Outset Medical Inc Aktie

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.

[Operator Instructions] I would now like to turn the call over to Jim Mazzolla, 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; Derick 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 Investors 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 plans for the year, supported by the upcoming launch of the next-generation Tablo, a deep sales pipeline and the addition of an experienced commercial leader in Derick 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 mix.

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 Tablo 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 Tablo in-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 outsourced provider to an in-sourced 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 consoles.

From an operational perspective, we are well prepared for the initial transition to next-generation Tablo 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 Tablo's secure-bydesign 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 in-sourcing, 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 Tablo will provide. We are very excited for the rollout, and we'll 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, Derick Elliott. Derick 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 Derick to say a few words about himself and his priorities. Derick?

Thanks, Leslie, and good afternoon, everyone. As Leslie said, I joined Outset about 1 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 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 Tablo 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, Derick, 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 shifted 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 Tablo 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 GAAP to non-GAAP measures.

Non-GAAP gross margin expanded 620 basis points from last year, reaching 43.8% for the quarter. Product gross margin was driven by sales mix 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 million to $130 million, a 5% to 9% increase over 2025, with the majority of the 2026 growth 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 Tablo and more than 3.5 million cumulative treatments performed, we continue to gain ground as the leader of dialysis in-sourcing. We expect next-generation Tablo 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 8 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, Outset is increasingly recognized as the trusted 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 multisite health system reported an approximately sixfold decrease in their dialysis costs during their first year of in-sourcing with Outset and Tablo. 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, improved 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.

[Operator Instructions] Your first question comes from the line of Rick Wise with Stifel.

You won't be surprised that I'm hoping you can give us a little more color on, as you described, the capital order variability and lumpiness. Just when I look back to the fourth quarter, you characterized the pipeline as building positively. It sounds like it still is and a 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?

Yes, sure. Rick, good to hear your voice. The, so yes, 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 in 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 Tablo 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. In terms of the lumpiness of the capital order sales cycle, it is less predictable for us than Tablo utilization. We've talked in the past about the stability and the predictability of the utilization of the consoles once sold and installed. That continues to serve us well. It served us well in Q1. And yet, again, 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 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 time frame 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 Tablo 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.

Got you. Maybe just a second one for me. There's a lot to unpack here, but just on a more mundane level, help us think through the quarterly phasing, the quarterly flow. 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, since you're holding guidance constant, if we take the midpoint of your $125 million, $130 million range, do we evenly step it up in the third, fourth quarter? And again, last year, 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? Help us think through the phasing.

Sure. Renee, do you want to take that one?

Sure. Rick, I'm happy to give some color here. 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, 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 will see the larger percentage of the growth.

Whether or not it's, I don't think it's something that we would expect to see flat Q3 to Q4, you might continue to see some step-up, right? It will be, again, based on the timing of the close of these capital orders, will really dictate that and pull through. But 70% of our revenue is coming from the consumable 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 all of the remainder, if you get to, just again, I'm focused on the midpoint of the guide. 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.

The next question comes from the line of Colin Clark with TD Cowen.

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 the 2Q to 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?

Sure. Yes, I'm happy to take that. Well, I have had the opportunity to remain extremely close to all of our largest deals and 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 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 Tablo are choosing to expand into new facilities, informed by that probability of close 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. 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 Tablo, which we will be in full launch mode in the second half of the year. And we do expect next-gen 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 time lines as far as replacing older generation Tablos?

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

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

Sure. Well, thank you for listening to the webinar. I appreciate that. And yes, Reid Health has had a lot of very, very positive benefits clinically and financially through in-sourcing in Tablo. 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 Tablo. And the way that health systems are using that today is to directly transmit or upload all of the treatment data from Tablo 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 Tablo.

So, that is something that we're pretty excited about as a future direction and that we have heard, and it sounds like you heard from Reid 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 bidirectional, we would view that as, of course, an incremental revenue opportunity, further fueling the recurring revenue foundation that we enjoy.

We have no further questions at this time. I will now turn the call back over to Leslie Trigg for closing 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.

Good day, and thank you for standing by. Welcome to the Outset Medical -- I'm sorry, Q4 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I will now turn the conference over to Jim Mazzola, Head of Investor Relations. Please go ahead.

Good afternoon, everyone, and welcome to our fourth 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. 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 Outset's public filings with the Securities and Exchange Commission, including our latest annual and quarterly reports.

Leslie?

Thanks, Jim. Good afternoon, everyone, and thank you for joining us. 2025 was a year of progress and transformation at Outset Medical, a year where we overcame adversity to emerge with a stronger foundation and even deeper capabilities to help hospitals, health systems, post-acute and home providers improve patient care outcomes at lower cost and with less complexity.

During the year, we substantially reduced our cost structure while making significant investments to extend our technology and service leadership. These investments were key to our announcement 2 weeks ago about the FDA clearance of our next-generation Tablo platform. Second, we meaningfully strengthened our team and infused new talent into key leadership roles, in finance, medical affairs and field service.

Third, we recapitalized the company with less debt and new capital to fund Outset through cash flow breakeven and beyond. Fourth, we expanded our base of published evidence, demonstrating the significant clinical, operational and financial benefits that can be achieved by in-sourcing with Outset and Tablo. In particular, the clinical value proposition came into clear focus as our customers documented even more evidence of improved clinical outcomes.

Fifth, we maintained a very high customer satisfaction, or CSAT, score, above 95% for the exceptional customer service we provide. And lastly, we continue to sign new agreements for the in-sourcing of dialysis at new and expansion sites, including at one of the largest national health systems in the country with well over 100 facilities. Tablo is now used at roughly 1,000 acute care sites in the United States.

Turning to our financial results for the year, we announced preliminary fourth quarter revenue last month, which came in at the high end of our revised guidance range. At $119.5 million, revenue grew by 5% over 2024 and sets us up for what we anticipate will be an even stronger growth year in 2026. As we have worked toward greater consistency and predictability in our top line results, we continued our steady 5-year expansion of gross margin to finish the year at 39.6% non-GAAP gross margin. Gross margin exiting the year was well above 40%, which keeps us on a trajectory to our next milestone of 50%.

Moving to our end markets, I am most proud of the progress we made during 2025 strengthening our partnership and presence with acute and post-acute care providers. We began to see vocal champions emerge throughout our customer base because of the clinical and operational benefits that can be achieved by in-sourcing with Outset. The financial benefits have long been understood and remain a key selling point. In 2025, we saw new momentum from nursing leaders sharing their experiences with improved clinical outcomes as well: lower infection rates, reduced length of stay and higher nurse satisfaction with the dialysis service line that is in-sourced with Outset.

Operationally, from gross margin expansion to product innovation to operating expense performance, we made meaningful progress in 2025 and took strides on our path to profitability. In the past year, we reduced cash usage by $70 million, increased gross margin by more than 500 basis points and continued to narrow our operating loss.

Additionally, we made investments in innovation to further extend our technology lead and, just 2 weeks ago, received FDA clearance for the next-generation Tablo platform. This new 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 as well.

A 2025 survey of U.S. health care IT and cybersecurity professionals published in the HIPAA Journal found that 93% of health care organizations had experienced at least 1 cyberattack in the past 12 months, with an average of 43 attacks per organization annually. Cyber attacks slow patient care, reduce the hospital capacity and create staffing strain. More than 70% of hospitals experiencing a significant cyber attack report direct patient care disruption, which is why health systems now treat cybersecurity as a critical patient safety issue.

A dialysis system that meets FDA's most stringent cybersecurity requirements helps protect hospitals by reducing the risk of compromises, limiting the risk of spread and safeguarding patients. We view Tablo's secure by design architecture, multilayer authentication and resilience against unauthorized access, as well as its compliance with FDA's rigorous cybersecurity standards as a significant new competitive advantage. It provides yet another compelling value proposition, on top of cost savings and on top of clinical outcomes improvement, that we believe will be recognized by health systems amid ever-increasing concerns over cybersecurity, continuity of care and patient safety. This clearance is the 10th 510(k) for Outset, building on our track record of innovation in the dialysis market.

The next-generation Tablo is also a new foundation from which we intend to innovate further with future enhancements planned, to widen and deepen the moat we have already established in the acute and home market. We are excited for the planned launch toward the end of the second quarter.

Turning to our commercial organization, our team executed well in the fourth quarter against many of the largest opportunities in our pipeline. We closed the deal that had shifted out of the third quarter and made meaningful progress on several others. I am proud of the fourth quarter execution our sales leadership team demonstrated and optimistic about the additional strides we can take in 2026. Our strong pipeline is reflective of the benefits that can be achieved by in-sourcing dialysis with Outset's proven technology, expert know-how and exceptional service. And now together with the next-generation Tablo launching this year and a rich road map of additional innovations to follow, we expect to drive growth for many years to come.

With that, I'll turn it over to Renee for more detail on the year and our guidance for 2026.

Thank you, Leslie, and good afternoon, everyone. Revenue in the fourth quarter of $28.9 million consisted of $19.9 million in product revenue, which, as expected, was below $21 million in the fourth quarter of last year. The components of product revenue include console sales, which grew 11% to $6.4 million and consumable sales of $13.5 million. As we indicated last quarter, consumable sales were lower in the quarter compared to the fourth quarter of last year due to order timing. Consumable revenue did rebound sequentially, just as we had anticipated on last quarter's call based on our Tablo utilization data, growing nearly 11% over the third quarter.

We were very active during the quarter to tighten up our forecasting methodology for treatments, which now includes closer collaboration with our largest customers on their ordering patterns. I believe we have made improvements to better predict treatment demand, and we will continue to monitor Tablo utilization and ordering [indiscernible] as we hone our approach.

Service and other revenue of $9 million grew 6% from $8.5 million in the prior year period. Recurring revenue from the sale of Tablo consumables and service was $22.5 million, again growing sequentially, as we anticipated on last quarter's call, but down from the fourth quarter of 2024 due to customer ordering patterns that resulted in a strong fourth quarter in the prior year.

Next, I will walk through our gross margin and operating expenses for the quarter. Please refer to the tables in today's earnings release for a reconciliation of GAAP to non-GAAP measures.

Non-GAAP gross margin expanded more than 500 basis points from last year, reaching 42.9% for the quarter, even with another 130 basis point headwind from the under-absorption of manufacturing overhead. Excluding the manufacturing headwind, we would have seen non-GAAP gross margin closer to the mid-40% range. Product gross margin increased 640 basis points year-over-year to 50.7% from 44.3% in the fourth quarter of 2024. This marks the first time product gross margin has exceeded 50%. Service and other gross margin was 25.6%, growing 470 basis points from 20.9% in the fourth quarter of 2024. This progress keeps us right on our path to the next milestone of 50%.

Moving to operating expenses. Non-GAAP operating expenses declined nearly 4% to $25.7 million, compared to $26.6 million in the fourth quarter of 2024. Non-GAAP operating loss was $13.3 million, 14% below the operating loss of $15.5 million in the prior year period. Non-GAAP net loss of $15 million was 22% lower than $19.3 million in the fourth quarter of 2024. These positive results reflect our drive to profitability.

Moving to our balance sheet, we ended the quarter with $173 million in cash, cash equivalents, short-term investments and restricted cash. We used approximately $9 million in cash during the quarter.

To close out the full year of 2025, we reported revenue of $119.5 million, a 5% increase over 2024. Product revenue was $84.8 million, a 5% increase over $81 million in 2024. Service and other revenue was $34.7 million, a 6% increase over $32.7 million in 2024. And recurring revenue was $88.7 million, also a 6% increase over $83.9 million in 2024.

Non-GAAP gross margin for the year increased 400 basis points to 39.6%, or 41.1% excluding the impact of manufacturing under-absorption. For the full year, the under-absorption headwind was 150 basis points, right on our forecast, and will have a diminishing effect in 2026.

Non-GAAP operating expenses in 2025 were $97.8 million, a 19% reduction from $120.7 million in 2024. Non-GAAP net loss was $65.4 million, a 31% decline compared to $94.8 million in 2024.

Turning to our guidance for 2026, we expect revenue to be in the range of $125 million to $130 million, a 5% to 9% increase over 2025. In terms of revenue timing, we expect the first quarter to be roughly flat to the fourth quarter of 2025 and then stepping up through the rest of the year. For non-GAAP gross margin, we expect to be in the low to mid-40% range. A higher console mix would move gross margin lower in the range just as a higher mix of consumables would move gross margin to the higher end of the range. We expect the manufacturing under-absorption that was a headwind in 2025 to attenuate as we move through 2026.

Finally, we anticipate continued operating leverage this year with operating expense growth at roughly half the rate of expected sales growth. In terms of cash use, we expect Q1 to be our highest cash use quarter for the year due to planned investments in inventory and manufacturing. On a full year basis, the combination of revenue growth, gross margin expansion and expense discipline will enable us to use less cash in 2026 than the $46 million we used in 2025.

With that, I will turn the call back to Leslie for closing comments.

Thanks, Renee. I want to close by reiterating that we operate in 2 large end markets where we remain the clear technology leader. Tablo consoles have performed more than 3 million cumulative treatments. And what is even more astounding is the depth and the breadth of our data repository. There are now more than 8 trillion data points in our cloud platform, which helps fuel our analytics and innovation engines, improves the customer experience and ultimately enhances patient care.

We're gaining scale with significant growth runway ahead through hundreds of master sales and service agreements already in place and a pipeline of new customer opportunities. All of this progress sets a powerful foundation for value creation over the long term. Providers, including many of the largest health systems in the country, are realizing the advantages that in-sourcing with Tablo can deliver. Our team is differentiated by its expertise and an unwavering commitment to our customers and the patients they serve. I expect we will demonstrate that commitment again in 2026 as we drive growth and move ever closer to profitability.

With that, I think we are ready for Q&A. Operator, please open the lines.

[Operator Instructions] One moment for our first question today, which will be coming from the line of Marie Thibault of BTIG.

I wanted to start here with next-gen Tablo. Thanks for the background, the advantage that that system will offer. Can you tell us a little bit about how that might change the markets that you can go after, the types of hospitals you can go after, whether it might change your sales cycle time lines? And any ASP lift that we might see as well from that launch?

Sure. I'm happy to address that. Thanks for the question and hello. Yes. So let me talk a little bit more about that. It's one of my favorite topics right now because we are really proud of the work that went into this and what we believe will be the value that we deliver to hospitals. I myself have talked with so many hospital leaders around cyber, and particularly those that view vendor devices as their biggest vulnerability. They not only have to worry about the security of their own network, but of course, increasingly, all of the different devices that are connected to it. So I think it's more than fair to say that health system executives have an extremely heightened focus on the cyber safety of the medical devices being used in their environment.

So given the fact that we now have the first dialysis system harmonized with FDA's very rigorous cybersecurity standards, I do believe it will help us generate incremental attention and interest among potential customers, I'd say, regardless of size, maybe to hit on one part of your question. I haven't seen a big difference in the level of cybersecurity attention between small, medium or large hospitals. They're all concerned about it, because it's something that they increasingly view through the lens of like fundamental patient safety.

So yes, I do think that this will be a potential tailwind, a potential catalyst for us in 2026 and obviously beyond. I do think that it could, again, very early, we just got the approval a couple of weeks ago, so too early to speculate. But minimally, I think that we will see incremental attention and interest. And I do think that our ability to offer hospitals sort of advanced cyber safeguards will be very positively received.

In terms of the ASP lift, look forward to giving you more specifics on that as we get a little closer to the launch a little bit deeper in the year. We do, I think, philosophically, we have always followed a philosophy around pricing for value. And we believe that value to this upgrade is quite significant. But I'll close by saying stay tuned as we get a little deeper into the year on specifics.

Okay. Very helpful, Leslie. And then a quick follow-up on the sales force and the deal pipeline. Certainly sounds like you've tightened up the process, that you have cleaner visibility into timing and the deals. But can you tell us anything about the stability of the sales force? Was there any attrition post the leadership leaving? And are there any updates on the search for the leader? And anything sort of on how you're viewing the deal pipeline now given the guidance of sequentially flat for first quarter?

Absolutely. Yes. Well, I think as I reflect on Q4, and I'll say, current state, today, we do have an experienced sales leadership team. They did an excellent job at keeping the organization focused on the quarter. I think the results of Q4 reflect that, albeit on a revised guidance range. We did execute at the top of that guidance range. We did see the treatments renormalize. We did see the deal from Q3 that slipped close in Q4. We did see console sales bookings land exactly where we expected them to land in Q4. So all of that was encouraging.

Now as we kind of look forward, Renee and I remain very hands-on inspecting the pipeline and forecasted deals. And we're still operating at a very detailed level. We'll obviously continue vigilant monitoring. But in terms of the stability and focus of the sales organization, I'd say, so far, so good.

We do still have a search underway, which is being done for us by a leading executive search firm. Because we do have a very strong and capable sales leadership team in place today, it is affording us the time to find the best of the best. So we're being very deliberative and to ensure that we have the best cultural and operational fit for the business.

Maybe lastly, I think -- what?

Sorry. I was just saying thank you.

Thank you. I was going to address the third part of your question, which I think was pipeline in Q4 and kind of across 2025. So looking back on the year in full, yes, the pipeline did grow across all the key metrics that we measure, which are the overall size of the pipeline, the average deal size, in particular, deals over $1 million in console value.

And then we also look at does the pipeline look healthy in terms of diversification. And we look at diversification a couple of different ways. One is diversification between new customers who are coming into the pipeline interested in moving from outsourcing to in-sourcing with Outset, and then existing customers who are already in-sourced with Tablo and looking at expansion to new facilities based on the clinical or operational and financial benefits that they've already seen and proven after themselves.

So yes, we do see good diversification between new and existing. We also look at the diversification in terms of hospital size. We see good diversification between kind of the big brand name beachhead health systems that have entered our pipeline, but also medium-sized hospitals and small hospitals.

And I'll maybe take an opportunity just to touch on a point that's adjacent to your question, Marie. When I talk about small hospitals, we're really proud of the impact, albeit early, it's nascent, but the impact that we have had in '25, and we expect to have in '26, with critical access hospitals. These are hospitals that are increasingly looking at standing up new dialysis service lines because dialysis clinics in their local, rural communities have closed. And the patients, therefore, in these rural areas do not always have access to any sort of dialysis care, which obviously is problematic because it is a life-sustaining therapy.

