Thank you for standing by. My name is Liz and I'll be your conference operator today. At this time, I would like to welcome everyone to the Outset Medical First Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Jim Mazzala, Head of Investor Relations. Please go ahead.

Good afternoon, everyone, and welcome to Outset Medical's first quarter 2026 earnings call. Today's speakers are Leslie Trigg, Chair and Chief Executive Officer, Derek Elliott, EVP of Commercial, and Renee Gaeta, Chief Financial Officer. The company issued a news release after the close of the 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 the Outset Medical website. 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.

Thanks, Jim. Good afternoon, everyone, and thank you for joining us. The first quarter reflected consistent execution across console utilization, new customer additions, gross margin expansion, and disciplined cash management. While variability in capital order timing impacted our capital sales performance in the quarter, we remain confident in our growth plan for the year, supported by the upcoming launch of the Next Generation Tableau, a deep sales pipeline, and the addition of an experienced commercial leader in Derek Elliott, who I'm pleased to personally introduce to you today. Beginning with the quarter, revenue of $27.9 million was down slightly from the fourth quarter due to the lumpiness of capital sales, but we are confident in our growth plans for the full year. Treatments and service performed exactly as we expected, and we achieved excellent gross margin expansion with product margin reaching over 52%, the result of our ongoing margin expansion programs and NIC. More broadly, our end markets remain healthy, and providers continue to allocate capital to projects that deliver clear benefits like those we offer. We are reaffirming our annual guidance today because we remain very confident in the depth, diversity, and maturity of our pipeline. In particular, we are in the late stages of closing several large new deals and also an emerging refresh opportunity with existing customers who have older Tableau consoles and intend to buy replacement units in future quarters and years. We had several key wins during the quarter and managed successful go-live implementations at both new customer sites and with existing customers expanding Tableau and sourcing to new facilities within their network. A very recent example occurred just a few weeks ago in Texas. Over the course of two days, our team set up dialysis service lines at multiple hospitals owned by one of the largest health systems in the country. These facilities had a total of approximately 400 beds and required support to train the nursing staff, ensure replicable procedures were in place, and prepare the internal team to manage the new service line. Our service and implementation teams are truly the shining stars of Outset, extending our unique dialysis clinical expertise to customers. These teams ensure nurses are well-trained, policies and procedures are in place, and that customers have a reliable, seamless transition from their outsource provider to an in-source model. Here in the second quarter, our team is replicating this success with go-live implementations occurring at more than 30 facilities involving nearly 200 consults. From an operational perspective, we are well prepared for the initial transition to next-generation Tableau later this quarter. We believe this platform is the first dialysis system cleared under the FDA's 2025 cybersecurity requirements and includes hardware and software enhancements that improve performance and system reliability. A dialysis system that meets FDA's cybersecurity guidance helps protect hospitals by reducing the risk of compromise, limiting the risk of spread, and safeguarding patients. We view Tableau's secure-by-design principles, layered access controls, and controls intended to reduce the risk of unauthorized access as a significant new competitive advantage. It provides yet another compelling value proposition on top of the cost savings and clinical outcomes improvements associated with insourcing that we believe will be recognized by health systems amid ever-increasing concerns over cybersecurity, continuity of care, and patient safety. We plan to begin with a limited release, extending into the third quarter, then ramp to a full launch. In early customer discussions, there has been strong reception to the cybersecurity benefits and other enhancements that Next Generation Tableau will provide. We are very excited for the rollout and will share additional details on our August call. Finally, I'd like to reiterate our strong cash position and unwavering focus on reaching profitability. During the quarter, we expanded margins to record levels and remained disciplined in our spending, both of which contributed to a lower-than-expected use of cash. I'm proud of the progress our team continues to make, streamlining our supply chain and manufacturing operations, strengthening our service organization, becoming more efficient in every corner of the business, and expanding our partnership and presence with acute and post-acute care providers. Before Renee walks through the financials, I want to take a minute to introduce our new commercial leader, Derek Elliott. Derek has been on the job for a month and is already making an impact through his deep customer relationships, sales and marketing expertise, and disciplined approach to pipeline management. I'd like to invite Derek to say a few words about himself and his priorities.

