Outset Medical (NASDAQ:OM) held its second-quarter earnings conference call on Thursday. Below is the complete transcript from the call.

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Summary

Outset Medical reported Q2 2026 revenue of $31.6 million, up 1% year-over-year, with a sequential increase of 14% from Q1.

The company achieved a non-GAAP gross margin of 42%, reflecting significant improvement due to product cost efficiencies.

Outset Medical reiterated its full-year 2026 revenue guidance of $125 to $130 million, emphasizing growth expectations in the latter half of the year.

Operational highlights include the highest number of new site implementations in several years and a key commercial win with a $40 million refresh agreement with HCA Healthcare.

The introduction of next-gen Tablo, enhanced sales leadership, and a structured customer success program are strategic initiatives aimed at driving future growth.

Management highlighted the importance of improving commercial execution, expanding sales coverage, and addressing customer needs for broader adoption and conversion.

Full Transcript

OPERATOR

Good day and thank you for standing by. Welcome to the Outset Medical Q2 2026 earnings conference call. At this time all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again.

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Tina Jacobson, Investor Relations. Please go ahead.

Tina Jacobson, Investor Relations

Good afternoon everyone and welcome to Outset Medical's second quarter 2026 earnings call. Today's speakers are Leslie Trigg, Chair and Chief Executive Officer, and Renee Gaeta, Chief Financial Officer. The company issued a news release after the close of the market today, which can be found in the Investor section of outsetmedical.com. This call is being recorded and will be archived there as well. 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. With that, I'll open the call to Leslie Trigg.

Leslie Trigg, Chair and Chief Executive Officer

Good afternoon everyone and thank you for joining us. The second quarter reflected steady execution across revenue, gross margin, operating expense discipline and cash management. We continue to make meaningful commercial progress while advancing our mission to improve dialysis patient outcomes at a lower cost and with less complexity. We are confident that the impact of that progress will become increasingly evident over time. I'll begin today with financial performance in the second quarter.

Revenue of $31.6 million was up 1% year over year and up 14% sequentially. Our ongoing margin expansion program delivered a non-GAAP gross margin of 42%, a significant improvement compared to last year. With the solid second quarter results, we are reiterating full-year 2026 revenue guidance of $125 million to $130 million. During the second quarter we completed our highest number of successful new site implementations in several years. At one system with several sites in Texas, our Clinical Excellence team trained over 100 nurses who in turn supported 956 treatments in their first 60 days.

Other successful implementations were completed at a new top 10 health system customer for Outset as well as at hospitals that are part of large regional health systems and post-acute care facilities. What stands out most is what happens after the initial go-live implementations. Outset has established a Clinical Excellence Team focused on helping our customers optimize the clinical, financial and operational value of their Tablo insourcing programs over the long term.

Each hospital customer is paired with a Clinical Excellence Team member who works closely with them to identify the outcomes that matter most to their organization and then trends, tracks and shares those key performance indicators on a regular basis. Tablo's unique data ecosystem powers this process, providing valuable treatment and clinical program insights to our customers. The impact of this structured approach to customer success is reflected in both customer satisfaction and customer expansion.

During the quarter we conducted an independent voice-of-the-customer assessment, and when asked how likely they were to recommend Outset, our customers gave us an average score of 8.8 out of 10. Combined with the measurable results we continue to deliver, this strong level of customer advocacy is central to our forward commercial momentum and high customer retention, and creates opportunities for continued growth across our installed base. We're increasingly seeing customers expand their use of Tablo, both by deploying the technology at additional sites across their health systems and by broadening use within existing facilities.

A strong customer experience was instrumental in securing a meaningful recent commercial win. We are privileged to have signed a $40 million refresh agreement with HCA Healthcare. The agreement reinforces HCA and Outset's long-term commitment to insourced dialysis, which extends through 2028. After carefully evaluating comparative outcomes, HCA opted to recommit to Tablo, underscoring the clinical and operational value that it continues to deliver across their nationwide system.

The agreement provides a meaningful foundation of contracted backlog, enhancing our visibility and supporting revenue predictability. Under the refresh agreement, HCA facilities currently partnering with Outset for insourced dialysis will update their fleet and, importantly, the $40 million value does not include the potential to expand over time into additional HCA facilities not yet equipped with Tablo. This marks our first refresh win, and that's an important milestone as we continue to capitalize on a refresh cycle that over the next several years may include roughly 3,000 consoles and up to $150 million in console revenue opportunity.

Given customer confidentiality considerations, we're limited in the level of detail we can provide and don't intend to disclose HCA-specific information today or going forward. That said, HCA is a recognized leader in healthcare and we believe its continued commitment to Tablo serves as strong validation that over time can help support broader adoption across health systems of all sizes. We believe the introduction of the next-generation Tablo system will provide a great opportunity to catalyze customer refresh decisions.