And so we are proud of the partnership that we're starting to effectuate with critical access hospitals to ensure that these rural communities have consistent access to dialysis.

So very long-winded answer, I apologize for that. But in terms of pipeline diversification, across the size and type of the hospitals, I think we are very well balanced, again, across large enterprise solution level deals, again, all the way down to critical access hospitals and sort of everything in between.

And our next question is coming from the line of Joshua Jennings of TD Cowen.

And I want to follow up on Marie's question you answered lastly just on the pipeline diversification. Is there any way to -- or 2 questions within one. One, can you quantify the pipeline growth entering '25 versus entering '26 or vice versa? And then just as we think about the potential to expand your current customer base and just the sales cycle associated with those deals, is there any -- is there a prioritization for the sales force to reduce the sales cycle? Or is the mix appropriate, I think, as you stated? Any strategic attack plan just in terms of the different buckets within the pipeline, thinking about contracting the sales cycle over the next 12 to 24 months?

Yes. Thanks, Josh. Those are all great questions. I'm going to answer them with a little bit of sensitivity from a competitive standpoint, but let me see if I can at least provide some helpful color. So you really hit the nail on the head when you talked about the sales cycle. And that's exactly why diversification in the pipeline around deal size is important and why the diversification between sort of new customers and expansion customers is important. The larger the deal, the longer the sales cycle, and that's not unique to Outset. That's, I think, universal to any capital equipment business. When customers are new to Outset, obviously, you've got a few extra steps around master sales and service agreements and OAs, et cetera, long before you get to a PO. And that always adds some time.

When you're dealing with enterprise solution opportunities, you are talking about 10 hospital conversions, 15, 20 or more hospital conversions, sometimes all at the same time. And those are big decisions. We recognize that those are big, important decisions. And so understandably, those types of deals are going to involve more stakeholders at the health system level. You not only are working with a system CNO. As for example, if it's a 15 or 20-hospital system, you also need to make sure that all other 15 or 20 local level CNOs are on board and enthusiastic. And so that takes a bit more time.

So when we look at the larger enterprise opportunities in our sales cycle, and we've shared this before, it remains, I would say, in that 9 to 12-month plus-plus range, that it can be as long as 1.5 years. At the same time, when we look at deals that are much smaller, that is closed, that can be as little as 3 to 6 months. And so as we think about the design of our pipeline, the management of the pipeline, that's exactly how we're thinking about it, Josh, is really about a balance between sales cycle time.

You also asked me about the sales force focus, and here, I'll be a little bit more artful. But I would say that we are focused on serving any and all hospitals and post-acute facilities that want to kind of control their own destiny when it comes to the clinical, operational and financial benefits of in-sourcing versus outsourcing. With that being said, yes, you're right that if you're thinking about customers who already have a footprint with in-sourcing in Tablo, in the theoretical, that often can have a shorter sales cycle with lower barriers to adoption. But again, I want to stress, we're focused on serving everyone who wants to control their own destiny moving forward for better patient care. Hopefully, that provides a little bit of helpful color.

No, definitely. I mean maybe a little bit too granular, but just any color on or quantification of, I guess, the pipeline ending '26 versus '25?

Yes. We saw about the same amount of growth in the pipeline, as we did between '24 and '25, we saw, again, about the same rate of growth between '25 heading into -- year-end '25 heading into the beginning of -- sorry, year-end '24 and the year-end '25, about the same rate of growth as we did the prior 12 months.

So I continue to be very encouraged about the demand that we're generating. And I think that some of the pipeline -- I know that some of the pipeline expansion more recently has been because of this new clinical value proposition that's been emerging and then published increasingly by our own customers, seeing a reduction in length of stay, a reduction in CLABSI rates, even a reduction in code blues during dialysis treatment. And I have understood from potential customers that has driven, I would say, an incremental wave of interest beyond the financial ROI benefits that have been long understood with in-sourcing with Tablo for a couple of years now.

Great. Just sneaking one more, sorry. Multipart question on the last one. But just thinking on the guide and 5% to 9% revenue growth, any help just thinking about, as we're forecasting, updating our models, console growth versus consumable growth within that range?

Sure, Josh. Happy to step in here. I think as we sat back and thought about the guidance range, we absolutely look at it across the 3 primary components of revenue and the different puts and takes to each of those. So you're right in that our 5% to 9% growth is our -- what we believe is our balanced, best approach for right now for the full year.

And I would believe that -- my position is that you should think about forecasting growth for recurring revenue to be roughly in line with that top line growth. And as you can even see for what we just performed on for 2025 against 2024, we saw very consistent revenue growth in console, consumables and service.

Our next question will be coming from the line of Kendall Au of RBC.

I just had like 2 modeling questions. I know you guys continue to track ahead of expectations on gross margins. Is there any update on the time line to get into that 50% mark? Can you achieve that prior to exiting 2027? And then also, I have a quick question, does your current cash -- is that enough right now for you to reach profitability? Or do you need to raise any more cash before reaching that point?

Sure. Yes, great question. I think as you can see -- on gross margins alone, you can see that year after year we continue to execute against our gross margin, and just last year, had a 500 basis point improvement. So we are continuing to march towards that pathway. And as you've indicated, our goal is 50%. And we just saw that even with just product gross margin for Q4.

We're going to guide for the current year to, as I mentioned, sort of the low to mid-40% range. But we do feel as though that that 50% absolutely is within our planning horizon. I'm just not going to give a formal year to when we're going to achieve that, but we absolutely look forward to doing that and sharing that with everyone at that time.

Specific to cash on the balance sheet, I think as you think about we've got $173 million in cash, cash equivalents and investments, as you've seen just from our performance in this past year, we brought operating cash burn down from $116 million in 2024 down to $46 million in 2025. And as stated on our call, we will look to better improve against that in 2026 as well. And we absolutely believe that we've got sufficient cash on the balance sheet to get us to profitability and beyond.

I really appreciate the color there. And then I have just quick question on capital budget. I was wondering what you're seeing on the hospital capital budget environment right now. Do you feel like it's up year-over-year? And also, what's the state right now? And then also, can you give me a little commentary, I know you talked about having a backlog, is that still -- like can you talk about the size and maybe the scale of that right now for Tablo?

Sure. Yes. Well, on the capital spending front, we are not seeing any material changes at least in the customers that we're calling on are the customers that are in our pipeline, we have not really observed any material changes in their planning or how they're thinking about capital spending for 2026. So nothing systematic or widespread that changes our outlook either near term or long term.

Backlog, yes. That has been an important lever for us in the past. It remains an important lever for us as we move forward over the planning horizon. And I would say we feel very good about where we're entering 2026, and that will continue to be one of the KPIs that we measure ourselves against as we move through the year and into '27.

And our next question is coming from the line of Rick Wise of Stifel.

Leslie, just I want to have some follow-up questions sort of building on a lot of the excellent questions already discussed. On the next-gen Tablo system, it's great to see it, a couple of follow-ups. One, is there an upgrade opportunity here? Like, does your existing installed base upgrade for a nominal fee? Is it a whole new Tablo they would buy? Is there an opportunity to upgrade your entire existing base at a full cost of a new Tablo, whatever that ASP would be? Maybe just help us understand that.

Could you talk a little bit more -- the cyber security topic is obviously compelling alone, but help us understand some of the additional, some of the other new features and capabilities and how that might add to Tablo's luster and ease of use and clinical utility? And then I have a related follow-up question to that.

Okay. Great. Yes. Perfect. Why don't I -- I'll try to address the first part and then we can go to your part two. So on the next gen and the upgrade opportunity, short story long, yes. Our existing installed base customers will have full access to this upgrade. They will be able to upgrade. At the same time, new customers will also have an opportunity to buy new Tablos that already contain, because they've been manufactured in, already contain all of the software, hardware and cyber upgrades that I'm about to elaborate on in 1 second. So yes, this is a full access upgrade both for -- that will be available to the current installed base and also new customers moving forward.

You also talked about or asked about what are some of the details around -- on the cyber front, what does that really mean? Gosh, this could be like an hour-long conference call that I -- a podcast that I'm sure you all would really enjoy, but I will try to keep my answer brief. This was a massive amount of work for our team and took us many, many, many months of technical achievement to reach. But for example, we updated physical network cloud connections with new software and hardware changes. We added many, many, many new security controls. We have -- our software now has round-the-clock cyber monitoring.

In terms of the device performance itself and some of the reliability improvements, those, again, it's new software, a new operating system, new hardware. And how this translates to the customer benefit was something you also asked me about. Well, number one, we're always focused on improving uptime, which in and of itself improves the user experience. And so when you've got device performance enhancements, reliability enhancements, you are improving uptime. The availability of that device, the more the device is available, the better the patient care experience. Patient care can be delivered when it is needed by the patient. And then, of course, the user experience with nurses and biomeds in the hospital will be beneficiaries of the device performance and the reliability improvements as well.

And I think I'll say moving forward, we're not done. We are extremely committed to what I like to call customer-centric innovation. Not inventing things because we can from an engineering standpoint, but inventing things because we've heard them from users. Feedback, ideas. The improvements in this next-gen are a direct example of kind of this customer-centric orientation and very reflective of many of the suggestions and ideas we've gotten directly from our nurse users and others within the acute care and post-acute environment.

Great. And just to build on that, just in the simplest of terms, is -- and you have told us the ASP or whether it's more or less or equal to the current generation of Tablo. But if I assume it's -- there are more features and the cybersecurity is an incremental value and it's higher, what does this all mean for your gross margins once you're fully launched? Is this margin accretive at that point? Is there a manufacturing learning curve? And so it actually depresses them initially as you launch?

Just -- and maybe just related -- sorry to ask such a multipart question, but what's in your guidance at this point? A first or second half guide. And bringing that gross margin question into it, how do we think about the new Tablo impacting margins?

No problem, Rick. This is Renee. I'll help sort of answer some of the gross margin questions and, in particular, how we're thinking about this. So as Leslie mentioned, we're working on the commercial launch strategy and how the Q2 time frame around that where, hopefully, we'll give additional clarity specific to ASPs. But I would say we absolutely think that there is value to product innovation and that this product just continues our innovation pipeline and that customers will see value in that.

Specific to gross margin, you could imagine then that could be a potential tailwind specific to revenue throughout the year, but also gross margins. We've strategically thought about this product launch, this product generation, as Leslie just mentioned, the ability for current customers to upgrade their devices if they so choose, what future manufacturing of devices look like, plus also the units that I have on hand in finished goods at the moment. The functionality, we really thought about this when we were designing this next generation. And the ability to have that flexibility to upgrade, to add the components and, of course, add the software.

So current state within our gross margin guide, we've factored it in, I would say, similar to how you can think about gross margin. Right now, we currently don't expect it to be sort of a big detriment. I know sometimes companies have that when they're switching generations or versions of their device. We think this will be relatively a mild impact. And of course, the more consoles that we do sell, that has a dampening effect on gross margin, as you know, from our history. So in some ways, I'd love to sell -- have a tailwind from this and sell more consoles, have higher top line revenue growth that could dampen in the near term gross margin. But as we thought about it in the current guide, both from a revenue perspective and a gross margin range, we need -- the commercial launch will be sort of late Q2. So it will be back end -- included in our back-end assessment, and let's see how that launch goes and how it rolls through the summer months.

Thank you. That does conclude today's Q&A session. I would like to turn the call back over to Leslie now for closing remarks. Please go ahead.

Great. Thanks to everybody for joining today. I'd like to thank -- close by thanking our customers and our team for the very, very meaningful difference that they make every day in the lives of dialysis patients. I hope you all have a great evening.

Thank you so much for joining today's conference call. This does conclude today's meeting. You may now disconnect.

Hi, everyone. My name is Denise Liu. I am an associate here in health care investment banking at JPMorgan. We're excited to be continuing the Annual Healthcare Conference today with Leslie Trigg, Chair and CEO of Outset Medical. We'll have time for Q&A at the end of the presentation and will also be joined by Renee Gaeta, CFO; and Jim Mazzola, VP, Corporate Communications and IR. So with that, I will turn it over to Leslie.

Thanks for being here, and thanks again to JPMorgan for including us in the conference. Really appreciate it. For those of you that may not be as familiar with Outset, we're a California-based med tech company focused on enabling dialysis care that meaningfully improves patient outcomes while dramatically lowering the cost and also the complexity of care. What I'd love you to think about and hopefully take away from today are really 5 kind of key facts about where we are today and what our future looks like. Fact number one, we are now operating at scale with a very large footprint in the $2.5 billion acute and post-acute market. Nearly -- well, not nearly over 1,000 hospitals now are using Tablo in the inpatient environment on a daily basis to deliver about 1 million treatments a year. In total, Tablo has been used to deliver well over 3.5 million treatments here in the U.S.

We also have an emerging presence in the $8.9 billion home market, which has been in want of a better technology solution for quite some time, and I'll talk about that a little bit in a little bit.

The second thing I think that's important to maybe touch on is what's changed since the time of our IPO in 2020. And I think perhaps the biggest change is that we've really moved from a device to a solution. When we first entered the market in 2019, we had a great device, and it offered many firsts to the market, and I'll go into that in a second. I think where we've evolved to now is a full kind of enterprise-level dialysis solution through data analytics, through EMR connectivity through exceptional field service and support in ways that really kind of build on and amplify the impact of the technology. So I'll talk a little bit about that more as well.

These benefits and the moats that we've continued to add around the core device have resulted in, I think, an enviable business model, one in which 70% of our total revenue is actually derived from recurring revenue. And lastly, we entered 2026 with a very, very strong balance sheet, one that is designed to take the company to cash flow breakeven and beyond. So we'll touch on that a little bit, too. So this is sort of a company in a nutshell where we are today and propelling us forward. I want to talk mostly about the future. I'm going to take a quick step back and talk a little bit about the landscape in the market for those of you that may not know as much about it. The most important thing, a couple of things for you to know about the dialysis space. It is one of the largest sectors of our health care system. It is one of the most expensive and oddly because of #1 and #2, it's surprising, it's the least changed. You would have thought that given its size and given its expense that we would have seen more innovation here, both in terms of equipment and the service model, but that's actually not the case. As we sit here today, about 90 million, 90 million dialysis treatments are delivered every single year. That's for people doing the math, almost 250,000 treatments that were done just today as we've been sitting here at JPMorgan or standing here at JPMorgan.

Now that all comes at a great cost. About $71 billion. This is U.S. only. Medicare is picking up about $55 billion of that tab. And that is about 5% of the entire Medicare budget being spent on about 1% of the population. Unfortunately, this is a problem, cost, complexity, scale that is getting bigger, not smaller, as we look forward here into the coming 5 years. So where is all this dialysis happening? Again, I want to set the stage for you.

So dialysis is delivered in 3 settings, 3 markets, if you will, submarkets. Outset is focused on 2 of those 3 submarkets. But the 3 settings of care are: number one, in patient dialysis. This is dialysis has delivered inside the hospital or an LTAC or a rehab, it's delivered in the ICU. It's delivered outside the ICU and the floors of the hospital. That's inpatient dialysis. The second setting of care submarket is the chronic outpatient dialysis market. That's dialysis that takes place in any one of 7,000-plus dialysis clinics here in the U.S. And the third market is dialysis that's actually delivered in the home. We are focused, as I just said, in -- on 2 of the 3 markets. We are very focused on penetrating the inpatient market, in the hospitals and the post-acute health care facilities and home. And I'll talk more about how those things kind of play together and they're interconnected in a second.

So I'll start with in patient dialysis, market #1. Market #1 is about 85-ish percent of our revenue every year. How exactly dialysis is delivered in the inpatient setting has also remained unchanged for quite some time. Most hospitals outsource the dialysis. They outsource it to a separate third-party company and when patients need dialysis, whether it's in the ICU or outside the ICU, the hospital will call one of these third-party companies and one of their nurses will come on site, set up the machine, get the patient on treatment, off treatment and leave. That's the old model. There are some challenges with this model, and the first challenge is cost. And I want to explain what the cost conundrum is. Dialysis is completely unreimbursed in the hospital. If you remember one thing from this whole 30 minutes, please remember, dialysis is unreimbursed in the hospital. It is a pure-play cost center for any hospital in the country. What do I really mean by that? For example, if somebody comes in for a mitral valve replacement, the hospital is going to get paid on the DRG associated with the mitral valve replacement. If that is a chronic dialysis patient, for example, they need dialysis while they're in the hospital for this mitral valve replacement, the hospital will eat the cost of that dialysis. The hospital will be paying, for example, DaVita to have DaVita's nurse come on site and deliver the dialysis, but the hospital will not get reimbursed for that. So you can see how this might add up. And some of the statistics when an inpatient admission involves dialysis there's a 2x higher ICU admission rate. There is a 5-day longer length of stay. Overall, the cost of an admission that involves dialysis is about 2.5x higher and that in dollar terms is anywhere from $5,000 to $25,000 loss per hospital admission. Headline, it's expensive because it's not reimbursed.

