and confidence to their new role. Consequently, we've experienced favorable conditions that I believe will continue as we grow our presence in both acute and post-acute care and as integrating Tablo becomes increasingly recognized as a standard of care, which we plan to deliver in the near future.

Excellent. And sorry for another relatively high-level question. But you mentioned partnering up with the third largest dialysis provider for patient access to Tablo. I was hoping you could just provide a roadmap or help us think through the tailwinds for home hemo in the second half of '25 and into 2026. Clearly, that's a nice tailwind for Outset, but maybe the market and then any other tailwinds for the home hemo opportunity, how that's opening up, how you see it opening up and any tailwinds for Outset's home franchise specifically?

I'm glad to discuss home. We've made significant progress in the home market, particularly with midsized dialysis organizations and skilled nursing facilities, contributing about 15% to 20% of our revenue, consistent with our expectations for the year. Our primary goal for home growth by 2025 centers on improving retention rates, which I believe are critical for sustainable long-term growth. We've maintained a retention rate of 90% or more in the first 90 days, and our 12-month retention rates are also very high. Retention is fundamental to our growth, regardless of how it comes about. Another objective was to form partnerships with the largest MDOs in the country, and as of Q2, we've achieved that. We are focused on deepening location growth by contracting with these major MDOs and expanding the use of Tablo in more locations. Our third goal involved entering the skilled nursing facilities market, which, while challenging, has potential given the similarities to acute dialysis. We are starting to make inroads in that area, benefiting from our acute partnerships and from skilled nursing facilities interested in managing dialysis on their own or through specialized service providers. In summary, those are our key goals for expanding our market presence with Tablo over the long term, and the team is performing well across these areas in the near term.

Excellent. Maybe if I could just sneak one in and maybe too granular with it. I mean, how should investors think about the growth trajectory from here second half of '25 into '26 for the home unit versus acute channel for Outset? Should that be kind of on par or would home or acute outpace the other?

Sure. No problem. Yes, broadly, the same. I would think about it in the same way that we've always talked about acute and subacute as kind of our first wave of growth, and we are still very, very much in that first wave, as I mentioned, just only low double digits penetrated here. So, I would continue to expect acute, post-acute to be in that 80%, 85% of our revenue range with home as the remainder. So, we don't expect any changes in that mix as we look forward here.

This is Mo on behalf of Shagun Singh. Congratulations on the quarter. I was curious if you could elaborate a bit more on the internal efforts to transform the commercial organization. You mentioned the restructuring briefly. Could you provide an update on those efforts and perhaps quantify them? I also have a follow-up question.

Certainly, I'm glad to provide an overview. The commercial organization has undergone significant changes in a short period of time, thanks to our commercial leader and her regional leadership team who have implemented numerous improvements. To answer your question more specifically, we have restructured the team and focused on developing a new set of enterprise skills. Previously, our original sales team may not have been fully equipped to take advantage of the enterprise-level opportunities we had. They had a different skill set, more suited for a startup environment. We needed sales professionals who were experienced and had a proven track record in managing complex deals across numerous facilities transitioning from outsourcing to insourcing. I can confidently say that our work to equip our team with these new skills is complete. Additionally, we introduced several new data-driven sales tools under a new Vice President of Sales Enablement, who has done an excellent job in helping our team become more focused, targeted, and efficient in managing the sales process and pipeline. This initiative has also provided our commercial and finance teams with tools that have improved forecasting and timing. Furthermore, we introduced a new sales process tailored for a different segment of our audience—our mainstream adopters rather than just early adopters. This shift in focus necessitated a distinct sales process, particularly as mainstream adopters consider moving multiple hospital facilities from outsourcing to insourcing. The sales approach required now is substantially different from what we used in 2021 and 2022. We implemented a thorough inspection protocol within this new sales process to ensure consistency across all regions while adhering to an enterprise-level sales strategy. I could elaborate further, but I hope this overview provides the clarity you’re looking for.

Totally, really appreciate it. And just a quick follow-up. You touched earlier on your goal to use less than $50 million of cash this year. Are you able to maybe talk a little bit more about what the outlook would be into 2026 for cash burn, just directionally? Any comments on that?

Yes, Mo, this is Renee. I'm happy to take this one. At this point, we've provided as much guidance as we can. We're very pleased with our performance, especially considering the significant decline from Q1 to Q2. We have shared some expectations for the latter half of the year. I wanted to reassure you about 2026, suggesting that our earnings might exceed $5 million per quarter moving forward. We anticipate some increase as we ramp up production to drive sales growth and return to a more normalized state regarding inventory production, along with typical one-off items that generally occur in Q1. We will provide more guidance for 2026.

Thanks, and thanks again to all of you for joining today. I'd really like to close by thanking our entire team for the meaningful difference that they're making every single day in the lives of dialysis patients and the providers who care for them. I hope you all have a great evening. Thanks again.

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