Thanks, Leslie, and good afternoon, everyone. As Leslie said, I joined Outset about one month ago and spent that time conducting a deep dive into the business. I've met with our leadership and sales teams, conducted thorough reviews of our pipeline and forecast methodology, and visited many customers. One month in, I can say with confidence that we have a great team, a strong and differentiated product fit, and customers who are deeply interested in improving the dialysis experience for their patients and organizations. When Leslie first approached me about this position, it became clear that my background was a unique fit for Outset. I've spent more than 30 years serving many of the same customers in sales leadership positions, including 17 years at Stryker across national accounts, capital equipment, and professional services. More recently, I've worked closely with customers to sell EMR connectivity, software, and data analytics across hospitals and health systems nationwide, which is all very similar to Outset's business, customer call points, and value proposition. My near-term priorities include working with our commercial team to prepare for the launch of Next Generation Tableau and being very involved at the customer level as we advance and close business in 2026. We have a meaningful opportunity to improve the lives of patients and the providers who serve them. I see how that mission motivates people across Outset, and I'm proud to now be a part of this team. With that, I'll turn the call over to Renee.

Thank you, Derek, and good afternoon, everyone. Revenue in the first quarter was $27.9 million, a 6% decrease from $29.8 million in the first quarter of 2025, largely due to some lumpiness in the timing of capital orders. Product revenue was $18.6 million, down 13%. We anticipated this year-over-year dynamic on our last earnings call and also saw about $1 million in capital deals shift from the first quarter and are expected to close later in the year. Capital sales were $5.4 million, and consumable sales were a bit stronger than anticipated at $13.2 million. We remain very focused on our forecasting methodology for treatment, which, as I mentioned last quarter now includes closer collaboration with our largest customers on their ordering patterns. Service and other revenue of $9.3 million grew 10%, from $8.5 million in the prior year period. Recurring revenue from the sale of Tableau consumables and service was $22.5 million, roughly flat sequentially, and with the first quarter of 2025, both as we anticipated. Next, I'll walk through gross margin and operating expenses for the quarter. Please refer to the table in today's earnings release for a reconciliation of gap to non-gap measures. Non-gap gross margin expanded 620 basis points from last year, reaching 43.8% for the quarter. Product gross margin was driven by sales mixed and increased 400 basis points to 52.4% from 48.4% in the first quarter of 2025. Service and other gross margin was 26.7%, increasing again sequentially and growing more than 1,600 basis points compared to 10.3% in the first quarter of 2025. This reflects strong execution and keeps us on track for the next milestone of 50% company-wide gross margin. Moving to operating expenses, non-GAAP operating expenses increased nearly 4% to $25.6 million compared to $24.6 million in the first quarter of 2025, driven by investments in systems and people. Non-GAAP operating loss was $13.4 million, even with the prior year period. Non-GAAP net loss of $15.4 million improved 32% compared to $22.8 million in the first quarter of 2025. These results reflect the continued progress as we work to achieve profitability. Moving to our balance sheet, we ended the quarter with $161 million in cash, cash equivalents, short-term investments, and restricted cash. We used approximately $12 million during the quarter, which is less than we previously forecasted due to ongoing expense, discipline, and working capital management. As we look ahead to our cash needs for the remainder of the year, we now anticipate using less than $40 million, which is roughly 15% better than we previously expected. Turning to our guidance for 2026, we continue to expect revenue to be in the range of $125 to $130 million, a 5% to 9% increase over 2025, with the majority of the 2026 growths coming in the third and fourth quarters. For non-GAAP gross margin, guidance assumes that as we ship more consoles, gross margin will approach the lower end of the range, just as a higher mix of consumables will move gross margin towards the higher end of the range. Balancing these two factors, we continue to expect gross margin to be in the low to mid 40% range for the full year. With that, I will turn the call back to Leslie for closing comments.

Thanks, Renee. I want to close by emphasizing Outset's strong market position. With more than 1,000 facilities using Tableau and more than 3.5 million cumulative treatments performed, we continue to gain ground as the leader of dialysis and sourcing. We expect next-generation Tableau, as the only dialysis system we believe to have been cleared under the FDA's rigorous guidelines for cybersecurity, will continue to solidify and extend that position. There are now more than eight trillion data points in our cloud platform, which helps fuel our analytics and innovation engine, improve the customer experience, and ultimately enhance patient care. With insights from this data repository and our strong suite of professional implementation services, LSAT is increasingly recognized as the directed partner. We improve dialysis patient care while reducing costs and streamlining operations. And we get to see the results every day for customers of all sizes. For example, a regional 400-bed multi-site health system reported an approximately six-fold decrease in their dialysis costs during their first year of insourcing with Outset and Tableau. This health system performed approximately 2,000 dialysis treatments per year, so the cost savings are substantial. As meaningful, they saw no central line bloodstream infections, improve their documentation and joint commission readiness, and operationalize a more sustainable staffing model. All of the progress we've made provides a powerful foundation for value creation over the long term, which we look forward to demonstrating in the coming quarters and years. And with that, I think we are ready for Q&A. Operator, please open the lines.