Next-gen Tablo combines hardware and software enhancements designed to improve performance and reliability with advanced cybersecurity capabilities that are increasingly crucial for health systems. We're working on the pilot phase now in preparation for a successful broader launch and we'll continue to share updates as we progress. Reflecting on the quarter's performance from a commercial perspective, the addition of Derek Elliott as our new Executive Vice President of Commercial has marked our next phase of commercial evolution.

Over the last several years we standardized our sales process, built systems to support it, and refined our go-to-market strategy to create a more disciplined and predictable commercial engine. We are now scaling that foundation to increasingly execute with consistency, conversion and impact. Our near-term objectives include further infusing the capital sales organization with the right quantity and quality of talent. We're expanding sales coverage to further accelerate our inroads into the top 250 health systems where we believe Tablo can deliver significant impact.

We believe we have the right combination of commercial rigor and clinical expertise to guide this next phase. Derek's impact is being reinforced by our Chief Nursing Officer, Brittany McGill, whose firsthand understanding of our customers' pain points and workflows brings an invaluable clinical perspective. We're excited about our commercial and clinical leadership and expect their complementary expertise to position us well to engage health systems, address their most pressing needs and accelerate customer adoption and conversion.

And with that I will turn the call over to Renee.

Renee Gaeta, Chief Financial Officer

Thank you Leslie, and good afternoon everyone. Total revenue in the second quarter was $31.6 million, up approximately 1% compared to the second quarter of last year. Product revenue was $21.9 million, down 5% against a challenging prior-year growth comparison. Console revenue of $9.5 million grew 6% year over year, and consumable revenue of $12.4 million was down 12% against a double-digit growth comparison last year. Service and Other revenue of $9.7 million grew 17% compared to last year on strong volume and ASP increases.

Recurring revenue, which includes consumables, service, implementation services and freight, was $22.1 million, down 2% compared to last year. Turning next to the P&L, please refer to the tables in today's earnings release for a reconciliation of GAAP to non-GAAP measures. Second-quarter non-GAAP gross margin was 42.2%, up over 380 basis points compared to last year and driven primarily by product cost improvements, reduced overhead and service efficiencies.

Product gross margin was 46.1%, down about 280 basis points compared to last year due to a higher mix of console sales within Product revenue. Service and Other gross margin was 33.4%, up over 2,400 basis points. Gross margin performance reflects strong execution and keeps us on track towards our next milestone of a 50% company-wide gross margin. Moving to operating expenses, second-quarter non-GAAP operating expenses of $25.8 million increased 1% compared to last year, in line with revenue growth.

Non-GAAP operating loss was $12.4 million, an improvement of 7% compared to last year. These results reflect continued progress as we work to achieve profitability. Moving to the balance sheet, we ended the quarter with $151 million in cash, cash equivalents, short-term investments and restricted cash. With ongoing expense discipline and working capital management, cash use was $9.5 million in the second quarter, keeping us on track to use less than $40 million in cash for the full year.

Turning to our guidance for 2026, we continue to expect full-year revenue of $125 to $130 million, representing growth of 5% to 9% over last year, with most of the growth expected in the third and fourth quarters. Importantly, our confidence in this outlook is supported by a strong commercial pipeline and the foundational contracted backlog provided by the HCA refresh agreement. With that, I will turn the call back over to Leslie.

Leslie Trigg, Chair and Chief Executive Officer

Thanks, Renee. I'd like to close by thanking everyone on this call for your continued support. While the natural variability of capital sales has made our performance less predictable over the past year, we are confident in our ability to continue strengthening our commercial organization and sales process to improve visibility and predictability. The opportunity ahead of Outset has never been more compelling, with a customer base that now includes all 10 of the largest 10 health systems, all 10 of the largest 10 post-acute providers, and approximately 30% of the top 100 IDNs.

We are reshaping how dialysis care is delivered across a large, untapped market that needs better, lower-cost solutions. Over the next few years we expect several new console growth tailwinds to emerge. First, the refresh cycle. Second, our launch of the next-gen Tablo. Third, our newly formalized customer success team and program, which is designed to expand same-store console and treatment sales while also driving new site expansion within our existing customer base.

Further, we continue to expand our layers of recurring revenue, starting with consumables and service and buttressed by EMR annual maintenance and implementation services. We're demonstrating traction against a sizable new refresh opportunity, and we're well positioned to capitalize on it with a next-generation platform and a commercial team strengthened by proven leadership. And finally, we've built a foundation to support scale with improving gross margin, disciplined expense and cash management, and a clear path to profitability.

We have the strategy, the technology and the team in place to execute consistently and create long-term value, and we look forward to sharing continued progress in the years ahead. With that, we are ready for Q&A. Operator, please open the lines.