I think headline number 2, as to why this has become so cumbersome and so costly, is the service model because hospitals typically have outsourced this to a third-party service provider they are no longer in control of their cost structure. A couple of unintended consequences on the quality front as well with this model, again, of a third party coming on site and providing care. I mentioned an average length of stay that's about 5 days longer. There's a mortality risk when you outsource your dialysis. There's a higher infection rate. CLABSIs are catheter-based bloodstream infections. CLABSI for short. CLABSIs cost up to $50,000 for 1 infection. We have customers that have now published data where their CLABSI infection rate is 35% lower after they have changed their service model in-sourced dialysis due to Tablo. So this is a big deal, of course, in terms of quality metrics, but also cost and also from a compliance standpoint. When joint commission comes into hospitals, usually one of the first places they will look is dialysis because the incidence of citations from joint commission from a compliance standpoint is so high, most hospitals really struggle to stay in compliance with their dialysis program because they don't control it. They have turned over compliance to a third party. So setting up the problem statement, we obviously see a better way forward that we have helped over 1,000 different hospitals implement. It starts with the technology and it goes from there. I'll start with the device, and I want to talk a little bit about this in-sourcing service model. When we first introduced Tablo in 2019, there were a lot of firsts associated with this device. Tablo was the first to purify water on demand. Most dialysis machines require a massive water treatment room, 1,000, 2,000 square -- size of this room, water treatment room that has to sit behind the treatment room so that the machine can operate. We designed Tablo. It took us 7 years to tame the technology beast to do this, but we effectively miniaturize the water -- it was kind of water treatment room in a box. We were the first to do that. Tablo is the first device to make the dialysate on demand. That's the solution, the dialysis solution that's used during dialysis. We were the first to make the dialysate in real time kind of streaming dialysate while the patient was dialyzing. We were the first to transmit all of the data about 3 million data points after every treatment, every Tablo straight up to the cloud first, and then we further innovated into integration with Epic, with Cerner and many other EHR customers. So we do have a fairly long now track record of leading this industry and innovation and we're not done. And so this has evolved now over the last couple of years to where we are today, which is really from device to a comprehensive enterprise dialysis solution, Tablo is still there. It is the center of the universe, if you will, but it's now complemented by a whole suite of value and products for acute and home providers.

I'll start with the data. I mentioned about 3 million data points transmitted after every treatment up to the hospitals EHR. It is also transmitted to our cloud. So as we sit here today, we have over 3.5 trillion with AT data points in our cloud. that gives us a tremendous opportunity to add clinical value back to our customer base. I have never met a Chief Nursing Officer who doesn't want to know what his or her data looks like, what -- how well are we treating patients. How do we benchmark? How do we compare to other hospitals in our IDN or other hospitals in our region? Where are we strong? Where are we weak? How do we standardize best practices, how do we improve? We have the capability through an advanced kind of clinical data analytics dashboard to actually give hospitals the tools to see how they're doing, an opportunity that they do not have with the outsourced model when somebody else owns that care. So we're putting data analytics tools that give them the opportunity to really control their own destiny, not only financially but also clinically.

Second, EMR interoperability. We were the first to integrate with Epic, with Cerner and with many other EHRs, which just amplifies the clinical value because now the hospitals can connect even more dots with the outcomes from their dialysis treatments with the broader patient outcomes across the hospital system, which makes that even more valuable.

Switching gears kind of over on the right here, since we have now helped more than 1,000 hospitals in-source, we kind of know what we're doing. We have done this many, many, many times. And so we've harnessed all of that kind of consultative know-how into a proprietary playbook and program where we come in upfront, and we can help the Chief Nursing Officer, the VP of the nursing leaders manage that change from we've been outsourced for 10 or 20 years to in-sourcing. How do we do that? So we've really become kind of consultants and experts in that process through a formalized program that we call implementation services. We even offer temporary staffing solutions as hospitals are kind of making the change, which has been very, very helpful for them.

And lastly, we are extremely proud of the service and support that we give our customers. We have maintained a CSAT score of 95% even as we have scaled and even as we've grown, we're continuing to build on that and here comes the data back into the value fold with trillions of data points in the cloud we have and are leveraging the opportunity through AI and machine learning to move service from -- for most companies kind of react and repair to predict and prevent in the name of kind of uptime and patient access. So we're really excited about our initiatives in this area. So as I said, this is probably the biggest thing that's changed since the time of the IPO. We were very proud of our device. And now we're very proud of kind of the suite of solutions that we offer our customers, both new and existing customers who are expanding. Perhaps the most compelling case I can make for the solution that we've built are the results and the results that our customers have told us about. These are some examples of customers on the left who have published their results. I'll hit some of the highlights for one customer, a 36% reduction in their ICU length of stay. A 75% reduction in those CLABSI bloodstream infections that I alluded to earlier, a 52% cost reduction per treatment hour. A 65% reduction in supply and labor costs, a 35% decrease in therapy start delays. Okay? How are they achieving all this? Is it the machine? I get asked this question all the time. How does Tablo do this? So I want to be very clear about our role in this and Tablo's role in it. We are the tool. We are the enabling technology, what are we enabling? A service model change. And so when a hospital that has been outsourcing the care, decides to in-source with Outset, Tablo enables them to do that because it is -- it offers a lot of clinical flexibility, simplicity and automation that really allows the hospital for the first time ever to use their own nurses. They can use their own team or hire dialysis nurses to work for the health system, Advent, for example, where they control their own destiny. They control the care quality, they control how much it's costing them. They control the operating efficiency. So the service model change is what is enabled by the technology, which then results in the improvements that you see here. So we're very, very proud of being a part of these success stories. And these success stories are not one of one. When you look at our commercial success, we now are being used by all 10 of the largest 10 sub-acute again, LTAC rehab providers in this country. We are being used on a daily basis by all 8 of the largest 8 acute providers in this country. And as I mentioned, now over 1,000 sites and facilities using Tablo, 1 million treatments annually and over 3 million treatments cumulatively. We have also trained thousands and thousands and thousands of nurses and physicians, which is also helping to kind of create a future flywheel effect for commercial adoption with a growing evidence base. We now have over 70 abstracts, over 15 full manuscripts covering the financial, the clinical and the operational benefits of in-sourcing with Outset and with Tablo.

So I'm going to pause and go over to the second market. That's acute, as I said, about 85% of our revenue. The other market segment that we're really excited about and focused on is home. So I'll do a little bit of a stage setting here as well. As some of you may know, the home market has always had tremendous promise and tremendous opportunity. It remains significantly underpenetrated for a couple of very specific reasons. The first one on the left there is financial. With the incumbent device that was first cleared -- originally cleared by the FDA for home use, that technology required patients to do dialysis more frequently at home. In the dialysis clinic, that middle segment that we're not focused on patients going to dialysis clinics, they go 3 times a week. Accordingly, and not surprisingly, Medicare pays for 3 times a week. With the incumbent technology that required patients to dialyze more frequently, more than 3 times a week. And so you had a mismatch between what the providers are getting paid for and what the providers are having to pay for the incumbent device at home. We looked to close that gap, and we did. Other barriers include physician education, patient education, and that actually is coming with time, and we'll continue to, I think, build. And lastly, we, for many, many, many years, had 1 device that was cleared in 2005, and it was really the only device for home hemo that was available to patients. And while it was in advance in its day, didn't necessarily offer ease of use and ease of training in a way that was modern as time were on. And so we look to close that gap as well. So here's sort of a picture, literally a picture of Tablo, kind of the more of the modern era technology versus the incumbent era. We did close that gap, that mismatch between reimbursement and treatments and designed a technology that can deliver the clinical therapy the patients need 3 times a week at the home. So that treatment reimbursement mismatch has been erased with Tablo. We did eliminate the ease-of-use burden of the incumbent technology. Our training time, as you can see, is a fraction of the measured training time with the incumbent device.

And lastly, something I haven't talked about, which is really, really important in home. With the incumbent device, the patient was required to make the dialysate, that dialysis solution in advance of every treatment. That almost becomes a full-time job. You can see 16 to almost 30 hours just preparing for dialysis. And then you've got to do 5 or 6 treatments a week that are 3 hours in duration. It is a full-time job. And it kind of raises the purported benefit of home, which is getting your time back, right? It's empowering to be at home, and you get to decide which you don't get to decide in a dialysis clinic, what days, what times you want to dialyze, you do get to do that at home, which gives you the opportunity to kind of design your life around dialysis versus the inverse of that. But with so many hours spent preparing for dialysis and then dialyzing it kind of raises that benefit. And I think the most important thing, something that we're most proud about on the home side, we have given patients their time back because we designed the system to instantaneously start purifying the water and making the dialysate in real time. There is no -- effectively no preparation when the patient is ready to dialyze, Tablo is ready to dialyze them. So a lot of gap closing, I think, benefits from a patient standpoint on the home side that we feel very confident we'll continue to result in not only greater adoption of home but longer retention at home. One of the big challenges with the incumbent device was retention. The patients often struggle to kind of even make it to 90 days without dropping back into the clinic environment. We have proven now over the last couple of years, an industry-leading retention rate of well over 90% retention at 90 days, which doesn't sound like a very long time. But interestingly, the majority of the dropout actually happens at home in the first 90 days. So we are very proud of our leading indicator, well over 90% retention at 90 days and also at a year. Our mean patient time in the home is now about 1.5 years. One of our first patients who went on Tablo in the home 5 years ago is still using Tablo in the home today. So that's the metric that we're the most proud of. And those are our most important patients that we serve.

So I'll -- I'm running out of time here, but I do want to touch on a little bit on the business model and how does this all work for Outset. And so we do sell the consoles, and then we have a recurring revenue stream in the acute at about $20,000 a year. And in the home, about $15,000 a year these kind of annuity revenue streams kind of flowing out of each console that's sold. In the beginning, our recurring revenue was driven really only by -- I mean, no complaints, but mostly out of consumables because there are disposables that have to be used for every treatment. And our service revenue, I mentioned we have a CSAT score of 95 and we have a very, very, very high attach rate for service, annual service renewals, which drives a very meaningful actually component of our revenue coming out of service revenue. And then over time, we've built on this. And this is a big part of our strategy is to build incremental layers of recurring revenue around the foundation. For example, there are specialized types of software that have new features and new functions that we charge more for. We have EMR subscription style revenue coming out now. We have, as I mentioned, advanced data analytics that have a subscription model attached to it and professional services that have incremental layers of revenue associated with it as well. So we see a lot of growth potential for recurring revenue in general, building on this strong foundation of about 70% of total revenue. I think the way we view our revenue strategy is from a visibility and predictability standpoint, we want the highest percentage of our total revenue to be coming from that sort of very predictable and visible recurring revenue and then console sales on top of that is the sort of the way we think about our business.

And speaking about financials, I'll talk a little bit about the 2026 setup. We did close 2025 at $119.5 million. Again, I just touched on about 70% of that was recurring revenue for us in 2025. We used less than $50 million in cash last year. We are extremely focused as an organization on 2 financial goals beyond high revenue growth, one being gross margin expansion and the other being getting to profitability. This under $50 million in 2025 was a very meaningful step down in cash usage from prior year. So we're really pleased with the progress there. And then we enter, as I mentioned, '26 from a very strong cash position with a strong balance sheet, fueled by $173 million in cash as we look forward.

I'll close again with an emphasis on why we are really here, which fundamentally, and I think why we're all here at JPMorgan no matter what your business, your first mission is patient-centric. And from day 1, every single joiner of Outset, I think, is truly fueled by ensuring that we give patients back their time, their integrity, their agency, their control and their ability to lead the life that they want to lead, whether that's in the hospital, coming out of the hospital post-acute or at home. And so we are determined to make sure that what Outset is really known for when the history books are written, is as a company that truly disrupted an industry that had not changed in 40 years, and we've got a pretty good start in doing so. So thanks again for everybody being here, and we'll let you ask some questions or audience questions. Thank you.

Thank you. I would love to kick off the questions. And then if anyone else has, please just raise your hand, and we have a microphone to pass around. Thinking about the 2 markets, so the acute versus the larger at home, how would you say that investors should think about your focus on these 2 markets.

Do you want to take that?

Sure. Yes, I'm happy to. I think ultimately, if you look at our financials in most recent years in 2025, we've definitely focused more on the acute side of the market, the sort of 80% to 85% of our total revenue coming from that segment. We just see a tremendous opportunity there to really change the standard of care and hit a lot of patients very quickly.

On the home side, that market is still open to us. It's a little bit further down the pathway of really pushing, I would say, down on the gas pedal there. It's about 15% of our revenue. Part of that is being very strategic with regards to where we're putting the investment dollars. As Leslie just mentioned, we're very mindful of cash burn, profitability, gross margin and as anyone can appreciate on the acute side, there's better pricing power for us, more utilization of the devices on a daily basis versus the home segment has more pricing pressure and, of course, is used on a patient one-to-one basis. So we've strategically decided to focus more on the acute for now, but not leaving home behind.

I was just wondering about the growth, historical growth, projected growth, if you want to discuss that for each of those 2 segments, the acute and home setting.

Market growth or outsets growth or both. Market growth?

Market...

Yes. Yes. Sure. I'm happy to address that. Actually, acute -- so again, I'm going to break this into kind of segments where you've seen the lowest growth on an annualized basis market is in the market segment that we're not focused on, that's in center. In the dialysis clinics. That's been flat to actually declining due to what I've heard the dialysis organizations report as higher mortality over the last couple of years. So that's that's kind of been 0 to negative growth, if you will.

Acutes over the last, probably, it's been very consistent really over the last 10 years, typically has grown somewhere between 5% and 7% in terms of top line kind of patient census growth. And I had this on a slide, but I didn't underscore it probably properly. That growth is coming from incident patients, more patients starting dialysis and most patients unfortunately, don't really get a lot of upstream diagnosis that they have chronic kidney disease that they have kidney failure. They kind of crash into dialysis, and they will start in the hospital and then go downstream from there. So that continues to fuel growth, unfortunately. And then you've got about 800,000 annual admissions, chronic dialysis patient admissions. The chronic dialysis patient population has actually continued to grow as well for a good reason, which is actually longer life. And we've been asked a lot about GLP-1s. And we see so far that GLP-1s are actually having a positive effect because the #1 cause of death in the kidney population, the dialysis population is actually not kidney disease, it's cardiovascular mortality. And so there is a lot of sentiment, if you were to talk to nephrologists that GLP-1s may actually see kind of the prevalent population actually continuing to grow. Lastly, I would say the home growth has been in the low single digits, and that's across both home hemo, which is what we do and also peritoneal dialysis, which is through the peritoneum, and that's been somewhere in the 5% range, those therapies combined together. .

And that 5% to 7% in the hospital setting, are you gaining share? Are you growing at that rate or faster?

We are. Yes, in the acute setting we are. Yes.

I'd like to follow that question up with -- as you think about the landscape and competitors how do you compare now vis-a-vis against other products or service providers?

Yes. I would love to talk about that. So as I mentioned, I think in the beginning, we were very proud of the engineering behind the device. Still today, we are the only device in one integrated system that does purify water and make the dialysis demand and automates and simplifies and sends all the data to the cloud, we're still kind of first and best-in-class there. But we don't take that for granted. And I want to make sure we not only protect the moat, we extend it further. The ways in which we have moved to do that is really, again, kind of utilizing this proprietary know-how that you can really only acquire by helping 1,000 hospitals in-source and really understanding all of the ins and outs of that and how to make it a smooth experience for the nursing leaders, I think that's perhaps our most important part of our IP or really trade secret know-how which really sets us apart from other companies perhaps that haven't even started to commercialize yet. That's one.

And then two, I think we first made this investment in data analytics and EMR integration in 2015. We've done plenty of things wrong. That's probably one call that we got right was making sure that we were way far ahead. And I think we have a very material lead now in using AI and machine learning overused words, not only to deliver clinical insights for customers like I talked about, but fueling our efficiency on the service side. There is no valve sensor filter inside of Tablo that we are not constantly getting data back on every treatment every day, and that really helps us on the R&D side, continue to improve the device experience performance, et cetera, for the customers as well.

And that innovation fueling the R&D side and that, I guess, positive feedback loop with all of the data, I assume it's probably one of the drivers of top line growth going forward, but I'd love to just hear any more commentary about what the key drivers would be in 2026.

Sure. Well, I think as we think about customers we have and then customers that don't know it yet, but we will have them. They just don't know yet. But -- so because I think we are so broadly contracted now, we have a huge expansion opportunity. Our longest tenured customer, just to kind of frame it up for you all, we're probably about in about half of their hospitals. And that's our longest tenure customer. And so all of these contracts and relationships that have been formed over the intervening years, we're at varying levels of penetration as low as kind of high single digits, low double digits. So we have a huge greenfield opportunity just within our existing customer base. And the advantage that we have with current customers is they know their data, they know their results. We've already got a signed master sales and service agreement. We've already got relationships. And so that I think that tends to have a shorter sales cycle.

And then we have all the greenfield opportunities. Tablo is being used in roughly probably the 1/3, roughly 30% of the largest regional IDNs. So we have a tremendous amount of greenfield opportunity there. And so both new customers and expansion customers are a big part of our growth strategy for 2026.

When you say 1,000 sites, do you mean one device or unit per that site.

No.

So what's your installed base? Is that something that you can disclose.

I'll let Renee comment on installed base. But let me just frame this up for you. So we are talking about facilities, not customer. We have hundreds of customers, but the number that we were citing as a facility number. So it really -- it depends. It really depends on the hospital's volume. I'll give you an example without naming names. We signed a large -- it was a large volume hospital contract in Q4. For example, they purchased -- it was 14 or 15 Tablos. If you have a smaller like a critical access hospital, that critical access hospital in a rural location might be purchasing 3 Tablos, just to give you a frame of reference. So very large, I'd call it kind of 14 to 18 Tablos per hospital small, probably sub-5 consoles.

Yes. And from an installed base perspective, our last reported number was around 6,000 total devices, and you can think about that as again, sort of 80% to 85% in the acute, so 4,500 and then 1,500 in the home market.

Perhaps just one last question from me and deep diving a little bit more into the financials. So outside -- Outset, sorry, has made great progress expanding gross margin since its IPO. I think from the mid-negative 30s and now positive high 30s. What do you see as the steady-state margin going in the future?

Yes, it's a great question. I think over time, what we've done is we've really attacked the revenue stream -- the different revenue streams and those cost components. And so what -- what has resulted from us, as you appropriately mentioned, going from negative 30% when the company went public to now being in the high 30s, which was our guidance range for 2025. You've seen that we've attacked the console first, the hardware first, the console, the cart, then the cartridge. We fixed and expanded our manufacturing to get scale into that. And we've seen some great improvements there. Our next area of tech is really on the service side, as Leslie mentioned, our cost to serve but also continuing to optimize within our structure across all of our gross margin components, but how do we continue to drive that. Our next milestone for us is 50% company-wide gross margin, but that's not the end. That is just our next milestone, and we know that we can go above and beyond that.

That sounds great. Thank you so much for a wonderful presentation and also just thank you to Outset Medical, the entire team for that you do.

Thank you.

Thank you, everybody, for coming. Thank you.

