Outset Medical, Inc. (OM) May 19, 2026 Conference Transcript

Hello, everyone, and welcome to RBC's 2026 Global Healthcare Conference. I'm Sheldon Singh, Senior Research Analyst at RBC covering the medical device space, and I have here Outset Medical for our next session. And joining us from the company are Leslie Trick, Chair and CEO, as well as Rene Geta, CFO. Thank you so much for being here. Really appreciate it.

Thank you for having me.

Great. So, Leslie, I thought maybe we could just start with, you know, a quick overview of Outset Medical, especially for those who are unfamiliar with the story.

Yeah, sure. I'm happy to. So, Outset's solution is all about improving the outcomes, the patient care outcomes in the dialysis space, while lowering cost and lowering complexity. About 85% of our revenue today is in the acute care space. Tableau is being used in about a thousand different hospitals and health systems across the country, as well as post-acute environments, LTACs, rehabs, et cetera. About 70% of our overarching revenue is recurring revenue, and we intend to continue to amplify that given kind of the advantages around visibility and the predictability of recurring revenue. And so we're pretty pleased with our progress across the growing acute care footprint, the growth in the recurring revenue, and a growing body of clinical evidence. We have over 70 abstracts and papers that point to the clinical and the financial ROI of insourcing dialysis in the inpatient environment with Tableau, as well as a growing footprint of patients using Tableau in the home for home dialysis. So that's a quick snapshot of where we are today.

Great. Can you maybe elaborate, for those who are not familiar, just what exactly is Tableau and how it defines of simplicity in the dialysis procedure?

Yeah, sure. Well, maybe it's important to take a step back. And for those of you that are less familiar with dialysis, dialysis is not a space that's seen a lot of change or really any change over the last couple of decades. The equipment, the incumbent equipment was mostly designed back in the literally back in the 1980s, the 1990s. And so unlike the clinical arenas that I spent most of my career in, in cardiology, when I arrived here in dialysis, I was really shocked and amazed at how little technology innovation had been applied to dialysis. So what we set out to do is to make a very simplified version of the complicated, a device that would be easy enough for patients to use in the home on their own, but also would give hospitals an opportunity to create a new service model, the opportunity to kind of control their own destiny. Most hospitals actually outsource dialysis to a third-party vendor, and what we offered them the opportunity to do with an easier-to-use technology is to actually take that control back and terminate their outsourced service agreements, stand up a new dialysis service line on their own using their own nurses, and therefore really be able to control, as they say, control their own destiny around their patient care outcomes, their cost, and their operations. And so the Tableau device was designed really to provide the simplicity to allow virtually anybody to use it with, you know, with very little training and also to be able to come back to the device without having to have a lot of infrastructure. Tableau purifies water on demand. It also makes the dialysate on demand. It can deliver any form of treatment in the inpatient environment from zero to 24 hours. And so the clinical flexibility of Tableau was something that had not ever been done before in the space.

Okay, that's really helpful. You know, maybe we can start with Q126 results. Since you recently reported, you know, revenues came down about 6% year over year, slightly down sequentially. And you did call out the timing of capital orders. And, you know, it was just about a million, but it did have an impact versus what you were expecting, but some of the other segments of the business like consumable service that grew nicely. So can you maybe give us an overview of, you know, Q1, you know, what went right and what created the lumpiness on the capital side?