OPERATOR

Thank you. To ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. We will now go to our first question. One moment please. And your first question today comes from the line of Rick Wise from Stifel. Please go ahead.

Rick Wise, Analyst at Stifel

Good afternoon, Leslie. Hi, Renee. It's great to see the quarter and, you know, particularly on the console side, and maybe we can just start there. So, you know, console revs at $9.5 million were nicely above, I think, a consensus number something like $6 and $6.4 million or so. That's, you know, really solid outperformance. Good to see. Maybe unpack that for us if you could. How much of that outperformance is tied to the HCA agreement? How much is tied—how do we break it down between that and the early, you know, impact of broadly next-gen Tablo launch versus that first-quarter lingering, you know, capital order, you know, made.

Did it close this quarter, or some of it, or—he said hopefully. Is this a new console rate or a one-time pull-forward? Just help us understand all the moving pieces there. Obviously an important number and it's good to see.

Renee Gaeta, Chief Financial Officer

Sure. Rick, this is Renee. I'll take a stab at that and then have Leslie jump in if she has any elements to add. I would say it's sort of all of that to some extent, one or another. I would say yes, we are definitely pleased with our Q2 performance and, coming off of the announcement of the HCA refresh, I will provide some color there in that HCA was a part of our Q2 pipeline and a part of our strong console performance during the quarter. Due to customer confidentiality reasons, I'm not going to give much more specifics than that.

But that is not to say that we also had new expansion customers, other console placements included. We continue to have a broad range within our pipeline of deal size, and we were glad to see the closed completion of certain of those deals in the quarter.

Leslie Trigg, Chair and Chief Executive Officer

I think that was well said. I would just add that I think this was a quarter when all parts of the business performed as we had expected, and I was very pleased to see the distribution across sort of the two big parts of our commercial strategy, which is one, current customer expansion, and two, new customer acquisition. And then you alluded to some of these new tailwinds, new growth tailwinds that we haven't necessarily had at our back in the past, and I think that some of those new tailwinds—be it the refresh opportunity ahead of us, a new commercial leader, this new very sort of structured and formalized customer success program and team—I think this was sort of the first quarter where we were seeing some green shoots of all of those tailwinds coming into play in a nice way.

Rick Wise, Analyst at Stifel

Great. And also what stood out to me you called out, but maybe you could talk about it a little more and help us better understand—consumable revenue growth was down 9%, steeper than the first quarter's decline. I just want to make sure I'm understanding what that's all about. And to what impact, if at all, is this new systems and volume not quite up yet? Or does HCA or the next-gen launch reverse that trend? Or just again, just what does it mean and how do we think about the rest of the year from that perspective?

Renee Gaeta, Chief Financial Officer

Yeah, it's a great question, Rick, and a fair one. I would say, I would start off with, we are certainly up against a tough comparable from the prior year, and 2025 had a really strong Q1 and Q2 on the consumable side, partly driven by the flu season and census in that year, which we have not seen as strong of an impact in 2026. And then of course, as you might remember, we had some of the ordering cadence volume in 2025 which we believe is now past us.

I think when we take a look at understanding that our consumable revenue is going to be driven by ordering timing, we really look down a layer into the device utilization information that we have, and we continue to see strong utilization across our customer segments. And so there is nothing alarming or concerning for us. Again, we're just up against a really hard comp. And then I would say as we look forward to the back half of the year and when we talk about our guidance as a whole, consumable revenue growth is anticipated to be sort of in line with total revenue expectations for the year, and we hope that those have tailwinds going forward and utilization not only holds up, but maybe expands beyond that.

Leslie Trigg, Chair and Chief Executive Officer

The only thing I would add to that too that's maybe important to note: we had just mentioned a second ago in the prepared remarks that we did our largest number of new site implementations over the past several years in this past quarter. That is a reflection—and I think we talked about this in a past quarter—that is a reflection of a little bit longer delay that we had seen between console sale and the timing of the actual installation and training of the site.

And so we did actually see a lot of this finally flow through Q2 to install and implementation. So we believe that that will also lead to more normal order patterns going forward. But to Renee's point, we have sort of exquisite data on utilization because Tablo is transmitting after every treatment, you know, every day, every console everywhere in the nation. So we can view this on an hour-by-hour and day-by-day basis. So our visibility into actual console utilization is pristine, and we have continued to see very stable utilization.

No material changes in Q2.

Rick Wise, Analyst at Stifel

Gotcha. And I'm going to be selfish and ask one more if I could. I'm right in the middle as I look at the year as a whole on a revenue basis, I'm right in the middle of your 125–130 range. That's my number. You just beat my second quarter number by $2.8 million. Just help me—help us think through, one, what do I do with the $2.8? Or just help me think about the cadence of the second half—is it because of seasonality or anything else? Is the third quarter more in line or more likely in line with the second quarter performance for some reason, or it's all going to come home on the fourth?