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Rick Weiss with Stifle. Please go ahead.

Good afternoon, everybody. Hi, Leslie. You won't be surprised that I'm hoping you can give us a little more color on, as you described as the capital order variability and lumpiness. Just, you know, when I look back to the fourth quarter, you know, you've characterized the pipeline as building positively, sounds like it still is, and healthy balance of larger and smaller deals, new and existing customers. And I doubt that's changed. What resulted in lumpiness? why the delay, and maybe help us better understand when we're likely to see those sales happen or what you're expecting.

Yeah, sure. Hi, Rick. Good to hear your voice. So, yeah, Kat, let's start with – I'll move through the sections of your question. I'll start with the capital order variability and the pipeline. The pipeline did continue to grow in Q1 as well. We saw good sequential growth and new opportunities that were added to the pipeline, and as you remembered from Q4, the way we look at the health of the pipeline, of course, is in terms of its size, its depth, the diversity, the size of each deal, new customers versus existing customer expansions, and then obviously the maturity, the stage that the deals are in in that pipeline. And across all three of these dimensions, the pipeline for 2026 and beyond is robust. We, in particular, are in the late stages of several large new deals that we do expect to close in 2026, and also at the cusp of an emerging refresh opportunity, which we just alluded to in the prepared remarks, with existing customers who have now older Tableau fleets and have conveyed an intent to buy replacement units in future quarters and in future years. So that's a bit about how the pipeline has continued to strengthen, I think, kind of Q4 and into Q1. um in terms of the lumpiness of the of the capital order uh sales cycle it it is less predictable for us um than tableau utilization and we've talked in the past about the stability and the predictability of of the utilization of the consoles once sold and installed um that continues to serve us well it served us well in in q1 and yet again um the lumpiness of the capital sales cycle does make it less predictable. It's really around the close timing, which might be stating the obvious. But beyond that, all of the other areas of our business performed exactly as we expected, and we do remain on track with our guidance for the year because the couple of deals that we saw slip out of the quarter are expected to close here in the Q2 through Q4 timeframe to answer that part of your question, which, again, gives us a lot of confidence in the guidance range, in addition to a couple of new tailwinds that we will be coming into here later in Q2 and through Q3, Q4, in the form of the next generation Tableau launch, the kind of the additional firepower our new commercial leader is going to bring to our organization. So all of those things kind of make us very bullish about executing Q2 through Q4 here.

Gotcha. Maybe just a second one from me, you know, there's a lot to unpack here, but just on a more mundane level, help us think through the quarterly phasing, the quarterly flow. So, I mean, I mean, just it sounds like it's going to be a more back half loaded year based on your comments, or at least what we should assume that today for the moment. It could happen sooner. Some of those delayed orders, for example. But the second quarter, I mean, does the second quarter, as opposed to stepping up like it did sequentially, the way it did last year, is it flat with the first quarter or down? And do we, you know, since you're holding guidance constant, if we take the midpoint of your $125, $130 million range, do we evenly step it up in the third, fourth quarter? And again, last year, you know, last year, you know, both were around $29 million. I mean, are these going to be roughly equal quarters and whatever the remainder is to get to the midpoint of the guide? But, you know, help us think through the phasing.

Renee, you want to take that one?

Sure. Rick, I'm happy to give some color here. You know, as we sit here today with just one quarter in, we've obviously spent a lot of time looking at not only the pipeline, as Leslie sort of mentioned, but, of course, all of the factors that roll up into our full-year guidance. And I would, you know, at this point in time, we would say that Q2 would sort of be a modest step up. And then, as we indicated on the call, the Q3 and Q4, of course, we'll see the larger percentage of the growth. You know, whether or not it's – I don't think it's something that we would expect to see flat Q3 and Q4. You might continue to see some step up, right? It'll be, again, based on the timing of the close of these capital orders, we'll really dictate that and pull through. But, you know, as 70% of our revenue is coming from the consumables and service and other, that part we expect to see stable and in the range of the 5% to 9% growth that we're expecting for the top line would certainly be across all of those categories.