Sure, happy to. So yes, let's start with what went well. Gross margin performance was really strong. We have, as an organization, continued to march gross margins up from the time at which we went public consistently quarter after quarter year over year. So gross margin improvement was really strong in the first quarter. Our continued discipline around cash spend was really strong in the first quarter. We spent materially less than we had expected to in the first quarter, and that enabled us, Renee can speak to this more, to guide down for the amount of cash that we expect to burn through the remainder of the year, which was really positive. Utilization was also a bright spot in Q1. The utilization treatment utilization of the consoles was very, very consistent, and pipeline growth. We saw really good sequential growth in pipeline expansion, and we may talk a little bit more about that. Those were all the bright spots of Q1. The variability for us in Q1, as you noted, was around the timing of deal close on the capital side. Our capital sales cycle tends to be in the 9 to 12-month range, especially for deals that are larger, what we call enterprise deals, where a health system might be looking at converting five hospitals, 10 hospitals, 20 hospitals, or more. And those decision-making processes inherently and intuitively involve more people. And at the end of the day, a capital sales process is a human endeavor. You've got to get a lot of buy-in and a lot of consensus, not only from the different hospital CFOs, but all the different hospital CNOs, and then system-level executives at the CNO and the CFO level. The good news for us with Tableau is this is a very, very strong financial story for hospitals at a time when hospitals are looking for cost reduction opportunities. Our return on their capital, their payback period is typically under a year. And now we have an emerging story around clinical outcomes, reduction in CLABSI rates, reduction in length of stay, reduction in adverse events during dialysis treatments. So the value proposition is stronger than ever. I think we're still learning now as an organization with a new commercial leader on board now, how to drive more predictability around getting the capital deals closed on the timing of our choosing versus the timing of the customer's choosing. And I do think that that's something that almost every capital equipment company has to contend with and continue to master over time. That's one of our key, key focus areas for the remainder of 26 and beyond.

Got it. Just a couple of follow-ups there. I guess like what makes it structurally hard to predict capital sales. And you mentioned, you know, a new commercial officer here. You know, what is he doing differently in the nine to 12 months? Is there an opportunity to shrink that or make those, you know, give better clarity on the closing timeline?

Sure. Well, as those of you who are familiar with capital equipment might already know, nine to 12 months is actually a really pretty typical timeline for capital. And so I don't know that we're looking to kind of compress a timeline as much as we are looking for predictability and visibility around closed timing. And so if we think about a deal that is expected to close in 12 months, we would like that to close in 12 months. That's the sort of predictability and visibility that we're looking for. Again, remembering that 70% of our revenue is recurring revenue. We're talking about this 30-ish, 25 to 30% capital. We want to get more predictability in that top stack. Where we see the opportunity is actually kind of in the middle of our sales cycle, where you really get into the implementation conversation with the chief nursing officer. How are you actually going to handle the change management between, hey, we've outsourced this to a third party for 20 years. Now we're going to stand up our own inpatient dialysis service line for the first time. We've never done this before. And so it's very easy for the CFO to get excited about the financials. When we show them the ROI, that is the enticing. That's the fun part of the sales process. But the CFO doesn't actually have to stand up the service line. The chief nursing officer has to do that. And that's really where we spent a lot of time in 2025, hiring our own chief nursing officer who was prior to that a customer of ours and building a team we called the clinical excellence team and standing up what we now call implementation services. And this is where we see the opportunity to drive more predictability around deal close timing, because that's where we typically see the sales cycle elongate, is in the middle where the CNO is thinking through, how am I going to hire the team? How am I going to stand up policies and procedures? How am I going to terminate my service agreements? And how am I going to educate my physicians differently? So this implementation services suite, which is proprietary to us, is kind of an instant playbook. We will come in and do it for you. And so we believe through 26, this is relatively new. So it's too early to be predictive about it. But our ability to come in and assure the CNO that we can really kind of give him or her the easy button, we believe actually will give us more predictability, if not potentially shorten the sales cycle, but minimally give us more predictability around deal close timing by giving the CNO more confidence that we can come in and really do it for them. So that's new for us in 26.

That's helpful. Thank you. You know, you did hold the guidance study at 125 to 119. 30 million despite the software Q1. So can you talk about the confidence there, you know, just given, given, you know, you did talk about pipeline expansion. So do you have visibility into that? Do you have signed letters of intent or purchase orders? What gives you confidence and that you can still achieve that number?