I just want to make sure we know what to do with these moving pieces in a thoughtful way.

Renee Gaeta, Chief Financial Officer

Yeah, it's a great question. I would certainly anchor to your comments around—there is an element of seasonality within MedTech in Q3. I would say that that's also driven by census of what's happening in our hospitals customers, and effectively you looking towards certainly Q4 as a stronger quarter for us is how I would sort of frame it. Yes, we've kept the full-year guidance, so that's the full-year number that we are targeting towards, and while we don't give guidance to the quarters, certainly you're thinking about could potentially Q3 be impacted by some seasonality, and we would expect a stronger Q4.

Leslie Trigg, Chair and Chief Executive Officer

That is an appropriate assumption also because there's, you know, sometimes in Q4 some seasonality—positive seasonality—on the capital sales side. Right, for capital equipment businesses like ours, you often see a stronger Q4 as hospitals and health systems spend through budget prior to year end.

Rick Wise, Analyst at Stifel

Great. Thank you so much and good to see.

Leslie Trigg, Chair and Chief Executive Officer

Yeah, thank you. Thank you.

OPERATOR

We will now take the next question. And the next question comes from the line of Josh Jennings from TD Cowen. Please go ahead.

Brian, Analyst at TD Cowen (for Josh Jennings)

Hi, this is Brian here for Josh. Thank you for taking the questions. On HCA, I'm not sure what constitutes specifics, but can you speak broadly about the phasing of the agreement across the three years? I guess my question is really, is it fair to assume that 2027 will likely be the biggest year for revenue recognition from the agreement?

Renee Gaeta, Chief Financial Officer

You know, Brian, it's a great question—you're not the only one to ask it, I would say. You know, we certainly are working very closely with HCA. As you pointed out, it goes all the way through 2028. We have visibility to 2026 and, of course, you know, have included—our revenue guidance numbers have factored that in when we reiterated guidance for the year. Beyond that, we look forward to providing 2027 guidance at the appropriate time. When we do that consistently every year, it's effectively, at this point, not going to speak to how much of that is going to be in '27 or '28.

And look, I also look forward to having other agreements, other refresh opportunities that we've now started to highlight, and think that we're entering this cycle with our customers as well as continued penetration in existing accounts, such that it isn't necessarily one item that we're going to be highlighting or speaking to. We've got a robust pipeline, a robust customer list and dynamics, and plenty of opportunity to penetrate into customers that we have in hand today.

Brian, Analyst at TD Cowen (for Josh Jennings)

Okay, that makes sense. Thank you for that. Maybe changing topics to next-gen Tablo, what's been the feedback to date from the initial users? And can you remind us of the milestones you're looking forward to achieve in order to transition to a full launch?

Leslie Trigg, Chair and Chief Executive Officer

Sure, I'm happy to take that. Brian, this is Leslie. So we are working on the pilot phase right now and looking forward to a full launch. I think maybe taking a half step back, philosophically speaking, given the significance of this update, we obviously want to make sure we really, really, really get this right and that the experience out of the gate goes exactly as expected, just given the size of the installed base and the size of the customer base that we support, and we support now—Tablo and our team support about a million treatments a year.

So it's critically important to kind of take a very measured approach to the rollout and focus on doing it well versus quickly. The sales team has started to educate our customers about the benefits and the value. And in terms of the other part of your question about what's the receptivity, we are hearing a lot of enthusiasm. The why behind that enthusiasm: health systems really are increasingly looking for medical devices that meet FDA's highest cybersecurity bar—as we do.

This next-gen release is also packed with a couple of really cool new features and functions that both improve the user experience—the clinician experience—but also day-to-day device performance that we're excited about as well. We do expect customer receptivity to be high when we progress to full launch, which we're excited to do. In terms of the metrics that we're looking for, obviously I'm not going to get into a ton of detail just for competitive reasons about that, but with any new release, whether it's software, hardware—in this case both—we're going to make sure that, as mentioned, the user experience, the user feedback, the performance of the system and the performance of the update are as absolutely perfect as they can possibly be. So we will be looking to metrics and data coming out of the pilot phase to ensure that it's meeting the mark before we roll it out in full.

Brian, Analyst at TD Cowen (for Josh Jennings)

Okay, terrific. Thank you both.

Leslie Trigg, Chair and Chief Executive Officer

Thank you.

OPERATOR

Thank you. That was our final question for today. I will now hand back to Leslie for final remarks.

Leslie Trigg, Chair and Chief Executive Officer

Thank you, and thanks to all of you 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. Thank you again and have a great evening.

OPERATOR

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.