Good day, and thank you for standing by. Welcome to the Outset Medical Q3 2025 Earnings Conference Call. [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, sir.

Good afternoon, everyone, and welcome to our third quarter 2025 earnings call. Here with me today, as always, 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 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 Securities and Exchange Commission, including our latest annual and quarterly reports. Leslie?

Thanks, Jim. Good afternoon, everyone, and thank you for joining us. Before we get into the details of the quarter and our revised revenue guidance, I'd like to begin with a few key takeaways. First, while we've made significant progress transforming our sales process and strengthening our team, our third quarter results show that there's still work ahead. Several large opportunities that remain in the final stages of our sales process were forecasted for the third and fourth quarters, and we now expect them to close over the fourth quarter and into 2026. This is a shift in timing. [Technical Difficulty] Can you hear...

We can, sir. If you want to just ask Leslie start with her section, sir, we heard your portion and the line cut out when Leslie started. [Technical Difficulty] Ladies and gentlemen, sorry for the inconvenience and the technical difficulties, but I would now like to let you know that our conference will be resuming. Leslie, please go ahead, ma'am.

Thank you. As I say third time is the charm or I hope the third time is the charm. We'll see. Thanks for your patience, everybody, and thanks again for joining us. Before I get into the details of the quarter and our revised revenue guidance, I'd like to begin with a few key takeaways.

First, while we've made significant progress transforming our sales process and strengthening our team, our third quarter results show that there's still work ahead. Several large opportunities that remain in the final stages of our sales process were forecasted for the third and fourth quarters, and we now expect them to close over the fourth quarter and into 2026. This is a shift in timing, not in our expectations for closing these significant in-sourcing opportunities with large nationally recognized health systems.

As we've shifted towards selling enterprise-wide in-sourcing, we are managing very large opportunities that often span dozens of hospitals within a large health system. For example, an opportunity we had forecasted to close in the third quarter required approvals from the executive leadership of more than a dozen different hospitals after approval at the corporate level. We need to, and I fully expect we will better anticipate these deal dynamics going forward.

We continue to make good progress on this particular opportunity, which we expect to realize via multiple orders spanning the remainder of the fourth quarter and into next year. Second, hospital demand continues to grow as a result of the clinical, operational and financial benefits that can be achieved by in-sourcing dialysis with Outset's proven technology, expert know-how and exceptional service.

We continue to see clear evidence that acute customer demand for in-sourcing with Tablo is growing, and we expect this will support growth for many years to come. Tablo console sales increased 8% in the third quarter. Our pipeline grew meaningfully over last year, and the average size of our sales opportunities increased more than 20%. The markets we serve are large, and we are changing practice within them. Third, our ability to expand gross margin to our next milestone of 50% comes into clear focus with each subsequent quarter of progress, reaching nearly 40% non-GAAP gross margin in the third quarter and remaining disciplined in expense management provides fuel on our path to profitability.

Turning to commercial execution. Our third quarter results fell short of our expectations. Last week, I accepted the resignation of our Head of Sales, who has made the decision to retire. We have a strong sales leadership team in place that will now report to me directly as we conduct a search process, which is already underway.

This leadership change may result in some internal disruption in the fourth quarter, which is a factor we felt was prudent to take into account as we considered our approach to guidance for the remainder of the year. What I can assure you is that our team has an unwavering commitment to our customers and the patients they serve, and I expect we will demonstrate that commitment as we move through the fourth quarter and into next year.

Taking a closer look at the third quarter, revenue was $29.4 million, which represents 3% growth over the third quarter of last year. Treatment utilization was strong, and we remain disciplined in our pricing across consoles and consumables. We believe ASP strength indicates that customers see Tablo appropriately priced for the value delivered and consistent utilization reinforces that once a unit is installed, it's used and provides a long tail of recurring revenue. We also were pleased with our progress 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 it shows up in the both significant reduction in cash use we project for 2025 and in the leverage we see to the bottom line. Additionally, our base of clinical, financial and operational evidence supporting the advantages of in-sourcing continues to grow. Last week, there were 3 new data sets presented at the Annual Kidney Week Conference.

Among the findings, we presented data from more than 1 million Tablo treatments across approximately 750 facilities that show the clinical effectiveness of in-sourced dialysis in achieving rigorous treatment goals, including up to 24-hour treatments that typically involve the most critically ill patients. One of our customers, AdventHealth, also presented data from the conversion of their Ocala, Florida site to an in-sourced dialysis service line with Tablo.

Their results over 5 years showed a 94% reduction in serious cardiac or respiratory events, a sustained reduction in central line bloodstream infections, a very high nurse retention rate with greater than 95% dialysis staff satisfaction and a strong return on investment in the first 2 years of operations. These results support the sentiment we hear from many nurse leaders who believe that in-sourcing with Tablo should be the standard of care at any hospital that provides inpatient dialysis.

With that, I'll turn it over to Renee for more detail on the quarter before I provide closing comments.

Thank you, Leslie, and good afternoon, everyone. Revenue for the third quarter of $29.4 million consisted of $20.6 million in product revenue, which was slightly ahead of $20.3 million in the prior year period. Product revenue included console sales of $8.3 million and consumable sales of $12.2 million. Service and other revenue of $8.9 million grew 6% from $8.4 million in the prior year period. Recurring revenue from the sale of Tablo consumables and service was $21.1 million, slightly ahead of the third quarter of 2024.

Third quarter recurring revenue was dampened by ordering patterns for treatments across our large volume acute care customers that don't always perfectly mirror underlying utilization. For example, during the quarter, data from connected Tablo consoles showed that several of our large acute care customers performed twice as many treatments as they ordered. Thus far, in the fourth quarter, we have seen treatment orders accelerate to better match actual utilization.

We expect treatment revenue to normalize next year as we lap the comparison to an unusually strong fourth quarter in 2024, and we see orders from our larger acute care customers catch up with our usage data. We also believe there are steps we can take to help the ordering patterns of our customers more closely align with actual utilization to assist us with better visibility and forecasting. We will be working to make these improvements during 2026.

Next, I will 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 350 basis points from last year, reaching 39.9% for the quarter, even with a 130 basis point headwind from the under-absorption of manufacturing overhead.

Excluding the manufacturing headwind, we would have seen non-GAAP gross margin above 41% for the first time. Product gross margin increased 250 basis points year-over-year to 45.7% from 43.2% in the third quarter of 2024. Service and other gross margin was 24.8%, more than doubling from the 12.5% we reported in the third quarter of 2024. This progress keeps us right on our path to the next milestone of 50%.

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 full year, I continue to expect a headwind of approximately 150 basis points, which will have a diminishing effect in 2026.

Moving to operating expenses. We continue to see the positive impact of actions taken primarily during the second half of 2024 to remove $80 million of annualized spend. For the quarter, non-GAAP operating expenses declined 17% to $22.1 million compared to $26.5 million in the third quarter of 2024. Non-GAAP operating loss was $10.4 million, over 35% below the operating loss of $16.1 million in the prior year period. Non-GAAP net loss was $12.4 million, was 39% lower than $20.2 million in the third quarter of 2024.

These measures reflect the positive results of our drive to profitability. Moving to our balance sheet. We ended the quarter with $182 million in cash, cash equivalents, short-term investments and restricted cash. We used approximately $6 million in cash during the quarter, driven by expanding gross margin, lower operating expenses and the optimization of inventory levels.

Turning to our guidance for 2025. Considering the factors Leslie and I have covered, we revised our 2025 revenue guidance to a range of $115 million to $120 million from our prior guidance of $122 million to $126 million. We continue to expect gross margin for the full year to be in the high 30% range. With regards to operating expenses, we remain on track in the low $90 million range for 2025.

The combination of revenue growth, gross margin expansion and expense discipline means that we continue to expect to use less than $50 of cash in 2025. As a reminder, we used more than $100 million in 2024. So we are trending towards more than a 50% reduction in operating cash use. We continue to believe our cash balances are sufficient through cash flow breakeven and beyond.

With that, I'll turn the call back over to Leslie for closing comments.

Thanks, Renee. I want to close this and that we operate in 2 large end markets where we remain the clear technology leader. We are now approaching 1,000 acute sites using Tablo on a run rate of 1 million treatments per year, and we expect to close the year having performed more than 3 million cumulative treatments on Tablo systems.

We are gaining scale with significant growth runway ahead as our installed base matures. With hundreds of customer master sales and service agreements already in place, our expansion opportunity within our current customer base alone is significant. And on top of that, we continue to convert new customers in this multibillion-dollar acute care market.

Gross margin has reached a new high. Our operating expenses have been rightsized, and we are well capitalized with cash that puts us in a strong position to deliver on our long-term mission. And importantly, our technology, in-sourcing expertise and customer experience moat is getting wider and deeper. All of this progress sets a powerful foundation for value creation over the long term.

Customer demand for what only Outset can offer continues to grow. Providers, including some of the largest health systems in the country, are realizing the enormous clinical, financial and operational advantages that in-sourcing with Tablo can deliver. The market opportunity remains wide open for us as we continue to improve our execution, which I believe will enable us to make significant progress in 2026 and beyond.

And with that, I think we are ready for Q&A. Operator, please open the lines, if you will.

[Operator Instructions] Our first question is going to come from the line of Rick Wise with Stifel.

A lot of questions. Just maybe -- and I think you make a persuasive case for -- and for the factors behind the quarter performance and the change in guidance and the positive outlook. But maybe come at this from a couple of directions. The guidance, Tim, the $6 million or $7 million at each end of the range, is that 1 order, 3 orders?

Is it -- I mean, is that all reflective of that? Or is there extra insurance baked in? And it must be incredibly frustrating. How conservative are you being about this since you have, as you cited, the one, headquarters approval and you're just getting the signatures on the other 12 hospitals. Just -- maybe just talk us through all that, if you would, for starters.

So Rick, this is Renee. I'll start sort of on the numbers commentary, and then I'll let Leslie sort of comment on our overall thinking beyond that. But certainly, the shortfall -- the way we look about it is, first of all, just what happened in the quarter, right? And so if you just look at Q3, the primary driver for the shortfall is a large console opportunity slipping from the third quarter into the fourth.

And so then we then took a step back. And of course, when we're trying to think about guidance for the remainder of the year, we're looking at all of those deals that were slated for the back half of the year that didn't close in Q3 and then anticipated to close in Q4 and where are we at with those deals. And I would say there are, again, sort of a couple of these larger enterprise deals where we are trying to change the standard of care and therefore, identifying that, just being realistic about where we think that those are at. And I would say factoring in the departure of our Head of Sales that this is a disruptive -- could be a disruptive situation, and we're just being mindful of that when we forecast the remainder of our guidance for the year.

Got you. No, that's clear. I don't know whether you wanted to say something, Leslie, or shall I go ahead?

Yes, please go ahead, Rick, that was well said by Renee.

Yes, very clear. And I'm going to ask a couple of questions, if I could. But console revenues were better than we were thinking this quarter. Again, I'm not sure how to balance the third quarter performance with the order timing commentary. I mean that was encouraging as was the service. Can you talk more about what you're seeing and just help us better understand the individual moving numbers and what we're looking at and how that fits into this larger narrative you're sharing today.

Sure. We -- yes, we did see an increased growth in console revenue over the third quarter of last year, which felt very positive. And at the same time, as you noted, we were very frustrated and not pleased with our own execution in terms of our ability to consistently predict the timing of deal close. We have more work to do there. We can be better, and we will be better.

I think it is important to recognize as we look forward that -- and I noted in the prepared remarks that the order size -- the order sizes of our -- the individual deals in our pipeline, it has grown substantially. The average deal size has grown by about 20%. And that has some implications, both sort of both good and challenging. I think great in the sense that we are seeing demand and very high interest, as we noted, from the largest health systems in the country.

And we also have to be ready for the challenges of being able to predictably and consistently call the timing of when those deals are going to close. And so while I think we have made a, a really meaningful amount of progress, foundational progress on -- over the last year, implementing a new sales process, new sales tools, hiring to a different sales profile, getting our organization really proficient at selling at the enterprise level. All those changes have taken root, and they really have helped to transform the organization. Our work is not done. And now it's time to refine and continue to improve our ability to control the deal timing and predict time to close. And that's our next step here.

Got you. And maybe just last for me for now. In looking for a new sales leader, Leslie, what kind of individual are you looking for? What kind of experience? What do you need them to bring? And sort of the unfair part of the question is -- how quickly do you think you can make this happen? And what are the implications of this sales leader transition for '26? Are we more anxious now? Should we be more anxious about either the outlook for '26 or the magnitude of '26 or the way the '26 year could unfold because of this particular issue?

Of course. Sure. I'm happy to address all of that. Maybe I'll take it from the top. In terms of the criteria for our search, and I'll emphasize that the search is already underway, and I'll address your question there in a second, Rick, around timing. But the search is underway. I don't think any of the criteria will surprise you, but I'll take you through it.

First and foremost is a background in capital equipment. Number two, a background and strong track record in enterprise sales, total conversion of health systems, total standardization of health systems, the ability to convert many hospitals inside a health system to standardization around 1, technology and 1, care delivery model. And someone, I would say, maybe 3 who has the capacity to act very strategically, but at the same time, is extremely immersed in the details, sort of obsessed with the details and involved with the customer and with our sales team every step of the way.

And last, I'll say somebody who is an exceptional coach, somebody who is an exceptional leader developer and will ensure that we continue to preserve what's great about Outset and our sales team right now, which is who they are as individuals and in the collective from a culture standpoint. So that's what we're going to have our eye on there, Rick, as we move forward in our search. I will say in terms of impact, let me start by several of our sales VPs were hired prior to Laura joining. So I think it's important to note that we have really good tenure and importantly, experience, both in acute and home in these top roles. So I want to emphasize that.

At the same time, we have many other very valuable team members who are serving in important roles and making meaningful contributions that remain very committed to Outset and our mission and the opportunity here.

I am very much looking forward to, as I know Renee is as well, is getting even more directly engaged with the team with the sales team now reporting to me and sales operations reporting to Renee and getting even deeper engagement with our customers.

That said, as Renee noted, whenever you make a change in sales leadership, you do see the potential for some distraction. What does that all mean at a practical level? It can mean fewer selling hours, right, as everybody sort of digests the change and gets ready for new leadership. So we did feel it was prudent to account for this in our revised guidance. But I am very confident that hiring a new sales leader will take us to the next level and help us get to the state of predictability and consistency around deal close timing that we're looking for.

Our next question comes from the line of Shagun Singh with RBC.

Leslie, I just wanted to kind of touch on the visibility and the growth outlook for your business here. In '25, you're delivering about 3% growth off of pretty easy comps last year. You're exiting the year with a 9% year-over-year decline. So firstly, what does that imply for '26? I think consensus is at 10.5% year-over-year growth. And then also, how do you think about the long-term growth of this business? Is this mid-single digit, high single-digit, low double-digit growth business? How should we think about it? It's definitely a large market opportunity, but how do you give investors conviction in the execution?

Yes, sure. Well, I'll start by reiterating something that you won't be surprised to hear me say. We haven't obviously provided guidance for any period past 2025. And obviously, we look forward to doing that in the future. I'm glad you touched on what hasn't changed, which is -- demand is growing despite the setback this quarter with deal timing, the deals in the pipeline are progressing and the size of those deals continues to get larger.

Our competitive differentiation, our in-sourcing ecosystem and moat is getting wide -- wider and wider and deeper. And the console utilization remains very high and really consistent, which we've always felt is extremely important because utilization is the most direct reflection of the customer experience. It's something we're really proud of, and it continues to feed that foundation of recurring revenue.

Obviously, what we saw this quarter is we still have work to do on this final piece of the commercial transformation, but we believe that work can be accelerated under new leadership. And so we do remain as optimistic and confident as ever about our future as we look forward because what we saw in the quarter, I don't want to trivialize it. We're not happy with it. We're not pleased with the execution. But what we saw in the quarter was a shift in timing.

We do know we have more work to do on capital sales execution to better anticipate these deal dynamics with these larger and larger deals. But that said, nothing has changed in our market opportunity or technology or know-how and the core customer demand from larger and larger health systems really gives us even more confidence in our ability to grow revenue at differentiated rates in the future. But that being said, I'll maybe transition from my -- sort of my color over to Renee for any other comments.

Yes, sure. I think as you think about just reflecting on the update that we've provided with our 2025 guidance and the trim on that number, it's a good starting point for how we should be thinking about 2026. Of course, highlighting all of the factors that we talked about today. So a change in sales leadership is something that you should probably also factor in, in the near term.

And I would just sort of reiterate around we aspire to be a higher growth a company that have a higher growth than 5% or 10%, and we believe that we've got the marketplace to do that. We just need to have some execution here on deal timing. The market has not changed and the product has not changed.

Got it. And just a clarification question. With respect to your comment on there is work remaining to be done, have the forecasting changes or anything that you're doing in the background, is that completed? Is that behind you? And then you did talk about some ordering patterns and that you would work through that in 2026. So does that mean we should expect '26 to be a transition year in any way, maybe first half, second half? Any color there would be great.

Yes, sure. I think it really sort of depends on which revenue stream you're speaking to. I think on the console side, it's clear that deal close and transition of close to shipment is of most importance. That is something that we need to continue to refine. And I would say it's probably the heaviest lift here in front of us. On the treatment side or the consumables, we get a ton of data from our connected Tablo devices and watch that on a monthly, if not a daily basis at this point and notice that utilization remains strong. And so really, it is just a timing issue with regards to the ordering pattern of a few large customers that didn't materialize in Q3.

And we have seen that those orders -- Q4 orders are beginning to more closely match utilization. So specific to that order or that area where we absolutely do need to do a bit more refinement. We need to get closer to our customers, more visibility. And we believe that we're going to be able to take those steps to help understand their ordering patterns, their supply chain management, et cetera, so that we can fully have better forecasting on the treatment side. But the consoles are being used. They are high utilization, that's remained consistent, and that's what's given us the strength for the opportunity ahead.

I'll just maybe chime in one other thought, Shagun, on the console side because you had asked about, hey, is there sort of more new kind of more foundational changes that are needed in this commercial transformation journey. And I would say no. I mean we have work to do to further cement the impact of all the changes. But look, I mean, a lot of really great foundational work has taken place and taken root from sales process to enterprise selling, the sales rep profile, the sales rep structure.

