Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- FDA clearance for Tablo cart with pre-filtration achieved ahead of schedule, enhancing Outset Medical Inc's product ecosystem and expected to positively impact the remainder of the year.
- Implemented a significant restructuring plan expected to reduce cash use through 2027 by over $100 million, aligning with the company's goal to reach cash flow breakeven sooner without additional capital.
- Reported a strong recurring revenue model, which now represents more than 50% of total revenue, providing a stable and predictable income stream.
- Achieved 12 consecutive quarters of gross margin expansion, reaching 31.1% non-GAAP gross margin, demonstrating effective cost management and operational efficiency.
- Expanded the acute care pipeline significantly, with over 60% of deals valued over $1 million each, and more than half representing new potential customers, indicating robust growth potential.
Negative Points
- Reported lower than anticipated revenue of $28.2 million for the quarter, primarily due to ongoing headwinds including a regulatory hold on Tablo cart and disruptions from the Change Healthcare cyber attack.
- Experienced several customer deferrals in both treatment and console purchases due to the Change Healthcare attack, impacting financial performance.
- Acknowledged the need to reestablish sales, marketing, and contracting activities following the pause due to the Tablo cart ship hold, which may affect short-term revenue growth.
- Reported a decline in product revenue to $20.4 million in Q1, a decrease from the previous quarter, reflecting ongoing challenges in the market.
- Anticipated a need for customers to rebudget funds for purchases due to previous deferrals, which could delay revenue recognition in the short term.
Q & A Highlights
Q: Can you discuss the current status of orders for Tableau, particularly in light of the recent FDA clearance for Tableau cart?
A: Leslie Trigg, Executive VP, Marketing - Outset Medical Inc, explained that all sales and related activities were paused due to the ship hold, which now need to be reestablished. This includes generating new quotes, redoing sales agreements, and possibly reapproving funds within customer organizations. She expects these activities to continue through Q2 but is confident about being fully prepared for the second half of the year. Tableau cards are already in inventory, so no delays due to manufacturing are anticipated.
Q: What impact did the lighter than expected Q1 have, and how do you see this affecting the upcoming quarters?
A: Jim Mazzola, VP, Investor Relations - Outset Medical Inc, noted that Q1 unfolded as anticipated, with expected softness and recovery projected in Q2, ramping up in the latter half of the year. The deferral of console and card sales, now resolved with the card approval, and the Change Healthcare cyber attack were temporary setbacks that are now behind them.
Q: Can you quantify the backlog or pending orders for Tableau card and discuss the expected savings from the recent restructuring?
A: Jim Mazzola described that over half of the $20 million savings in 2024 come from R&D and operations, with the remainder spread across the P&L. These savings are expected to annualize to about $30 million in subsequent years, pulling forward the timeline to reach cash flow breakeven by several quarters.
Q: How is the commercial organization structured to reengage customers, and do you have adequate coverage?
A: Leslie Trigg confirmed that Outset Medical has sales coverage in all 50 states, with teams dedicated to capital sales, clinical sales, and national accounts, covering both acute and subacute settings as well as home dialysis. She expressed confidence in the team's ability to rapidly disseminate information to both existing and potential new customers.
Q: What is the current capital spending environment, and how does it affect Tableau's market penetration?
A: Leslie Trigg remarked that the capital spending environment has remained stable, which is beneficial for Tableau, especially given its rapid payback period for hospitals that switch to in-sourcing dialysis with Tableau, typically within a year.
Q: Could you provide more details on the partnership with US Renal Care and its impact on Outset Medical's growth?
A: Leslie Trigg highlighted the success of initial home programs with US Renal Care, emphasizing the faster training times with Tableau and the significantly higher patient retention rates compared to other systems, which are central to both Outset's and US Renal Care's growth strategies in home dialysis.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