Sure. Yeah. I think it's really goes back to that, you know, Leslie and I have been very close to the sales organization in the last six to nine months and literally deal by deal review, getting down to those finite decisions, at what point are decisions being made, how can implementation services and other facets of how our team can come together to support proper execution can come all together. So it is, I would say, a plethora of information that we are looking at, bottoms up and top down, to assess sort of where we're at, and just the insights that we have both from our experience but but also you know what we've seen and we mentioned during the quarter the you know the 200 consoles with the implementation services sort of going live um what is that experience like how how are those teams engaging really just gives us confidence and the current conversations that are going on with our pipeline i would just add to that i think we have you know there's sort of two um pretty meaningful tailwinds for the remainder of 26 which we didn't have in the first quarter, nor in 2025.

One is this emerging refresh cycle. And to define some terms for everyone in the audience, when we think back to kind of our first commercial years, we launched in 2019. So if you think about consoles that were sold in 2019, 2020, those are starting to bump up against end of life. And so again, not uncommon for capital equipment companies, you then start to enter six, seven years later, an opportunity to sell more consoles to upgrade or refresh refresh the consoles that have aged out. And so we are just on the cusp of refresh as another growth vector for us on the console side. That's part one. And part two, we did get a very, very important FDA clearance in Q1 that made Tableau, we believe, the first and only dialysis system to meet the FDA's latest and very, very high bar around cybersecurity. We call that our next generation tableau and we are preparing for an early launch later this quarter and a full launch into q3 which we believe will drive not only the refresh cycle but also continue to drive our pipeline of new console opportunities that's really helpful just putting that all together as you think about the cadence of growth for the year i think in q2 you've indicated a modest step up what does that mean um and you know it looks like you do have the drivers your pipeline is expanding.

You talked about the two new opportunities. You know, does that give you more confidence in the big step up that your guidance implies in Q3, Q4?

Yeah, I think overall, certainly comfortable with the guidance for the full year. You know, as Leslie mentioned, 70% of our revenue comes from this very stable recurring revenue, both consumables and service. And we have insight into how those machines are functioning and operating, you know, on a daily basis. So that gives us the confidence for what I would say is the solid stability in the revenue. And then it's this incremental layer on top specific to capital sales. And that obviously comes down to the timing of the close of those deals. But what Leslie has highlighted, having our Q2 launch of our commercial new next generation product, and then of course the soft launch and then full launch of that, we believe will be a tailwind for us for the year. And we're factoring that in, I would say, you know, I'm not going to get necessarily finite to specific sort of numbers, but we did want to give some indication around, you know, look for Q2 to sort of be modest, and then we absolutely see, and then therefore, it's just sort of the math just works out that the growth will be more substantial in the back half of the year.

And I'm sorry, just to push on that, modest would be like low single digit, mid single digit, at any final point there?

You know, I don't, I think you're sort of in the ballpark, is what I would say. trying to not be quantitative, more qualitative in that because the timing of these deals all sort of come together and all I can promise you is we are working extremely hard to get more predictable in the revenue growth on the console side, but again, we start with a foundation of 70% recurring revenue that we stand upon.

Can we maybe talk about the refresh opportunity? How do you size it? Is that going to be meaningful in 26 or, you know, probably more substantial in 27? And then, you know, how do people go about that? Is there a trade-in cycle that we should expect? Is there an ASP premium? How should we think about it?

I would say, you know, high level more to come because we are just on the cusp of it. But if you were to look back and you can sort of look at the number of consoles, you know, we sold, we were giving install base numbers annually. We typically give them annually in 2019, 2020, and 2021, and yeah, it's meaningful. I mean, it's hundreds and hundreds and hundreds of consoles, but this is new for us, and we're on the front end of it, and so it's too early to have enough history to say, hey, here's what the list is going to be. Here's what the ASP is going to be. I think it would not be unusual at all for capital equipment companies to offer a trade-in. That's pretty standard, and that's probably the path that will go down. I think we'll certainly have more color on that, um, probably in our August call and certainly through, through the year. But yeah, I would think about that as a tailwind for, um, many years to come. That's not just a 20, 26 phenomenon.