I mean we would not have been able to get this far over the last year without all of it. And now we need to kind of fine-tune focus on predictability and the ability to better forecast the timing of deal close. And there are certainly, suffice it to say, some lessons here from Q3 that we can and will apply to the predictability of deal close going forward, and we are going to get better as a result. But there are no profound or foundational changes incremental to what we've already implemented here over the last year, Shagun. So I just wanted to clarify that as well.

Our next question will come from the line of Marie Thibault with BTIG.

Just wanted to follow up to understand the consumables sales order timing issue a little bit more closely. Is that just sort of an issue of the hospitals maybe overordered, weren't as good on their own forecasting? I don't recall really hearing of this sort of difference between the treatment patterns and the order pattern happening in the recent past. So I just want to understand that, what's being done to prevent it?

And then sort of the timing of that coming back, right? Should we think of Q4 being order and revenue very similar to what we're used to seeing on utilization? Is there some pull forward or making up for some of the missed revenue in Q3? Does that extend into 2026? Just a little more clarity on that.

Sure. Marie, happy to help give some more information and highlights here. I think ultimately, this is a limited group of higher volume customers that we saw for Q3, where we ultimately expected in that third month of the quarter for an additional order to be materialized, and that just didn't happen. Each customer is unique, right? They've got their own supply chain policies and practices and managing of their own balance sheets.

And so we're going to get closer to that information. We're going to work on that incrementally to providing our customers with all of the information that we have on our side that we're seeing from a forecasting perspective and just having closer collaboration.

This is, I would say, a defined set of customers that we need to go after and tackle this work, and we are absolutely committed to doing that for 2026. I think what we're predicting for the back half of this year within our guidance range is more of a normalized what we saw for Q1 and Q2 of this year. We -- to date, for the quarter, we have not seen any significant orders that we were in absence of what happened in Q3.

We've seen, again, just very consistent ordering coming through in Q4 matching utilization incrementally to, I think, how customers think about their balance sheets and their policies, right? They're also trying to predict the amount of activity that they're going to have in their hospitals, what does flu season look like? What does -- what do they expect just coming through the door. And so we just need to get closer to that information. I think our sales group has done a great start, and we just need to continue to get closer to customers specific to treatment utilization and treatment buying.

Okay. Understood. And a follow-up here on the console side and the Head of Sales resignation. When exactly in the quarter did that happen? And is there a way to sort of size up some of the guidance cut? How much of that is coming from sort of the timing issues around console orders closing versus some uncertainty about sales force disruption? Is there a way to kind of parse out what you're assuming in that $6 million guidance cut?

Of course, yes. Why don't I can start by addressing your first question. And then, Renee, if you have thoughts on guidance, I'll transition over to you. So Marie, to answer your question, the change in our sales leader occurred after the close of the quarter recently here. And it was actually last week. So it was very recent.

And I think look, I'm only reflecting back historically as I've seen these sorts of changes and evolutions in the past that there can be some time in the follow-on quarter where members of the commercial team naturally need time to kind of digest and absorb and that can, not always, but can lead to some distraction and less time available for selling forward. And so we were just trying to be cognizant of that and consider it as a factor, potential factor for the remainder of this year. I don't know if you want to pick up on anything further on the guidance.

I would say, Marie, specific to the console activity for third quarter, you might not be surprised in that console activity because it's a capital sale is generally in the third month of the quarter, where we start to see visibility and what orders are going to be coming in. So late in September was that sort of where that activity fell through, similarly on the consumables treatment ordering as well, sort of all late in the third month of the quarter.

And as we then look towards what should we update guidance for, for the year, what is our full year forecast, we took that into consideration as well as, as I mentioned, our full set of deal review for what was anticipated now for Q4, where are those at current conversations, getting really close to the sales organization as to the timing of that event. And that plus the resignation of our sales leader, we factored all of those in, and that's how we've come up with the guidance range of $115 million to $120...

Our next question comes from the line of Josh Jennings with TD Cowen.

I was hoping to just follow up on the update on the guidance and just make sure that you're not seeing any orders fall out of the pipeline, not seeing any order cancellation. I believe you may have commented on that, but just to circle back on that if you haven't. And then also just on the sales force, have you seen much transition through the quarter? Or is it really just the head of the sales organization that's departed? Is there any other transitions that you guys are considering in the guidance? Sorry that's 2 questions in one, but I have one more.

You're efficient, Josh. Thank you. Thanks for asking about the deal flow and sort of the deal progress. Short story long, no. None of the deals that were projected to close in Q3 and in Q4 have dropped out of the pipeline. The deal that we saw as a timing shift around out of Q3 forward specifically remains in the final stages of our sales process.

And I think we had given some color to that in the script just to hopefully provide some context about as we get up into these enterprise-wide deals with a dozen or dozens of hospitals, there are more and more stakeholders and a much greater number of approvals as appropriate, it's a big decision on the part of the health system to down-select to one technology and in-source.

And so we continue to work through all of those steps. I think our sales team is taking all the right steps to close them. None of these opportunities have fallen out of the pipeline, which is -- which we feel very good about. And then in terms of the change in sales leadership, this is our primary change. As I mentioned, we have several of our sales vice presidents who were hired prior to Laura joining. And so we do have really good tenure experience and commitment at that level. We don't have any other significant changes at this time at the VP level.

And we know we have a very, very committed team who believes in the change that this is hard work. We are changing a space that hasn't changed in 40 years and that's never easy to do. But this is a resilient team, and this is a team who has never been more motivated to kind of make a permanent and profound change in this industry, both acute and home for the benefit of -- ultimately the benefit of patients. So we have a team that is ready to execute and ultimately to deliver on our long-term mission and achieve the differentiated growth rates we know are capable in such a large market with a technology leader.

And maybe just lastly to circle up on just the home channel and your success there in 3Q and outlook for 4Q. It sounds like the turbulence was in the acute channel. You have these MDO contracts in place with the 5 largest organizations. Anything of note to provide more detail there and then also in the SNF channel?

Yes. Sure. Yes. Thanks for the question. On the home side, we always start by talking about the retention rate, which is foundational to growth. And we have seen, again, this past quarter, very stable and high retention rates in the home population even as that home population continues to grow, which is great to see.

We have continued to see growth in the home programs of our largest MDO customers, which, again, we see as a direct reflection of their experience and the experience of their patients. We continue to hear from the MDOs that their patients talk about a materially easier training time, materially easier use, day-to-day use and this feeling better effect, which we don't talk about quarter-over-quarter on earnings calls. But this feeling better effect has stayed with us really literally from patient 1, talking about feeling physiologically better on Tablo at home and in the acute setting. And so we feel really good actually about the progress across the home and across these MDO customers and into the SNF opportunity, which we continue to look at as a whole future vector of additional growth in the home channel.

We have a follow-up question from the line of Shagun Singh with RBC.

Just a quick follow-up on '26. I think you said 2025 is a good proxy for '26 as of now. I just wanted to make sure I heard that correctly. And then also just anything you can share on Q1? Would you expect some of the orders that didn't come in 2025 or Q4 to come in Q1 '26, so we should expect a stronger Q1 versus the balance of the year? And then I know that this year in '25, you started with a pretty broad range of 1% to 10%. Should we expect a wide range in 2026? Just any directional color on guidance philosophy would be helpful.

Sure. I think to clarify on my statement specific to 2025 and the good place to start is I specifically said we reduced 2025 guidance by, let's just calculate it, roughly $7 million. And so that's a good place for you to start when you're thinking about 2026 forward. And I would say, at this point, as we updated, the orders from Q3 and Q4 have now slipped into Q4 and into 2026. At this point, sort of forecasting forward into Q1 and specifically what our guidance range is going to be at that point, I'm just going to reserve the right to talk about that when we've got a full update on 2026 guidance.

And we have a follow-up question from the line of Rick Wise with Stifel.

Sorry to put you on the spot, folks. But just listening to Shagun's question, I'm sort of thinking, is it impossible? Is it highly improbable that the $7 million or whatever the number is, is it impossible that it falls into the fourth quarter? I mean -- or does it seem highly likely it won't? I mean you see where I'm getting at. Sorry to put you on the spot.

No, that's fine, Rick. As we were thinking about how to guide for the remainder of the year and for '25, our philosophy took into account, again, the fact that we are changing the sales leadership and that some of these deals will close in Q4 and some will close in Q1. And so that new range of $115 million to $120 million does not assume that all of the deals, again, if you think about a $7 million reduction, it does not assume that all those come into Q4. It's not to say that it's impossible or it could never happen. But again, given all the factors at play here for the remainder of the year, we felt it was prudent to take this approach.

And I am now showing no further questions, and I would like to hand the conference back over to Leslie Trigg for closing remarks.

Okay. Thank you, and thank you again for your patience and bearing with our top technical start there. I do appreciate everybody joining today. And I'd like to close by thanking our customers and our team for the meaningful difference they make every day in the lives of dialysis patients. Thank you all, and have a great evening.

This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great evening.

Good morning, everyone. I'm Steven Trainor, Vice President with Morgan Stanley. I'm happy to be hosting Outset Medical today. With us is Leslie Trigg, CEO; and Renee Gaeta, CFO. Before we dive in, I just want to note for important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. With that, let's get started. Thank you both for being here today.

Maybe to kick off, it would be great to get some overview on the history of Outset and how you guys have evolved since the IPO. A lot has changed over that time period. So maybe if you could provide investors some color on that to get started.

Sure. I'm happy to. Well, thanks again for having us. Maybe I'll take a quick step back and then kind of take a step forward. But the quick step back on what has not changed. We still operate in one of the largest markets in health care. We have a highly differentiated technology in a space that hasn't seen new technology in several decades with, as we sit here today, a paucity of competitors and a wide open runway for continued growth. So none of that has changed all in the best ways.

What has changed principally, first and foremost is growth compared to kind of where we were in the 2020 IPO, Tablo is now used in over 900 hospitals and health care facilities across the country. As we closed '24, we had an installed base of roughly 6,000 consoles. And today, we are run rating to over 1 million treatments a year. So it's been really exciting to watch that develop and evolve in the acute in the post-acute settings. On the bottom line, we've made a lot of good progress as well. We started life as a public company with a negative gross margin back in 2020. And closed up last quarter, approaching 40% with a product gross margin just about touching 50%. So we're super proud of the team's efforts there and continue to make great progress.

We also spent the last year to 18 months removing about $80 million of operating expenses and streamlining the business across the board which has put us in a really good shape to achieve profitability here in the near-term horizon.

That's great. I think a lot of those topics, we're going to dive in more, but that's a great overview.

Sounds good.

Thank you for that. So maybe talking about top line growth and the drivers really behind that. Last month, you reported Q2 results, which exceeded analyst estimates by 7%. So maybe just talk about what was driving that top line performance? And then how do you see that going forward in the second half of the year?

Sure. Yes. I mean we had tremendous results both in Q1 and in Q2. I think we've been really happy with, number one, our commercial transformation that we really started last year starting to present dividends this year, and we continue to expect that, that will present dividends going forward. Demand is strong for our product and growing.

Our technology is really differentiated and our customers are starting to experience the significant financial, operational and clinical benefits of our products. And so as you look at our results for the quarter, we had product revenue growing at 20% year-over-year. Strong treatment utilization and growth of 17% for the quarter and for Q1 as well. So good, strong clean execution throughout the sort of revenue channels. And as we look forward to the back half of the year, that is certainly something that when we provided guidance, we do expect to see continued growth in 2025 and beyond.

Great. And maybe give us some color on when you think about the business model and going to market, how do you approach that? And obviously, console placement drives that. But maybe just give us some more color on how you go to market there.

Yes, I can start there. Well, so we operate in 2 very, very large end markets. The acute and the post-acute market, we sized at roughly about $2.5 billion and then the home market at over $9 billion. So starting there. The business model itself, and this is probably one of the most underappreciated aspects of Outset strength is the capital sale and recurring revenue model.

And so we sell the capital upfront. And each one of those consoles when sold in place generates about $20,000 a year, effectively in perpetuity in the acute post-acute setting, and about $15,000 a year in disposables and service in the home. Together, those 2 components, capital sales driving this recurring revenue have resulted as we sit here today, an expectation that we will exit Q4 with over $100 million in recurring revenue alone. This is high margin, very predictable, very high visibility recurring revenue. We continue to add to that. It's a big part of our strategy. Our recurring revenue base, if you will, are the disposables, that are used during every treatment and then field service. Our field service team provides an exceptional experience that's translated in reattach rates annually for service that exceed 95%.

So again, high visibility and high predictability there. But we continue to build incremental sort of recurring revenue streams around that in selling now EMR. We're fully connected and integrated in with Epic and Cerner. So that's a new recurring revenue stream and data analytics and things like implementation services as we move forward, all work together to give us a vision of higher and higher recurring revenue as a percentage of total revenue. But as we think about the acute market we're getting to go to market and what's really driving the uptake and the momentum there, it's really, as Renee alluded to, the financial, the clinical and the operational benefits that Tablo is providing.

And the way that, that gets transmitted to hospitals is through a clinical service model change. Most hospitals for decades have outsourced dialysis to a third-party service provider such as DaVita or Fresenius or others. And it's really been kind of a set it and forget it model. These hospitals write very big checks every year for a third party to bring a nurse into the hospital to provide that dialysis treatment when it's needed. And that model does not always provide the highest clinical outcomes for the hospital. Patients often have to wait. And you can imagine somebody you know or yourself needing dialysis and having to wait in the IC or on the floor for 2, 3, 4, 10 hours for that outside nurse to come in and give you the treatment that you need. This service model in-sourcing dialysis and allowing the hospital to really control their own destiny they use their own nurses with Tablo to deliver the dialysis care that's needed when the patient needs it, not when it's convenient for the outside provider to provide it.

So that's some of the clinical benefit. And then the financial cost reduction, we will typically see anywhere from, call it, a 50% to 75% reduction in the cost to the hospital dialysis when it is in-sourced with Tablo. So all of that is sort of fueling a value proposition that is evergreen, but probably never more important than it is today as many hospitals are looking for tangible ways to reduce cost and increase their margins.

That's great. I think we'll dive in the commercial organization a little bit more in a second. But going to gross margins, I know that's been a big theme for you this year in your earnings calls and also just in general since the IPO. But can you maybe talk about where you stand today, where you're trying to be longer term? And then what are you really doing to drive that expansion?

Yes, certainly. We are -- I would say, gross margin has been a point of pride for our organization. But we're not done yet. It is definitely a focus of ours. As Leslie mentioned, we went public with a negative gross margin, and we've been improving that and increase in gross margin every single year since. And we continue to plan to do so. So for the second quarter, we had a non-GAAP gross margin of 38.4%, which was 110 basis point improvement from the prior year. But also -- it still included a 100 basis point headwind from manufacturing under-absorption, which throughout 2026, will start to alleviate and go away.

So we -- the team is absolutely focused to it every single day. Gross margin is impacted largely by not only console cost-down programs, efficiencies in our operations, but also, of course, revenue mix, what's the drivers of revenue. And so one of the things that we like to highlight and make sure people are aware, as we sort of reignite console growth on the revenue side, that will have a slightly dampening effect to gross margin in the near term and then -- but ultimately pulls through higher gross margin products when we get the treatment, the consumables and the service to pull through in the subsequent periods.

Great. And then maybe could you just unpack the aspect from the product and the service margin. And I think that's what you're getting at with as you implement them overtime?

Exactly. Yes. The product revenue specifically sort of the console aspect of it because that's the first item in a transaction that sort of gets sold. We've worked really, really hard to take the console and work down the cost and that the efficiencies, the scales and the manufacturing. And we've done, I think, a great job. We've got some -- probably some a little bit more tweaks to go there. We've also made significant efficiencies in our cartridge or treatment gross margins and then service, as you mentioned, is the third leg that we certainly highlighted in Q2, it is something that we saw a little bit of a retreatment there.

It will ebb and flow and fluctuate, but we are 100% focused to it as an organization, how to optimize that service delivery, but also at the same time, ensuring that we continue to provide really strong customer service for those -- for our customers with regards to service and console uptime.

Great. And maybe moving to utilization. Can you talk about how that's trended and how that might look different in an acute and home?

Yes. It's remained remarkably consistent, I would say, just for some context to in the acute setting, it's roughly 4 to 5 treatments per week per console. And then in the home setting, it's about 3 to 4 treatments per week per console. Tablo is connected to the cloud. So we are able to track the identified information very closely, and we do so. We have noticed that once a console is placed, it is used.

That's great. And maybe let's talk more just about acute versus home more broadly and lending those markets. How are you growing today in each of those? And then longer term, how do you think about the penetration between those two?

Yes. I'll take that one. So in the acute and when we say acute just to define the terms we mean kind of critical care hospitals really of any size and then long-term acute care LTACs and rehab. And we've seen really strong growth across the board. To set the stage, we are now contracted with all 8 of the largest 8 players on the critical care side, all sort of brand names that you would be very familiar with across the country. And then we are also contracted with all 10 of the largest 10 LTACs and rehab. And again, many names that you would be familiar with there.

So we size the acute, post-acute market on a console basis at about 40,000 to 45,000 consoles. So if you rewind the tape a bit and look at where we exited 2024 in terms of our installed base, we think we're about low double digits penetrated in the acute market. And again, what's really driving that rapid penetration is the value proposition. We are able to go into systems really of any size and pretty quickly tell them through some proprietary financial model that we have, exactly how much they're going to face through in-sourcing with Tablo. You're going to terminate your outsourced agreement with your third-party hire several dialysis nurses to work for the hospital, bring in Tablo and really, again, control your own destiny from a clinical standpoint, a financial standpoint and also an operational standpoint.