So just to sum it up, a modest step up in the second quarter, and it's not like you're saying that all, you know, all of the remainder to get to the, just again, I'm focused on the midpoint of the guys. It's not like it is all in the fourth quarter. You'll see sequential step up in each quarter.

Correct. I think that's a good way to think about it.

Great. Thank you very much.

Thanks, Rick. Our next question comes from the line of Colin Clark with T.D. Cohen. Please go ahead.

Hi, guys. Thank you guys for taking my questions. First, on the delayed orders in the first quarter, I'm curious. You talked about having several large orders in the pipeline expected to get landed in a 2-4Q period. What's driving your confidence there? What about those orders in size and scale and the stage of that process? is driving the reiteration of guidance here. Thank you.

Sure. Yeah, I'm happy to take that. Well, I have had the opportunity to remain extremely close to all of our largest deals in forecast for 26. And to answer your question more specifically, we would first and foremost look at the staging of those deals. We've talked in the past, maybe not recently, but we've talked in the past about the stages of our sales process. And so we look at how many of those deals are in the later stages of the pipeline. And then we have had enough, you know, enough history here and now have the ability to use some historical data to inform the probability of close between, let's say, Q2, Q3, Q4. And so the confidence to answer your question is informed by the data that we have about where these customers are. And these are both new customers and also existing customers that, based on their financial and clinical results with Tableau, are choosing to expand into new facilities. informed by that probability of closed data, we feel we have a pretty good understanding and a good handle on which of those deals is likely to land in Q2, Q3, and Q4. So that's really what's underlying our expectations. And then in addition to, not to make this answer longer than it needs to be, but in addition to that, I just alluded to this next generation tableau, which we will be in full launch mode in the second half of the year. And we do expect NextGen to be a demand driver as hospitals and health systems continue to tell us that cybersecurity is at or very near the top of their priority list. And so as we believe we have the only dialysis system in the market to meet these very stringent FDA requirements, we believe that will be a demand driver based on how well this is resonating thus far in our early sales conversations. So we view that as an incremental tailwind for the second half of the year.

Understood. That's very helpful. I'm curious, on the next-gen system, does it have the potential, do you think, to accelerate these trade-in timelines as far as replacing older generation tableaus?

That is an excellent question. And the short answer is yes, I think it could. Yes.

Perfect. One final one from me. Thank you guys for hosting the webinar this afternoon with the the dialysis supervisor at Reed Health, which found it really helpful. We were interested in what she said about bi-directional integration of Tableau into the EMR. Can you talk about the functionality that enables and what that does for your revenue recognition when Tableau not only uploads data to the EMR, but the operators have the potential to input orders from the EMR to Tableau?

Sure. Well, thank you for listening to the webinar. I appreciate that. And yes, Reed Health has had a lot of very, very positive benefits clinically and financially through insourcing in Tableau. To fill other listeners in on this call, what is being alluded to here is a potential future capability for bidirectional data transfer. Today, what we offer is uniquely one-way data transfer. we are directly integrated with Epic and Cerner and many other EMRs, which again is unique to Tableau. And the way that health systems are using that today is to directly transmit or upload all of the treatment data from Tableau after every treatment up to their EHR. There is an opportunity to add a new feature to our EMR offering in the future which would allow prescription data or information to be transmitted directly from the EMR to the tableau and so that is something that you know we're pretty excited about as a future direction and that we have heard and it sounds like you heard from Reed Health would deliver quite a bit of value to our customers when we think about our recurring revenue foundation that Renee alluded to, it's roughly about 70% of our total revenue. Our overarching revenue strategy is to drive the highest possible percentage of our total revenue from recurring revenue sources. It's visible. It's very predictable. So EMR is an example of a recurring revenue layer that we've added around service and around consumables. and we've had some pretty good early success with selling EMR both in terms of upfront implementation and recurring maintenance fees annually. Were we to add new features like bi-directional, we would view that as, of course, an incremental revenue opportunity, further fueling the recurring revenue foundation that we enjoy.

That was very helpful. Thank you. I'll hop back in queue.

Okay, thank you.

We have no further questions at this time. I will now turn the call back over to Leslie Triggs for our closer remarks.

Terrific. Thank you to everybody for joining today. I'd like to close by thanking our customers and our team for the difference that they make every day in the lives of dialysis patients. Have a great evening, everyone.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.