And, and is that include any part of that included in your guidance or the confidence in hitting your 26 guidance at this point?

Um, generally no, generally no, because again, this is new for us. It's a new muscle that we're, you know, we're, we're exercising. and as we think ahead into 27, 28, and 29, we're going to learn a lot about what percentage of our revenue that the Refresh ends up being, but we do now, as we think forward to growth rates and what the opportunities are ahead of the company, it's not just about new consoles, new expansion, new customers. We do believe that Refresh will also be a meaningful tailwind for us as well.

And then you mentioned the next-gen, Pablo. Can you maybe elaborate on that opportunity? You know, how significant do you think it could be? You know, what kind of feedback you're getting? And we have had some cybersecurity incidents in our space. So it seems very timely. But anything additional you can add in terms of, you know, ASP premiums? You know, how do you expect that to be a growth contributor?

Yeah, we're really pretty proud of it. It took us almost 17 months of technical work to get here. And this is on a platform that was designed in the mid-teens, already a modern architecture. um it was i think that the test validation report itself was like 29 000 pages um it was a major major major effort um about 660 design changes that covered not only cyber security but also device performance reliability um why does anybody care about that it's really all about uptime in a hospital environment you want the machines to be available when they're needed to be used and so there are lots of i'm sort of chock full of improvements around as i said device performance reliability, and then cyber. Many, many, many cyber controls around network and cloud and physical access. The FDA has set an incredibly, incredibly, incredibly high bar with its 2025 guidance, and then they actually just uprev that to 2026. And so I think it is a difficult bar to reach. Early feedback from customers has been extremely positive that it is early, and we haven't again formally launched it, but there isn't a health system executive that I've talked to that is not extremely focused on cyber. And most of the feedback we've heard is they're not only focused on their own network security, they are extremely focused on devices as an attack vector because it's happened. And so I think it will be very powerful for us to be able to go in and say, hey, this is the only dialysis system, we believe, that meets the very latest and most stringent FDA requirements, not only around cyber, but also the whole suite of safety standards, we're called 60601 safety standards, that outset uniquely meets. And so it's beyond cyber. It's really about clinician safety, nurse safety, patient safety. And I think that this will be a very compelling message that we're going to lean into a lot more as we go forward. Cybersecurity and safety is Tableau being the modern architecture and platform.

And what about the ASP premium? Should it be like 10% or is it an opportunity to command a higher premium just given the cybersecurity, you know, given that it's so topical?

Yeah, I think in the theoretical, yes, you're right. And there is opportunity there. And I'd say, you know, more to come as we get a little deeper to the launch. But broadly speaking, yeah, we think there's a, we know that there's a lot of incremental value. And I think we'll, our pricing will reflect that.

You know, I wanted to talk about, you know, just the cash and profitability status of the company. definitely the cash point has gone down. What are you cutting on to achieve those levels of cash given what the top line is doing? How much runway do you have? And do you expect to approach capital markets at all?

Yeah, great question. I think we are in the benefit of sitting here with a very healthy balance sheet. If you look at our balance sheet, we've got $160 million of cash and cash equivalents and investments. And to your point, we burned $46 million last year, and we'll continue to march that down every single year. Profitability is extremely important to us as an organization and appreciate that that is as well for shareholders. And so we are doing everything we can, whether it's looking at working capital structure and how we're managing the balance sheet, as well as the cost cutting that we've done throughout gross margin, but then across the P&L. And what I can say is, you know, we've proven that we've been able to do that and maintain the rigor around spend consistency while still investing in portions of the business where we know that dollars need to be invested. And so we will do that. We feel very confident in what we have with regards to cash runway, our visibility to our planning horizon, where we think that profitability will come. You know, we only guide to 2026. So I'm going to be a little bit hesitant around talking out further than that, but we feel very comfortable and don't plan to go to the capital market.