One thing we've learned that I didn't know when we started all this, was that when hospitals have joint commission surveys, it is the one of the top 5 citations that hospitals typically get dinged on, is actually maintenance and the provision of dialysis. And if the hospital is outsourcing that, they don't control their own compliance either. And so I think this value proposition sort of continues to snowball and get stronger and stronger. We started with principally a financial value proposition, again, 50% to 75% cost reduction. What we have learned through our customers is how strong the clinical benefits are. For example, a growing number of hospitals through their Chief Nursing Officers has started to publish their results, for example, on a lower rate of hospital-acquired infections, a lower rate of dialysis patients coding during their visit kind of pre outsourced to post in-source much lower, lower length of stay. Because, again, those patients can be treated with dialysis when they need it, not when it's convenient for the outsource provider to deliver it.

And so I think as more and more hospitals start to publish and share their results, we're starting to kind of see the beginning of a flywheel effect. That's only going to create more demand and allow us to progress those deals through the pipeline to close. So it's acute and post-acute, that's really fueling the majority of our growth. We view that as kind of Wave 1 of growth and we're, again, just getting started here with low double-digit penetration. And then kind of a Wave 2 is home. And these are interconnected because our intermediate to long-term vision is actually to work with the acute care customers to stand up their own home programs. Many, many health systems around the country do want to start their own home dialysis programs because increasingly, they are lacking ways to discharge dialysis patients as we're seeing waves of dialysis clinics continue to close, there's nowhere to discharge those patients.

And so over the longer term, the acute and the home are actually knitted together using, again, our growing and increasingly large footprint of these 900 hospitals using Tablo for inpatient dialysis.

That's super helpful. And then you mentioned the Chief Nursing Officer. I know you're growing on full time. Maybe talk about how they've been effective in that role and how that -- you see that in the kind of sales process.

Sure. Yes. What we learned as we moved, I would say, from the super early adopters to the large health systems on mainstream adopters, what we really learned was how vital the Chief Nursing Officer, CNO, is to their decision-making. It's the CFO who's going to get excited about the financial cost reduction. It's the CNO that's going to do all the work. The Chief Financial Officer is not going to stand up a new insourced dialysis service line. It's the CNO.

And that's one of the ways I think that we had to change and evolve in our sales process and understanding, hey, there's another really important stakeholder here that oftentimes we weren't paying enough attention to. And so as our footprint grew and we saw the vital importance of the Chief Nursing Officer to our sales process and increasingly by the CIO as well, and that was part of the reason why we went after this EMR integration. We realized that we would benefit as a team from having a Chief Nursing Officer, who had insourced with Tablo at a hospital. And that's exactly what she has done. And her own results were pretty stunning. I think her hospital experienced a 75% reduction in the CLAB stream or hospital-acquired infection rate. and something like almost a 300% increase in their patient volume in a 95-plus percent treatment success rate.

So she's really been able to come in and kind of take her blueprint for success and implementation and share it with other CNOs at potential new customer sites. So it's been terrific to have her on board so far. But it really broadly speaks to, again, the importance of the CNO and kind of our C-suite sales process.

Great. And then obviously, your value proposition is very different than some competitors. But maybe just give us a view of the competitor landscape and then really what is the key thing you see when people are making decisions, why they picked Tablo?

Yes. It's something I was talking to some of the other day and they were asking the same question who's your competitor? And the truth of the matter is it's really behavior change is our competitor. And in that sense, we're no different than the other novel medical device company trying to get, whether it's a clinician or a health system executive just think about doing something different. But yes, I would say Inertia is our biggest competitor. It's kind of, well, this is the way we do it, and we've always done this way. And it's not working great, but it's fine. So that is our principal competitor.

Now as we look kind of out onto the horizon kind of in the equipment space, we have sort of some of the incumbent players. As I mentioned, those technologies really have not materially evolved or advanced in decades. And we don't -- and we're not -- we're going to stay vigilant. We're certainly not going to take anybody for granted. But we don't see anybody on the device side that really has, I would say, the full package. And what do I mean by that? The technology is just the beginning, and this is something we've learned over the last 5 years of growing in this market, it goes far beyond the device.

When you're helping a hospital make a, again, a clinical service model change, they need a trusted partner with know-how, and that know-how is actually around how do I insource a new service line? How do I terminate a service agreement with a third party and bring all this in-house? Where do I find the nursing staff? How do I train the nursing staff? What are all the steps and what's the right order of operations for those steps? And so we actually act as a change management partner now through that process. And we have kind of our own proprietary playbook for how to do this, number one. Number two, you need an incredibly strong service and support team. And as we now are supporting in the field an installed base of over 6,000 consoles, we've gotten really, really good at that. We provide an exceptional service experience day to day to day. We provide an immense amount of data now to the hospitals with proprietary data analytics, not only on all the clinical treatments.

We have, I think, at last count, 3.5 or more trillion data points in our cloud. That's incredibly powerful for us and our customers, not only today, but moving forward, as you think about sort of the AI-enabled and machine learning algorithm tools that we can apply to the service experience and machine uptime that Renee alluded to, and even clinical data analytics in the future. And that's kind of everything that we bring to bear, really as a partner to these hospitals more than a advice provider. And that's quite unique, and those moats, we think, are going to be very durable for some time to come.

Great. And maybe just talking about the Tablo system itself. Like what makes it easy to use and maybe just explain how it's so different than some of the legacy systems that you're going in and helping change?

Well, I think it's evolved. I mean you've got sort of foundationally how is it different foundationally. It is the only system that in one small integrated 36-inch box, can -- but don't ask me that question, by the way, because this could be an hour just on the topic. But we were the first to have a single integrated system that purified water on demand, any kind of water. Made dialysis solution made the dialysate on demand customized to your prescription versus my prescription, that had never been done before.

We were the first system to have 2-way wireless data transmission. So we, for example, all of our software updates are done OTA over the air, sort of Tesla style, which is now pretty commonplace across consumer products, but less so in the dialysis and critical care space. And we were the first to offer a system that was loaded up with over 70 sensors that automated a lot of the steps of set up. And so what's the so what who cares? Well, it has made it very fast to learn and maintain your competency on. There's nothing to memorize. There's no mental math. Tablo kind of almost does it all for you. And then how did we evolve it by putting again the kind of the rings of EMR interoperability around it, the data ring around it in data analytics, the field service experience and then later, our expertise around how you go from outsourced to insource.

So the foundations remain highly differentiated, and those are still unique to Tablo. But we always kind of challenge ourselves how do we deliver more and how do we deliver more to our customers and to our patients, and we're not going to stop innovating.

Now maybe let's talk about the sales transformation. And as you penetrate these markets and getting people from outsourced to in-source, right? I know you've done a lot of work in the past year specifically and trying to change how you go about that. So maybe just give us an update on where that stands and what do you see that's left going forward for this year or next year on that specific transformation you're putting into place?

Yes, sure. Well, a little bit of the history behind it. It kind of goes back to your first question with sort of what's changed since the IPO. We grew very, very rapidly, early. And in hindsight, recognize where did that growth come from? In the acute space, it was really the classic early adopters. And our original sales team on the capital side did a great job with that customer segment. As we kind of earn the right to sell at an enterprise level, our deals now in our pipeline. What do I mean by enterprise level? I mean we're talking about health systems that may have dozens of hospitals.

And their vision is, hey, we want to in-source, standardize to this notion of Tablo in-sourcing across the board. That is a very, very, very different sales process. You might be going back to the CNO, you might be dealing with 20 CNO and 20 CEOs and 20 CFOs because you've got to get buy-in kind of both at the local level and also at the corporate level. And that's a really different sales process. We didn't have that sales process. We had more of a classic device sales process, sort of 5 to 10 Tablos at one hospital and then you move on to the next hospital, the next hospital. So we recognized probably a bit too late, probably not probably, definitely too late that we needed a different skill set in our capital sales team.

We needed a different sales process that was paired to the opportunity, this enterprise-wide opportunity. And we needed more powerful kind of data tools to help our team move those deals more predictably and more visibly through the sales process to close. And that is all the work that we undertook in late 2023 and through 2024. So where are we today, getting to the last part of your question, we've now had 3 quarters of -- and have a really, really good process. The leading indicators that we look to are #1, is the pipeline growing, is the customer demand growing, check. We grew the pipeline. We talked about this on the last earnings call. again sequentially and also year-over-year. So we do have the largest pipeline and amount of customer demand that we've ever had at least in several years, one.

Two, we have more of those deals, a higher percentage of those deals in the later stages of our pipeline; and three, we're closing a higher percentage of deals. And so as we look to last quarter, it wasn't like we just closed one big deal and had a great quarter. I mean, the team closed a lot of business. And we saw existing customers expanding their use of Tablo within their network to new hospitals. And then we saw any number of like new larger customers coming to in-sourcing for the first time. So those are all the leading indicators that we look to having really now, I think, mostly accomplished what we set out to do across team and process and systems.

Great. And then maybe just talk about like the sales time line. And when you first reach out and obviously, it can be a long process of trying to get those decision makers on board, but maybe just give us a view of how that looks on average?

Sure. It's -- our typical sales process is somewhere in the 9- to 12-month range. That's actually been pretty stable and steady. We've been asked recently about capital spending and are we seeing any elongation in our sales cycle. And the short answer to that is no. We'll say knock on wood, so far so good. We haven't seen any change in the behavior in the acute world with regard to capital spending. So by and large, that 9 to 12 months has been very consistent for us.

Do we see deals come in and close earlier than 9 months? Absolutely. Do we see bigger deals, hundreds of consoles that take longer than 12 months? Absolutely. And so there, of course, like anything else in life, there's a there's a range, but our mean has continued to hover in the 9 to 12 months to

Great. And in terms of the spending, there's been obviously talk on federal funding cuts impacting customers. I guess can you just talk about what you've seen there or heard or if you've seen any slowdown?

We have not. So we have not seen any slowdown. We are obviously keeping a very watchful eye in our weekly conversations with our acute and post-acute customers, but I have not seen any evidence for that. I think also what's really, again, unique about Tablo and our sales process is that we are delivering a very large amount of value to the customer in a very short amount of time. That hospital will see kind of day 1 dollar one savings. The cost reduction we're talking about is very tangible. It's -- we are going to invoice you less money for your supplies. You are going to be paying your own nurses less money than you're paying your outsourced providers. So it's very easy to see, and it shows up effectively the first day that they plug in Tablo and treat on it for the first time. So I think that's helpful.

Also, a hospital is not spending millions of dollars on the capital acquisition of Tablo. So it's a relatively low capital acquisition cost. And when we've looked at the payback periods for most hospitals, it's inside of 12 months. That will vary by their volume, right? And their utilization, are they using Tablo in the ICU, where they have longer dialysis treatments, and so they're going to have a little fewer treatments per week versus outside the ICU, they're running regular 3- to 4-hour treatments and they might be using Tablo several times a day. So it is dependent on volume but across the board and our customer base, typically that payback period is under 12 months. So I think all of those things tend to kind of elevate Tablo up the priority list, if you will, as hospitals are thinking about their capital spending decisions.

Great. Talked about console growth margins. The other priority is obviously profitability. So let's maybe talk about that and how the plans to reach profitability? And then how do you feel like when you'll get there and what you're targeting over coming months?

Yes, sure. I mean, as we've talked about this sort of commercial transformation and all of the changes that the organization has gone through, one of those levers that we took was to really reduce the OpEx spend as well, really get narrowed focus on exactly knowing what we're going to execute on for 2025. And I can tell you across the organization, those are very clear. And so we've treated out about $80 million in OpEx spend out of the P&L. You can see that those decisions are materializing in our financial statements which is fantastic and the teams are definitely focused to it and executing consistently.

We know that near-term profitability is important to not only us, to our shareholders as well. And I don't see any reason why that's not going to continue to execute for 2026 and beyond. We are marching towards it. I think importantly, to understand not only on the OpEx side, also on the cash burn side because that's important. We had over $100 million of cash burn in 2024. This year, we have committed to less than $50 million, and we are absolutely marching towards that. Those together in combination. I think that our cash burn will then even step down even lower in 2026 on an annual basis. So we are marching towards it and cannot wait to be excited enough to get to that point.

That's great. Maybe just talking about your guidance. So you raised and narrowed your guidance to $122 million to $126 million. This suggests some slower growth perhaps since the second half of the year versus the first half of the year. Can you just kind of talk about that? And then what's your philosophy on guidance overall? And how should the Street think about those numbers?

Sure. Yes, as we came into 2025, we did -- we set a range of $115 million to $125 million, a little bit of a wider range and had initially started with and have continued the messaging around being conservative for this year. We are executing against that plan, really excited about the momentum in the business. And I think one important point when you look at our updated guidance, the midpoint of our range does indicate a slight growth in the second half of the year versus the first half of the year. But again, back to the commitment to a conservative guidance and issuing guidance for the year and tracking against that goal.

Okay. And then what color could you maybe give on '26? I know you can't provide guidance yet, but how are you thinking about that? And then maybe just higher level on the growth profile for next year and the year

Yes. I think as you think about guidance, we've set for this year, you're right, quantitatively, we have not spoken to 2026. We will do that in due time, and we're really excited about that when we come through the beginning of the year, as we think about what are qualitatively sort of the drivers there. Everything that we've stated today and focused on for 2025, we'll continue to pay dividends into 2026 and beyond, quite frankly. Growth, return to revenue growth, seeing growth in all portions of our revenue stream, but in particular, that first initial sale into console growth is extremely important to us. And there is no reason that I see that we will not continue to be sort of in the range of med tech, high-growth companies. That is absolutely our target.

Great. And maybe just one more. I know you touched on cash and your goal of this year using under $50 million. But maybe just talk about how the balance sheet looks today and how you view that between now and becoming profitable?

Yes, with the recapitalization and we refinance the debt, our balance sheet is very strong. We have plenty of cash on the balance sheet to get us through to profitability and breakeven and we've sort of moderated or rightsize the debt position. That also includes the bad debt is interest-only during the term with the balloon payment at the end. So that gives us the flexibility to really run our business and make the strategic decisions that we need. And so we feel very comfortable with our balance sheet and therefore, the ability to continue to push and invest in growth but also optimize towards profitability ultimately.

Great. And then maybe we only have a few minutes left, just higher level, maybe give us some thoughts on the next 3 to 5 years, how you think about strategic priorities? And where do you really see the company going by 2030, for example?

Yes. Well, as I look out to 2030, which is even difficult to imagine, my first goal is to stay alive. So hopefully, that will materialize. But I think the picture I have a outset in my mind. Number one, we are the industry-leading partner for acute and post-acute care hands down. I envision that in-sourcing is so commonplace that it will seem weird if a hospital is still outsourced. In terms of our own growth, I would imagine that our market penetration, our share of the acute space would be commensurate with an industry-leading position, and there is no reason why that will not happen as we sit here today.

I also think that as an organization, we will have the opportunity to realize this vision of acute to home and have an opportunity to change the channel through which patients can access home dialysis. Us as an organization, we will continue to grow in home and be able to realize the benefits, and that are pretty profound actually for patients who are able to leave a dialysis clinic and enjoy all of the very obvious benefits, again, around controlling their own destiny at home, and that we'll have an opportunity to do that in a multichannel fashion.

In terms of the complexion of the organization, as Renee alluded to, I think we will be well into enjoying the many benefits of being a profitable organization, a sustainably profitable organization. that is still growing at a very differentiated rate compared to our med tech peers and has an enviable gross margin. So that's the vision. And there's no reason now as we sit here with the team transformed and the technology lead that we have kind of the experience and the know-how and the learning some of it through the school of Hard Knox, but we'll take it that we can't execute and reach that vision.

Great. Thank you. And then maybe just to close it out, any thoughts for investors maybe something that's less appreciated in the story or something that people should focus on more as they think about the opportunity?

Sure, well, maybe 2 things that come to mind to circle back. One, I think, is the strength of the recurring revenue business model. And even I underappreciated that when we first kind of got started. But as we sit here today with roughly kind of 65% of our revenue recurring, highly predictable, high gross margin and a lot of visibility to that. I think it speaks to the user experience as well. customers, whether patients or hospitals don't continue to use products that don't work. And so one of the reasons that I think we're really proud of the recurring revenue streams that we have is that it does speak to the retention, both retention at home being very, very high and retention of our acute customers being very, very high.

So I think the recurring -- the power of the recurring revenue business model is probably a little underappreciated and I think the strength of Outset as a growing powerhouse in the acute care space is probably a little underappreciated and just how big this market really is. By the way, $2.5 billion, that's U.S. only, right? And so as we think out, whether it's 2030 or beyond, there's also a big bad world out there that we can take advantage of. So I think probably those are the 2 elements, kind of acute care powerhouse and the strength of the growing recurring revenue foundation that we're really proud of and maybe a bit underappreciated by investors.

Great. Thank you. Well, thanks for being with us today and really appreciate it.

Thank you so much. Appreciate it as well.

Good day, and thank you for standing by. Welcome to the Outset Medical Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Jim Mazzola, Head of Investor Relations.

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 2 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 1 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 5 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 stage 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 it 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 2 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 3 vital priorities. One, grow console revenue; two, expand gross margin; and three, drive to profitability. With 2 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 2 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 reoccurring 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.

[Operator Instructions] Our first question comes from Rick Wise at Stifel.

Great to see another, I think, maybe the fourth quarter in a row of steady progress on all your key business priorities. It's great to see that. If I could start off just, Leslie, on your guidance, and not to use your words to against you, but you said -- I think I'm quoting you, you said we're set up very well for the second half of '25. And if I'm doing the back of the envelope math correctly, maybe I'm not, but it seems like at the midpoint of the guide that looking -- forget the differences between third and fourth quarter, it sounds like the midpoint would be sort of make the second half roughly -- very roughly equivalent to the first half sales level. But it feels like momentum is growing. Am I thinking about this correctly? And maybe help us understand what's maybe keeping you, I'll say, thoughtfully conservative?

Sure. Rick, happy to do that. First and foremost, we really are happy with the way the year has shaped up to date. Taking a quick step back, we kicked off the 2025 year by conveying that we did intend to remain conservative throughout '25 from a guidance standpoint as we stay focused on what we know is a really important year of execution for the company.

But having said that, it was great to see very strong console and recurring revenue performance in the first half of this year, combining that with -- and you did hear me correctly, what we believe is a very good setup for the second half of the year, we were pleased to raise the range, both on the top and the bottom by a full $7 million, which effectively raises the low end above what was the midpoint of our guidance at the beginning of the year. So, I think that's all very, very good news.

