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OM

Outset Medical, Inc. (OM)·Q1 2021 Earnings Summary

Executive Summary

  • Revenue of $22.9M, up 219% YoY and 33% sequential, with positive GAAP gross margin (1.3%) and non-GAAP gross margin (1.6%); GAAP diluted EPS was ($0.70) and non-GAAP diluted EPS was ($0.56) .
  • Outset raised FY21 revenue guidance to $92–$97M from $89–$94M, citing stronger demand visibility, backlog, and manufacturing ramp; sequential gross margin improvements expected through the year .
  • Operational highlights: 165 consoles produced in Mexico in Q1 with over 100 in April; 510(k) submitted to enable cartridge production shift to Mexico; more than 75% of Q1 console orders targeted new sites within existing customer networks .
  • Home momentum: signed four new home master contracts; 50% sequential increase in home console orders; training dropout rates ~60% lower vs incumbent during training (early, small samples) .
  • Stock reaction catalysts: raised FY guide, continued positive gross margin, manufacturing cost downs, and enterprise adoption across large health systems and LTACs .

What Went Well and What Went Wrong

What Went Well

  • Strong top-line outperformance driven by higher product volume and ASPs; service revenue grew on installed base and HHS lease services; consumables revenue up 283% YoY on utilization and ASPs .
  • Manufacturing ramp exceeded plan: 165 consoles produced in Mexico in Q1 and >100 in April; this supported cost reductions and slightly better-than-forecast gross profit, yielding a second consecutive quarter of positive gross margin .
  • Enterprise expansion: over 75% of Q1 orders destined for new sites within existing customer networks—evidence of “land and expand” success; Tablo now used by 3 of 4 largest LTAC providers .

Management quotes:

  • “Our first quarter was marked by strong revenue performance, continued operational execution, and substantial progress across our strategic initiatives.” — CEO Leslie Trigg .
  • “Our non-GAAP gross margin was 1.6%, an improvement of 51 percentage points versus the prior year period.” — CFO Rebecca Chambers .

What Went Wrong

  • Company remained loss-making: GAAP net loss of ($30.0M), non-GAAP net loss of ($24.2M); operating expenses increased to support growth and public company costs .
  • Product gross margin remained negative (13.0%) even as total gross margin turned positive; profitability depends on further cost-downs and cartridge manufacturing shift pending FDA clearance .
  • HHS lease roll-off a known headwind: management guided to slightly lower sequential growth in Q4 due to first HHS lease coming off; OpEx expected to increase sequentially in Q2 and Q3 to fund growth .

Financial Results

Summary vs Prior Periods

MetricQ3 2020Q4 2020Q1 2021
Revenue ($USD Millions)$13.8 $17.2 $22.9
Product Revenue ($USD Millions)$10.8 $13.2 $18.2
Service & Other Revenue ($USD Millions)$2.9 $4.1 $4.7
GAAP Gross Margin %(37.3%) N/A1.3%
Non-GAAP Gross Margin %(36.2%) 2.8% 1.6%
GAAP Diluted EPS ($)($3.44) ($0.75) ($0.70)
Non-GAAP Diluted EPS ($)($2.31) ($0.60) ($0.56)

Segment margins and operating detail (Q1 2021)

MetricQ1 2021
Product Gross Loss ($USD Millions)($2.367)
Product Gross Margin %(13.0%)
Service Gross Profit ($USD Millions)$2.656
Service Gross Margin %56.4%
GAAP OpEx ($USD Millions)$30.0
GAAP R&D ($USD Millions)$7.6
GAAP S&M ($USD Millions)$13.1
GAAP G&A ($USD Millions)$9.2
Non-GAAP OpEx ($USD Millions)$24.2
Non-GAAP R&D ($USD Millions)$6.4
Non-GAAP S&M ($USD Millions)$11.4
Non-GAAP G&A ($USD Millions)$6.4

KPIs and balance sheet

KPIQ3 2020Q4 2020Q1 2021
Installed Base (units)N/A~1,100 N/A
Backlog Consoles (units)N/A~550 Portion shipping in 1H; backlog remains meaningful
% Orders to Existing Network New SitesN/AN/A>75%
Mexico Consoles ProducedN/A>100 manufactured in Q1 period noted 165 in Q1; >100 in April
Cash, Cash Equivalents, Restricted Cash & ST Investments ($USD Millions)$377.5 as of 9/30/20 ~$348 as of 12/31/20 $310.8 total cash incl. ST investments at 3/31/21
Cash from Operations ($USD Millions)N/AN/A($38.6)

Q1 vs Company Guidance

MetricPrior Guidance (Q1 2021)Actual (Q1 2021)Delta
Revenue ($USD Millions)$21–$22 $22.9 +$0.9 vs top-end (beat)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)FY 2021$89–$94 $92–$97 Raised
Gross MarginFY 2021Positive GM for full year; ramping with Mexico/low-cost cartridges in 2H Further expansion with sequential improvements through rest of year; depends on cost-downs and cartridge shift pending FDA Strengthened trajectory
Operating ExpensesFY 2021 cadenceNot quantifiedMeaningful sequential increase in OpEx to invest in growth (Q2/Q3), then flattening Increased investment