Are you continuing to invest, for example, on the commercial front, which I think is very critical for the company? And then what about R&D? It seems like you already have the next-gen Tableau out. So are you kind of saving there? Can you talk to us about those two components?

Sure. Yeah, we absolutely are continuing to invest in the commercial organization. That said, we think the commercial organization today is well-sized and well-structured. We're investing in, and this might be a little bit underappreciated, in our field service organization, that is absolutely critical to the customer experience, right? And critical to utilization is device uptime. The machines need to be available when they're needed for treatment. And that's thanks in large part to our field service team. So we're continuing, broadly speaking, the commercial org to us is field service, capital sales, and clinical excellence. And I mentioned this relatively new team under our CNO, and they're very focused on customer success, formal customer success, where we are giving the customer their data. And this also leverages something else that's very unique to Tableau, which is data. We have about 8 trillion data points in our cloud. We are directly integrated with Epic and Cerner, which is also unique to Tableau. And we have an opportunity to give the customer clinical data outcome information that they cannot get with any other system. And so those are the sorts of investments we're making broadly around commercial that are related to but transcend just more salespeople.

Got it. I know previously you had indicated that Outset Medical would achieve profitability or be adjusted even positive at less than 200 million in sales. Is that still the target?

Yeah, certainly around that sort of we say, you know, mid 40 million revenue on a quarterly basis with gross margins at 50%. So that is certainly within the ballpark. And again, within in our planning horizon, reaching the 50% on gross margin, again, is also extremely important to us. And we've proven that we continue to make improvements there. And we, you know, I think as we think about our not only revenue structure that we have today, but items that Leslie has mentioned specific to, whether it's EMR, implementation services, there's going to be some high margin revenue streams that we're going to continue to layer on as we think about, again, our predictable recurring revenue side of the business.

Got it. Leslie, the stock has been a little bit volatile. I think, you know, investors want to see more consistent, durable performance from Upset Medical on a quarterly basis. You know, can you maybe share with us, you know, where is, where are you most focused? Is it on the commercial front? And, you know, is that the bottleneck? Do you need, you know, to collaborate or, you know, access some additional partnerships? You know, what is your focus at the moment to take outset to sustainable, durable revenue growth?

Yeah, our focus, well, let me take a quick step back. Broadly speaking, it's revenue growth, gross margin expansion, and getting profitability. That's it, right? Those are the three things, and we don't really spend time, money, energy, or resources on anything that's not related to revenue growth, gross margin expansion, and getting to profitability. Zeroing in on 2026, I am very, very comfortable with with how we're performing on gross margin. I'm very comfortable with how we're performing toward profitability. And then on the commercial front, I really appreciate our team's ability to drive treatment utilization consistency. That can't be taken for granted. There are many capital equipment companies that sell a lot of capital and never see the pull through utilization. When Tableau consoles are sold into the acute space, they generally are at $20,000 to $25,000 a year of recurring revenue year after year after year. we're continuing to build on that, selling EMR and selling clinical data, and there will be more recurring revenue for each console in the acute environment. So we're doing really well there. So answering your question, I think the one last, you know, mountain for us to climb is predictability around console sales. We did bring in a new commercial leader, which we alluded to a few minutes ago, who has a long track record in national accounts, capital equipment, with organizations like Striker, who he is sold to, how he has sold, is a direct overlap with what we're doing and how we're doing it here at Outset. And that'll be new for us in 2026. But yes, we understand the importance of execution and specifically execution on the capital side. It's kind of the last piece of the puzzle to fall in for us. And that is our number one priority for the remainder of 26 and beyond.

Got it.

Last question for me, just on the capital environment, you know how is it shaking out so far in terms of capital spending we really haven't seen any change with our hospital customers and um i mean every hospital is going to have a little bit of a different balance sheet and different priorities but broadly speaking that we we have not seen that as a headwind for us today okay very well thank you so much for being here yeah thanks again for having us thank you