Let me say a little bit more about another part of your question, kind of why we believe the setup for 2H, and I'd say beyond 2H is good. I'll try to keep it short, but 3 short points. One, this commercial transformation is absolutely taking root. The changes and the improvements we made to the team and the tools and the processes is really paying off from pipeline management to forecasting to our ability to convert opportunities to contracting. It's -- in short, it's all better.

I think the second short point is that demand is growing. Our pipeline did grow again, both sequentially and year-over-year. And also, equally as important, the deals are progressing. We have more deals in the pipeline that are in the later stages versus the earlier stages. And we have good diversification in that pipeline. More and more of these deals are at the enterprise level, which, by definition, means sort of a very robust number of consoles per deal. So that's good.

And then three, console utilization remains high. And this is a real point of pride for us because more than anything else, I've always believed that console utilization is a direct reflection of how good of a job we're doing, how good of a job is Tablo doing? Are we and the team fulfilling the promises that we're making to both patients and providers, and strong utilization suggests that, that answer is yes. And of course, the utilization continues to feed the foundation, a very consistent, very predictable recurring revenue, which is a strong place to operate from.

So all in, Rick, you heard it correctly. We do feel really good and feel that we're entering 2H with a strong setup. And at the same time, we remain very committed to what we said we were going to do at the end of the year, which was a commitment to guidance conservatism, and we're going to stay focused on executing through the next few quarters here to deliver on it.

Great. I appreciate all the detail there. And maybe just sort of one factor of many underpinning all those comments is the commercial strategy transition. I was hoping you could give us some additional color on where are we? I think previously, if I remember correctly, you said that, you thought the sales force transition would be sort of fully productive after the quarter you just reported. I mean, are we past the sort of standup phase, if you will? Help us understand that or if there's more to go, what would get you to, yes, we're past that. And maybe help us -- maybe I'd be curious to hear your thoughts about how a now more fully trained on a productive sales force factors into your rest of '25 outlook and maybe how that sets you up even for next year from that perspective?

Sure. Yes, happy to comment on that more. In a nutshell, the commercial organization looks and feels and operates very differently today in all of the best ways, as a result of the changes and the improvements that we've made here over the last couple of quarters.

And that showed up for us in a really nice way, both in the first quarter and again in the second quarter as these new tools and the new sales process, really, again, aimed at success at the enterprise sales level did contribute to -- these are some of the things we look at, Rick, improved forecast accuracy, more demonstrated visibility, predictability and control over how deals -- where are deals exactly in the sales process and how are those deals progressing. The ability of the team to convert those opportunities to contracts and ultimately to revenue has also improved.

We're obviously going to stay extremely vigilant in monitoring how everything is going. But the headline value here, I think, is so far so good, and we're really happy with the progress and the evidence that we have seen to date and have confidence in how it's going to continue to translate here through the remainder of the year.

Our next question comes from Marie Thibault at BTIG.

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. And yes is the answer. But let me give you a little bit more color behind it. We did have ASP strength due to a really nice attach rate both on or said differently, uptake for TabloCart and the Tablo PRO+ software, which did help fuel the ASP strength.

Also, I would be remiss, if I didn't mention that our team continues to do a great job on ASP discipline. And I think the ASP strength is reflective of the results that the technology and sort of the proprietary ecosystem around it is driving for customers.

Customers, particularly in the acute and the post-acute setting, I think, is the nature of the question, really are experiencing and continuing to share actually more and more with their peers very, very tangible cost reduction, operational efficiencies. And I'll say, what is continuing to emerge are these clinical outcomes. More and more hospitals are reporting significantly lower CLABSI rates, lower rates of hospital-acquired infections when they have moved from an outsourced model to an insource model.

And so between, I think, that the way that we think about the pricing structure around Tablo, the team's discipline in executing around it, and the accessories and some of the software options, all of those were key contributors to ASP strength.

Now, going to the beginning part of your question on sort of how durable, I think -- and guide me, if I'm not getting the first part of your question right, but yes, kind of the durability and the sustainability of the pipeline and sort of forward-looking console sales. The console revenue that we saw this quarter and that we expect to see in 2H is driven not only by strong ASP, but let me be clear, by very strong console placements and strong console uptake. So that's a really important point one.

Point two, when we look forward into the pipeline, and I'll touch on this very large enterprise agreement that we signed this quarter, as I mentioned in the prepared remarks, that's dozens of facilities potentially and hundreds of consoles over time potentially. And so with several of our existing customers and new customers at the enterprise level, we do take a view that this could provide a pretty interesting growth rate for us for many quarters to come in the future.

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. The -- 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.

Our next question comes from Josh Jennings at TD Cowen.

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.

Yes, sure. Thanks for the question, Josh. I'm happy to. So, despite the successes that we've had here for the last couple of quarters in pipeline expansion and in closing new deals, we are still -- I would still call it an early innings in terms of the runway.

If we look at the total addressable market in the acute and subacute and just to recap on terms, in subacute, we include LTAC rehabs principally in that TAM number. We would consider ourselves to be kind of in the low double digits in terms of market penetration.

So that is what really excites me the most is we've come a long way. And with 900 sites now using Tablo, both acute and post-acute, it is kind of amazing that we're only low double-digit penetrated, which tells me we have a lot of exciting opportunity ahead with a team now that is really ready and capable to go after it.

I think that another thing I think about in terms of the TAM is there's a lot of interconnectivity to think about, too. Many health systems own LTACs. Many health systems own rehabs. Many of these health systems have or are getting into the skilled nursing facility area. Nephrologists that round in hospitals also round in the outpatient setting of home and have patients at home. And so, we really benefit greatly from the interconnectivity, both at the clinician level and also at the IDN level, which I think is helping to kind of fuel this flywheel.

Another, I'll give you one last observation that I found pretty interesting, Josh, is we have for the last 12 to 18 months seen a fair amount of executive leadership migration, executive leaders moving from one hospital to another, one health system to another. And that has really started to pay dividends for us as well, not that we had anything to do with that. But you can imagine, as the CNO moves from hospital A to hospital B and hospital A has successfully outsourced with Tablo and seen the benefits at their first hospital, they're kind of bringing that experience, that confidence and conviction to their next hospital executive leadership role.

So, we have actually experienced some tailwinds and some benefits that I think is only going to continue as this footprint for us grows in the acute and post-acute space and insourcing with Tablo becomes an interesting idea to the standard of care, which we fully intend to deliver on here in the coming future.

Excellent. And sorry for another relatively high-level question. But you mentioned partnering up with the #3, 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 second half '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?

Yes. Sure. I'm happy to. I always love talking about home. We have continued to make good progress in the home end market, both with the -- we call it, midsized dialysis organization, or MDOs, and then the skilled nursing facilities or SNFs. And that continues to contribute about 15% to 20% of our revenue, which is exactly in line with the expectations that we shared in the beginning of the year.

Our overarching goals for home growth as we set up 2025 were, first and foremost, and at the risk of beating a dead horse, I'm really passionate about this topic around retention. I've always believed that sustainable longer-term growth has to start with an industry-leading retention rate, so that you're always growing from a strong foundation.

We have maintained a 90% or greater retention during the first 90 days, which all of the data suggests is sort of the leading indicator of longer-term retention at home, and we have maintained very, very differentiatedly high retention rates at 12 months as well. So, the backbone of our growth is retention, regardless of the channel through which it comes.

Our second goal was to achieve partnerships, with all of the largest MDOs in the country. And as of Q2, we now can check that box. We continue to see more location growth depth. Job #1 is to contract with the largest MDOs. And then job #2 over time is to deepen the utilization and offer Tablo in more and more and more of their locations. And that's the next phase that we're focused on now that we have achieved the contracts that we were hoping to achieve.

And then the third thing is to begin our entry into SNFs. That was the third goal for '25. That does remain a very large, but also obviously very new to us market. The trappings are all there in the sense that the value proposition, it actually is quite similar to acute, lower and less complicated dialysis, which delivers a dramatically higher quality of life and treatment benefit for patients.

And so, we've gotten a good start to capitalizing on that here in 2025. As I mentioned, we're seeing some good kind of tailwind even through our acute partnerships into SNFs in addition to SNFs that want to directly manage dialysis in-house and through service providers that are specifically focused on coming in-house into the SNFs and providing dialysis there.

So that was a long answer, Josh. I apologize for that, but I'll just say that, those were our 3 key goals to continue to develop this market and penetrate into it with Tablo over the longer-term. But here in the near term, I think the team is executing very well across all 3 of these vectors.

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.

Our next question comes from Shagun Singh at RBC.

This is [ Mo ] on for Shagun Singh. Congrats on the quarter. I was wondering if you could touch a little bit deeper on some of the internal work that has been done to transform the commercial organization. You talked about the restructuring a little bit. Can you maybe just tell us where you stand on those efforts and maybe try to quantify that a little bit? And I'll have one follow-up.

Of course, yes, I'm happy to. Sort of -- to top line it for you, the commercial organization itself is, I would almost say, dramatically different than it was just a relatively short time ago. And again, credit to our commercial leader and her regional leadership team for implementing any number of changes and improvements.

We looked at, Mo, to answer your question a little bit more specifically, we restructured the team. We looked at a new enterprise skill set. I've talked in the past about how our kind of original sales team was, I think, less able to capitalize on these enterprise-level opportunities that we had earned the right to get in front of. And just had a little bit of a different skill set, probably a little bit more start-up mode, as I would describe it.

And so, we needed capital sales professionals who had to put it shortly seen the movie before, and had success and a track record of end-to-end management of deals that were many dozens of Tablo and dozens of facilities that would all be making the move from outsourcing to insourcing. And so, I would say all of the work around infusing our team with those new skill sets is behind us, that work can be called complete.

In addition to that, we introduced many new sales tools, data-driven sales tools that under a new Vice President of Sales Enablement, who's done an absolutely terrific job at enabling our team to be more focused, more targeted, and more efficient through the pipeline management, the sales process management, and also given the commercial and the finance organization, data-driven tools that have led to better forecasting and timing of close.

And lastly, we talked about introducing a new sales process. Again, this was aimed at a new segment of our audience, sort of more of our mainstream adopters versus the early adopters. And when the mainstream adopters are looking at moving from outsourcing to insourcing over, as I said, dozens and dozens of their hospital facilities, that's a different sales process. It's a really different sales process than the work that we needed to do, let's say, in 2021, 2022 earlier in our commercial penetration.

And so, we introduced an entirely new sales process with a very, very high level of inspection rigor and again, data-driven tools to ensure that we were moving across the country in every territory through an enterprise-level sales process in the same way. So, I'll stop there. This is a passion topic for me. I could go on and on. But I will stop there and hope that, that gives you the color that 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. Happy to take this one. At this stage, we're -- we've given, I think, as much guidance as we're going to give at this stage. We've been really pleased with the performance, as you can see just in Q2, how much step down from Q1. And then we've given some sort of insight around what we expect for the back half of the year.

I wanted to give some comfort into 2026 and some high-level view that it might not be just $5 million a quarter going forward. We're going to have a little bit of elevation as we, again, ramp production to continue to move towards sales growth, and we get back to sort of a normalized state on inventory production as well as one-off items that happen generally in Q1.

At the moment, that's as much as we're going to give. I think as we get to the end of the year, we're going to absolutely be in a place to give additional guidance for 2026.

That's extremely helpful. I really appreciate it, and congrats again.

I'm showing no further questions at this time. I would now like to turn it back to Leslie Trigg for closing remarks.

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.

Anyway, well, I guess that's a good segue here. Just to remind everyone that these events are not -- these meetings are not open to the press. So with that, we'll get -- we started here with the last session of the morning here with very pleased to welcome the management team from Outset Medical, Leslie Trigg, Chief Executive Officer; and Renee Gaeta, who is recently appointed -- very recently appointed as CFO. So congratulations on the role and look forward to getting into some of your initial observations as you've taken the job and consider the opportunities we go through the discussion this morning.

And then as I've mentioned, happy to open up to any questions from people in the audience just ask you. I'm happy to repeat the question so people on the webcast can hear as well.

So maybe a lot of changes at Outset over the past several months with the recap and kind of re-basing of the strategy. And maybe just kind of talk -- give us kind of an evolution of the story update and where we are in kind of the Outset journey.

Yes. Well, first of all, thank you for having us. It's really great to be here. I'm going to be directing all questions to Renee for the rest of the time, but I'll answer just this first one. No, I'm just kidding.

We can see how much she studied for the interviews.

Exactly. But first and foremost, we are really thrilled to welcome Renee and just really, really excited to have her on the team as a co-partner and leading the company financially. Yes, a lot has happened. I think as it does to most companies post IPO, it's been about 5 years, actually, almost 5 years. We went public in September of 2020 and we have learned a lot. I think what -- maybe I'll touch on what has not changed, the size of the market is still enormous. We are still accessing a TAM of over $11 billion. We're focused -- we are still -- our focus hasn't changed. We're still focused on penetrating into the acute dialysis market and the home dialysis market, and that hasn't changed.

What also hasn't changed is kind of the almost profound level of need for disruption in the dialysis space, again, in the acute and the home market. And what has not changed is our technology lead. So I think a lot has remained consistent, and we'll talk more about, I think, how we're getting stronger in some of those areas where we have needed to evolve the most is and mature the most, to be honest, is on our commercial prosecution of the opportunity ahead.

I think we stayed in start-up mode for too long. We grew super fast after the IPO. And in hindsight and with the benefit of hindsight, we really whipped through -- if you think about that classic adoption curve, we got through the early, early adopter part of that curve more quickly than most. We had a sales organization that was very successful with that type of customer. And then we quickly earned the right without really realizing that we had shifted into a new position on that adoption curve, we were going after what I would call kind of more mainstream enterprise adoption and suddenly found ourselves kind of unfortunately, having fallen into the chasm of did not necessarily have the right team with the right skill sets, did not have the right sales process and really didn't have a new approach to forecast methodology and pipeline management. All of that was remade, remodeled, refashioned through the course of 2024.

And so I think as we sit here today, the balance sheet has been strengthened. The commercial transformation is largely complete. We had a couple of skirmishes with the FDA that were not helpful. The regulatory overhang is behind us. New financial leadership of the company, I think we are kind of ready to rocket ship forward here.

Excellent. Well, maybe we could go into a few of those elements in a little bit more detail. And maybe just to start on the market. This is sort of -- I have some familiarity with dialysis. Like this is a really tough space because it's a high patient burden space. It's an area where there hasn't been a ton of innovation.

Right.

The reimbursement is sort of so-so and sort of more socialized-ish type -- closer to socialized medicine in the U.S. than any other category in medtech. So maybe help us frame -- it's also a nice market really dominated by two players in the U.S. So maybe help us think about just market dynamics here and kind of how -- where Outset -- what sort of segment Outset really goes after and what the key unmet need is that you're able to address?

Sure. What's really, really important to know is the dialysis space has three main segments: kind of front end, middle and back end. We are only focused on the front end, acute care and the back end, which is [Technical Difficulty]. We are not interested at all in the chronic care middle part, which is nearly socialized, is dominated by the two big players and is very, very, very cost sensitive. That is not the segment of the market that we are interested in, and you will never see us go into that segment of the market.

On the acute care side, the most powerful opportunity that we have and the reason why Tablo has been adopted at the rate it has is that dialysis is actually not reimbursed at all, which sounds like a weird thing to get excited about. But the reason it is exciting is that the hospitals have been bearing an enormous cost burden.

So when a patient goes into the hospital and they're given dialysis in the ICU or on the floor outside the ICU, the hospital bears the cost of that. It is not separately reimbursed. It has to be covered under whatever DRG they're billing for the main procedure. So it is a pure-play cost center and hospitals forever and ever decades have been paying an enormous amount of money to outsource that service. They haven't been providing that service on their own. They've been outsourcing it to like a DaVita or Fresenius and paying a very hefty price tag for doing that.

The main reason, in my estimation that the market evolved that way was actually because of the machines. The machines were so complicated that hospitals felt that they could not take the time to train their own nurses, maintain competency and all these different machines that they were going to have to acquire and maintain. It was just easier to kind of set it and forget it. I'm just going to write the check to a third party, and I don't need to worry about it. We changed the game through the technology door by developing a technology that was easy enough for a regular patient to use at home.

Definitionally, it's therefore going to make it accessible for the average nurse in an average hospital to be able to set up dialysis and allow the hospital to really control their own destiny. That's our main value proposition is control your own destiny financially. Usually, we'll come in if they're going from outsourced to in-source, again, standing up their own in-source service line with Tablo, they will cut the cost of their service of dialysis by 50% to 75% with a payback period typically inside 12 months, which is very rapid for capital. And they're doing that through supplies cost reduction and labor cost reduction. And the reason why that's a very compelling value proposition, again, is because it's actually not reimbursed at all.

So we -- what we're really in the business of doing is actually helping hospitals expand their margin by removing or materially lessening pure-play cost center.

And on the acute side, maybe just square up where Tablo fits versus like SLED or CRRT.

Sure. Sure. So there's two -- well, yes, maybe three, but two broad categories of the type of dialysis that's done in a hospital. One is called IHD. That's just a fancy acronym for regular dialysis. It's 3 to 4 -- it's called intermittent hemodialysis, that's 3- to 4-hour dialysis, just actually like you find in a dialysis clinic. That's about 90% to 95% of all the treatments that are performed in a hospital are just 3- to 4-hour treatments outside the ICU.

There is another modality called CRRT. That is actually a fancy acronym for long dialysis, like 24-hour dialysis or greater. And that typically is about 5% to 10% of a hospital's volume. We designed Tablo so that Tablo could deliver any -- not any, but any duration within 0 to 24 hours, which has given the hospital a lot of flexibility, and it's given the hospital the opportunity to down select to effectively one machine and standardize to one machine for any treatment between 0 and 24-hour therapy. There are other machines on the market that do CRRT really, really well, those treatments that are over 24 hours, and those would be machines manufactured by ex- Baxter, now Vantive, for example. So in that sense, it's complementary.

Okay. And then I think the other dynamic here in the acute setting is just the operational use of -- I mean, using CRRT or some traditional in-hospital dialysis systems, you're changing cartridges, you're changing dialyzers, like it's pretty workflow intensive. How does Tablo help get after that?