Earnings Call Themes & Trends

TopicQ3 2020 (Nov 2020)Q4 2020 (Mar 2021)Q1 2021 (May 2021)Trend
Manufacturing & Supply ChainAnnounced console insourcing and cartridge shift plan; non-GAAP GM improved; Mexico build-out underway Mexico facility initiated commercial production; >100 consoles; 510(k) planned for cartridge move; positive non-GAAP GM 2.8% 165 consoles produced Q1; >100 in April; 510(k) submitted; sequential GM improvements expected Accelerating output and cost-downs
Home Dialysis MomentumFirst patients on Tablo at home; training ~2 weeks; positive retention early Go-slow strategy; home revenue modest in 2021; patient demand rising; MA and ETC tailwinds Four new home master contracts; 50% sequential increase in home orders; dropout rates ~60% lower during training vs incumbent (small samples) Building pipeline and early data
Enterprise AdoptionSigned 6 top national systems; strong regional health system signings ~1,100 installed base; ~550 consoles backlog; expansion across networks >75% orders for new sites within existing networks; LTAC penetration (3 of 4) Land-and-expand validated
Regulatory/PaymentETC model tailwind detailed; TPNIES program inclusion of capital equipment Submitted TPNIES application; midyear proposed rule expected; not in guidance No update on TPNIES; still not in forecast; ETC influencing provider behavior Tailwinds present; timing uncertain
Guidance CadenceQ4 similar to Q3; COVID tailwind embedded FY21 guide $89–$94; Q1 guide $21–$22; positive full-year GM FY21 guide raised to $92–$97; sequential growth expected Q2/Q3; slight decel Q4 due to HHS lease roll-off Outlook improving

Management Commentary

  • Strategic vision: “We see demand for Tablo accelerating across the acute and subacute care settings with a growing number of providers uptaking Tablo for home as well.” — CEO Leslie Trigg .
  • Manufacturing/GM: “Our non-GAAP gross margin was 1.6%… primarily the result of significantly lower console and treatment costs and higher service margin as well as the impact of XT deferred revenue release.” — CFO Rebecca Chambers .
  • FY outlook: “We project revenue for full year 2021 to range from $92 million to $97 million… compares to prior revenue guidance of $89 million to $94 million.” — CFO Rebecca Chambers .
  • Enterprise expansion: “In the first quarter, more than 75% of the consoles ordered were for shipment to new sites within existing customer networks.” — CEO Leslie Trigg .

Q&A Highlights

  • Existing-customer expansion drivers: quantification of cost reduction (e.g., meetings 30 days post-start) and quality improvements (length of stay, wait times); TAM penetration opportunity across national/regional systems and LTACs .
  • Home strategy and competition: market “enormity”; expanding universe of home providers (health systems and innovative entrants); agreements among incumbents not viewed as limiting access .
  • Profit path and long-term margins: reaffirmed 2025 targets of ~50% gross margin and ~20% operating margin; gross margin ahead of schedule by a couple of quarters .
  • Backlog dynamics: ~550 consoles exiting 2020, primarily shipping in 1H; backlog used to plan hiring and customer experience; drove FY guide raise .
  • Gross margin trajectory: sequential improvements through 2021 driven by Mexico manufacturing mix and cartridge shift post-FDA clearance .

Estimates Context

  • S&P Global consensus EPS and revenue for Q1 2021 were unavailable in this workflow; therefore, direct beat/miss vs Wall Street consensus cannot be assessed (consensus unavailable via S&P Global).
  • Relative to company guidance, revenue beat the prior Q1 guide ($22.9M actual vs $21–$22M guided) and FY21 revenue guidance was raised post-quarter on backlog and demand visibility .

Key Takeaways for Investors

  • Enterprise adoption and expansion are accelerating: 75%+ of orders to new sites within existing networks, underscoring repeatability of the value proposition and potential for multi-year penetration across large systems and LTACs .
  • Cost-down and manufacturing execution are the core margin drivers: Mexico output and cartridge onshoring (pending FDA) underpin sequential GM gains; watch FDA timing and mix for margin sensitivity .
  • Home market momentum is building with early favorable training/retention data and new master contracts; ETC and MA tailwinds could further stimulate adoption in 2022+ .
  • Revenue trajectory de-risks FY21 guide: Q1 topped internal guidance; sequential growth expected Q2/Q3; model Q4 decel due to HHS lease roll-off .
  • Near-term trading: catalysts include concrete margin progression, manufacturing milestones (cartridge clearance), and additional large health system wins; any TPNIES visibility midyear could add optionality .
  • Medium-term thesis: durable enterprise solution across care settings, expanding home footprint, and margin structure progressing toward 2025 targets — with execution on cost roadmap and regulatory/macro tailwinds as key levers .

Additional Q1 2021 Press Release Notes

  • Board addition: Andrea Saia appointed to the Board of Directors .
  • Financing: April 2021 public offering raised ~$149.7M net to Outset, strengthening balance sheet for growth initiatives .