Yes. I just by simplification. So Tablo takes almost all of the guesswork out of it and almost all of the manual setup out of it. So I'll give you one example. With some of the conventional other machines, mostly manufactured by Fresenius actually, they would open up a Tyvek bag and all the tubing would just sort of spill out. And it would be up to the user to remember all the steps around what's called stringing the machine. We manufacture a cartridge where all that tubing is pre-organized for them. So you open the door of Tablo, you literally press the cartridge onto the front of Tablo and you've probably done in that single step about 60% or 75% of the setup. So really just simplification.

And also, I'd say removing all -- there's no mental math. There's no memorization. We have about 74 to be precise, sensors in Tablo and a touchscreen and custom animation that really walks the user through it. So even if a nurse has been on vacation or been away from the machine for a couple of weeks, they're able to get right back on very quickly because there's really nothing to remember.

Okay. And then maybe just going -- wrapping up on the markets in the home setting. Most of the home dialysis today is PD with a little bit of -- a little bit of HHD. Is Outset -- I always got -- didn't really understand exactly where the placement -- is there a replacement for HHD? Is it a replacement for PD? Where does it fit in that segment of the market?

Yes. We do -- so PD peritoneal dialysis is another form of home dialysis and then HHD is home hemodialysis, just to define terms. We've always viewed HHD as, number one, a follow-on act to PD. There's a huge opportunity there. PD is an awesome therapy, and it's a great place to start. It is a therapy that most patients are on for 2 to 3 years. And we've always believed if a patient is already successful in the home with PD, why would they be going back to the clinic? And the sad reality is the vast, vast majority of patients who have to come off PD usually for clinical reasons, end up being sent right back to the dialysis clinic. There is no reason it should be that way. They should be offered an opportunity to go from PD over to HHD.

So I would -- my crystal ball would be that, that mix probably won't change. I think most patients will start on PD in the clinic. What we want to avail ourselves of is an opportunity to convert more of those PD patients over to HHD. And then there will be patients who are clinically ineligible for PD upfront. And in those cases, I think HHD is a great place to start.

Excellent. And so kind of level setting on the market, let's talk about the commercial changes that you made. And I think you're already actually seeing some early success with that just using Q1 and last year -- kind of how you finished last year as a barometer for that. Maybe just back up a little bit, talk through some of the changes that you made and maybe you could just go into a little bit more detail on some of the proof points you're seeing that gives you confidence that this was the right move.

Yes. So to simplify it, so the three big changes that we focused on making were people, process and pipeline management to really break it down at a basic level. People. I talked before, we had a great team of device salespeople at a time when we didn't fully realize that we were not selling a device. The majority of our sales process actually is really coaching and counseling hospitals and health systems about changing their service model. So we have roughly an 8-stage sales process. I would say 6 of the 8 stages are really about in-sourcing and we've become the experts. We have proprietary know-how that only comes after years and hundreds and hundreds of these deployments about exactly how to in-source, especially if you've been outsourcing for a couple of decades, it's very, very new.

So we needed to find a group of people who had a lot of expertise in selling standardization and selling at the enterprise level. It's a really different process and skill set to be able to convince a health system to do -- stand up a new service line in 20, 40, 60 of its hospitals versus talking to one hospital CEO about doing it one time in one institution, which is kind of what we were doing back in 2020, '21, '22. So almost an entirely new capital sales team that we instituted again through 2024, a new sales leadership team. Our sales team is led by an individual who led sales for CareFusion and then into Becton Dickinson on the infusion pump side.

What we're doing commercially is very similar to the infusion pump standardization. And even on the product side, we are fully integrated now with Epic and Cerner. We think that's going to be a very powerful incremental growth story for us in future years as we look toward EMR revenue. But first people, we needed a whole new sales process, as I mentioned, selling to a health system, looking at broad deployment is very different than selling to one hospital. And third, pipeline management. I think in our early start-up days with early adopters, our sales cycle was different, our sales process and our pipeline management was really different than it is today. It's a conservative approach. It's a very deliberate approach, and there's a heavy level of inspection and a tighter forecast methodology.

Excellent. And maybe just, obviously, you've been implementing this for a little bit of time now. I mean you're starting to -- would you say you're starting to see the initial rewards on that if you kind of take -- I know one quarter, it's hard to kind of contextualize that as a trend necessarily, but you are starting to see a pickup. You saw nice sequential revenue growth Q4 to Q1 in what is normally seasonally a weaker quarter. But maybe just talk to us about how you're evaluating the success of this commercial transformation?

Well, we're looking in two areas. One is pipeline and then two is the conversion of said pipeline. So on the pipeline side, we're looking at the -- are we seeing growth in the pipeline across the country, kind of consistent performance across territories. Are we seeing the maturity of the pipeline continue to advance. We talked last quarter about a majority of our largest forecasted deals for this year are already in the later stages of that sales process, which I wouldn't have been able to say a year ago. And then we also look at the distribution of the pipeline. That's part one. And then are we converting the pipeline, which is really what counts.

In last quarter, what I was really pleased to see was very consistent performance in contribution. We had all of our capital sales reps contributing to the revenue that we met. This was not a quarter in which you -- and sometimes you see this in companies, you had 1 or 2 heroes or 1 or 2 big deals that came through and allowed the company to make the number. That was not the case. Both in Q4 and Q1, we saw really good distribution, everybody contributing, good distribution around new customers, existing customers expanding, deal size, good distribution, and we had a number of smaller deals come through really large deals come through.

So when I look at mix in terms of the sales rep contributions and then customer mix and distribution, those are some of the headlines for me and what gives me confidence that we're nearly complete on the commercial changes.

Okay. And does your outlook for the rest of the year contemplate continued console growth over -- on a sequential basis?

It does. So yes. And I've been asked a lot about the capital spending outlook. So I'll just comment on that while we're talking about rest of the year. I mean our outlook remains unchanged and enthusiastic is the way I would describe it. We're keeping -- obviously, I think everybody in med tech is keeping a close eye on the capital or just hospital spending in general. But for us, capital spending, we have not seen any movement to date in a way that's affected our pipeline, our ability to convert that pipeline or our expectations for the rest of the year.

And how do you measure conversion rate? Is that over some period of time, there are x number of accounts in the pipeline and some percentage of those convert in a period of time, like how is that conversion rate measured?

Both. So we measure that. We're forecasting -- so you've got the aggregate pipeline. And then we've got a forecast expected conversion within the year, the calendar year. And then within that construct, we have expected conversion within any given quarter. Yes.

And what would you say is like an optimal conversion rate or what you would consider like the right conversion rate for the business? And where are you relative to that right now?

What I'm really focused on, I know our sales team -- our leadership team is really focused on right now is accuracy.

Accuracy and forecasting?

Exactly. Yes, exactly because that's what gives a business predictability. And we know the job that we need to do this year, which is to say what we're going to do and do it. And so we have to do three things really, really well. We want a return to revenue growth and specifically console growth, which gets to forecast accuracy. We want to continue to make good steady progress on gross margin and we want to execute against this path to profitability and get the company self-sustaining.

Okay. And then maybe before turning over to the P&L, just on cartridge revenue, it sort of seems to have both growing the installed base and then utilization per console. Do you sell -- are there stocking orders that come with console placements?

Very small. I mean if somebody is going to buy consoles for the first time. Yes, of course. They've got to buy cartridges for the first time. But those -- I wouldn't describe those as out of sync with whatever their first month utilization would be. Those are pretty standardized. I mean from time to time, as we have gotten larger enterprise customers, we do see stocking orders, but I wouldn't call it a big part of our business. What I think is a unique facet and one that has given us a lot of predictability on the recurring revenue side, which continues to grow at 20-plus percent year-over-year is the utilization has been very consistent.

We typically model it at all-in 5 treatments a week, but we have customers that are low double digits per week. It depends on whether they're doing long treatments in the ICU or mostly shorter treatments outside the ICU. But I was visiting with a couple of customers yesterday here in the Miami area. And there was one customer they said their average is 25 to 35 treatments per week. That would be roughly 7 treatments per console per week.

And is there a ramp-up period? Like how long does it take customers to get to that 5 treatments per week?

Usually not very long because what we're going after as part of our commercial strategy is what we would call kind of a whole house conversion at least outside the ICU. And so for the most part, again, another kind of interesting feature of what we're doing here is that unlike a product that's maybe being sold into the cath lab where a rep is going to walk in, there's 4 other reps fighting for the same stent.

Most hospitals are converting wholly to Tablo because think about it, if you've been outsourcing with DaVita, Fresenius, you as a hospital, you've never owned dialysis equipment before. So when you're in-sourcing, you're buying the dialysis systems for the first time and you're only buying Tablo. So what we've discovered and been able to verify through data is our utilization isn't driven so much by the number of sales reps we have. It's actually driven by machine uptime. And so one place we have put a lot of investment, again, this investment has already been made is in our field service engineering team. We have maintained consistently 97%, 98% uptime with a CSAT score of 95%. So what we've really continued to focus on, on the utilization front is the strength of the field service team and the overarching user experience.

Okay. And does that mean when someone to maximize uptime subsequent to placing a console or selling a console, are you putting a clinical support rep in the account to help get the account onboarded and give them either -- I hate to use the word like best practices, it sounds kind of hokey, but at least give them the road map of here's what you need to do to maximize uptime, here's how I don't know if it's a field service rep or a clinical support rep, how much kind of TLC are you giving customers when you first initiate a relationship?

Absolutely. So we have the capital sales team, but then we have a clinical sales team and the clinical sales group, and it's still relatively small. This is a group of sub under 30 people. But they are focused on making sure that all of the users, whether it's dialysis nurse dialysis attack, what have you, are very comfortable and confident in the utilization of the machine. But that for us is a week or 2 type experience. This is not an enduring level of TLC.

Over the long term, each hospital has a field service engineer. I mean, obviously, our field service engineers are covering many hospitals and many consoles. But what we've learned is that the user experience over the duration of time, these two customers from yesterday, I'll give you an example, both adopted in 2021, still using Tablo, only Tablo, still in-sourced. And the first two names, as they mentioned to me, when I as the team experience or the field service engineers. That the principal relationship transitions over time to field service engineers who make sure that those machines are humming and ready to roll when they're needed.

Excellent. Maybe we could turn over to the financials. And Renee, I know you're new to the job. But before we kind of jump into the details here, maybe just give us a sense of what attracted you to the opportunity? And what are you thinking about as your kind of top priorities here over the first 6 months in the job?

Sure. Yes. I super excited to not only be at the company, but be here. I think for me, it's -- number one is always about the technology. What is the company trying to do? I have -- did take a little bit of time off over the past year and looked at a lot of organizations, but Leslie team and in particular, Tablo really stood out for me as something that is trying to change an industry that unfortunately has seen no innovation and is really crowded with two big behemoths in the room. So how can we do something different. That was sort of the starting point for an initial conversation and really for me, be able to sort of get behind that.

What we're going to do for this year and me coming in is no different from what Leslie and the team have indicated for 2025. We are very focused on executing for top line growth, reinstating console revenue growth, which we saw for Q1, which is great, making sure that we continue on the journey that the company has seen for gross margin expansion, continuing to push on those levers at all components of gross margin and what are the steps towards near-term profitability. So those outlined targets felt very comfortable for me. And of course, the due diligence that I did within the organization prior to joining, how I could get behind that. And you can see we obviously reiterated those points with my joining last week.

Excellent. So maybe we could start on gross margins, and it's been -- I think that is probably the key lever on the whole profitability story. I mean you've restructured OpEx, but at some point, you're going to have to grow investments. And I think you're not going to cut your way to a growth company. So gross margins came in close to, I think, 40% when you exclude the impact of under-absorption here in Q1. You've talked about on a reported basis, exiting the year above 40%, high 30% for the year. Help us think about contextualize that gross margin for us. Is that the peak gross margin? Is that -- where can that go?

Yes. Certainly. I think we have three really big levers within that. Our reoccurring revenue that is the attach of the consoles after we've placed the unit. We're looking at service leverage. And then, of course, I would say, rightsizing our inventory levels and making sure that we're producing at the right level for the scale of our business today and going forward. And you can see within Outset, they've done a great job of that over time. They've -- gross margins have improved. We still have some work to do. We have publicly disclosed that we have a milestone out there of 50% in the future, and we are clearly on that pathway. As you mentioned, our Q1 results, we're very happy with. There's more work to do there, but it's something that I believe is certainly attainable.

And I think one of the practical realities of this business, unlike pure disposable companies is you do have a lot of other costs in gross margin, whether that's warranty or field service engineers. You don't have the same freight burden that the other dialysis companies have. But how big a gap is there between like your standard margin and your fully burdened gross margin?

Yes. I mean we haven't disclosed sort of the elements or the components of that. What I can tell you is we like the sales model that we have such that we have got a console and then we've got the cartridge recurring, which definitely has a higher gross margin as a component, and that sort of lives on as the unit is utilized. And then we can certainly leverage on the field service side. Obviously, as Leslie has mentioned, a very important component to the uptime of that machine, which then sort of feeds back into the cycle. So it is a more complicated gross margin profile than, yes, some of the other companies that are out there in med device. But I think that also gives us a lot of levers and opportunities to be able to continue to drive that mix and that gross margin improvement overall of those facets.

And what do you have to -- what has to play out to get to 50%? Like what are the operational factors that need to unfold over the next several years to reach that 50% target in 2027?

Yes. For us, I think the things that we've mentioned with regards to recurring revenue, continuing cartridge placement and utilization of those machines, service leverage and certainly again, optimizing the balance sheet, the devices that we have and making improvements on those consoles, bringing those costs down as best we can. Those are the 3 pillars that will sort of get us there. We have not indicated a specific time line for when that's going to happen. We are clearly on the pathway to that, and it's a milestone that is near and dear to our heart.

Okay. And then lastly on gross margin. To what extent can pricing play a tailwind for you? Because you have this fairly compelling ROI value proposition in the hospital. I recognize that it's always competitive and price is a tough path to go down always, but it would seem like there's an opportunity for you to take some pricing that is commensurate with the value that you're providing.

Sure. I'll sort of speak to it to how we think about it within the context of gross margin and our goals for this year, but certainly have Leslie sort of maybe speak more on the sales side. But I would say pricing is not necessarily a requirement or a lever to be able to get to that 50% milestone. It is exactly those three things that I've indicated, and those will be what helps get us to the achievement. But certainly, our team looks at pricing, evaluates opportunities. One thing that I've been pleasantly surprised by is really the rigor that our team has around pricing and the consistency that our ASPs have had.

I would maybe add both on margin and future revenue growth, but certainly going back to, okay, so you get to 50%, then what, right? We're not done when we get to 50%. There is no reason why gross margin will not be substantially higher than 50% for this company. One new lever as we look beyond 50% are new, I'll call them, kind of concentric rings of recurring revenue. The way we think about this is you buy your baseline Tablo. And then we already have a recurring revenue stream around a software that allows it to do some special features in the ICU.

We have Tablo Cart, which is an accessory to Tablo. We now have EMR and a big opportunity, I think, in EMR, not only to increase the switching costs and an increase in bulletproof retention, but also introduce new subscription models. There might be an introductory level of EMR. There might be a premium level of EMR that offer those customers different features. So that's just an example as we look to new recurring revenue streams in the future that will also offer us incremental gross margin.

Excellent. And maybe just toggling through some of the OpEx items. I think we've talked a lot about sales and marketing. Maybe on the R&D side. I think you've pivoted your investment from console development to really doubling down on software. Maybe help us think about the trajectory of R&D and where those priority investments are right now?

Sure. On the hardware side, our priorities remain focused on -- and they always will be focused on device performance, right? We're always going to look to seek ways to just make sure that device performance continues to reach its potential. But really, device performance, what I'll call kind of sustaining engineering and then just cost-down programs that Renee alluded to.

On the software side, yes, we have made and will continue to make investments not only in software, but in EMR integration, interoperability and data analytics. We mentioned on the last quarter's call that we transmit 3 million data points after every treatment. We have over 3 trillion data points in our cloud. That offers -- and it's way too early to talk about it, that offers a lot of opportunity around everybody's favorite buzzword AI. And so too premature, but there are any number of ways that we do plan to leverage the data that we already have and that's being fed every day, both in terms of, let's say, field service efficiency and cost down, but also potentially new clinical features for customers that may add to this subscription revenue model that I was just talking about.

And then maybe we're just going to close on cash. I know you've obviously executed this recap of the company. You've gone through this significant rebasing of OpEx. You're seeing gross margins improve. Sounds like we're now at a point where you can comfortably say the cash on hand can get you to not just cash flow breakeven, but cash flow positive.

Right. That's right. Yes, no change.

Okay. Maybe with that, I'll turn it back to you then to kind of wrap things up here. Any kind of key takeaways that you want to leave folks on the webcast or in the room with as you kind of think about the trajectory of Outset here, not just for the balance of 2025, but kind of the go-forward message.

Yes. Thanks. And again, thanks for the opportunity to share the story. I think about the next couple of years as Outset 2.0. We've had the opportunity to create a 2.0, which not every company has the opportunity to do. And so as I think about what's possible in a -- one of the largest markets of health care with a real paucity of competitors, a consistent need for change and I think quite a proprietary technology and sort of change ecosystem around it. I frankly have never been more bullish. And outside, I didn't think I would ever say that because I was pretty bullish to begin with. So -- but you'd probably expect me to be fairly enthusiastic.

I do think as we sit here today, we have the right team, we have the right technology. And I think we have a renewed focus on what matters most. Like maybe not all but many companies, I think we got our own way a little bit and lost our way a little bit in the intervening years post IPO but we are back. The market has never left us. We're back as an organization that knows what we need to do with a clear rigor around getting it done, a rerate to revenue growth. We are going to get to that 50% and more gross margin, and this company will be a profitable one in the not-too-distant future.

Excellent. Well, thank you very much for taking the time to share the updates here. Renee, congrats on the job, and welcome to the role. And Leslie, we look forward to getting updates here in August.

Thank you so much again.

Thank you.

Thanks for attending.