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OM

Outset Medical, Inc. (OM)·Q1 2022 Earnings Summary

Executive Summary

  • Q1 2022 delivered strong top-line and margin expansion: revenue $30.6M (+33% YoY, +8.5% QoQ) and gross margin 14.5% (+1320 bps YoY, +270 bps QoQ), driven by higher console placements and consumables mix. Management emphasized execution across acute and accelerating home adoption, with shipments to home ahead of plan .
  • Guidance raised: FY2022 revenue range tightened to $144–$150M (from $142–$150M) and non-GAAP gross margin targeted in the high teens, supported by Mexico manufacturing, cost-down programs, and cartridge vendor transition ramping through H1 2022 .
  • Home market inflection underway: record Tablo console shipments for home use; destination home program launched for health systems; home revenue still expected to be mid-teens percent of FY2022 revenue .
  • Acute land-and-expand continues: added the 8th of the eight largest national health systems; hospitals using Tablo to insource amid staffing challenges; recurring consumables pull-through supported ASPs .
  • Street comparison: S&P Global consensus estimates were unavailable at time of writing due to access limits; beats/misses versus consensus cannot be confirmed. Use company guidance/trajectory as near-term trading anchor [GetEstimates error].

What Went Well and What Went Wrong

What Went Well

  • Strong revenue and margin trajectory: “strong revenue growth and gross margin expansion,” with non-GAAP gross margin 14.8% and Q1 gross margin +280 bps sequentially, aided by Mexico manufacturing and mix shift to consumables .
  • Home adoption ahead of plan: “shipments to customers at home exceeded our internal expectations” and record home console shipments; goal to establish 100 home programs exiting 2022 remains on track .
  • Acute wins and expansion: landed the 8th of the eight largest national health systems and continued expansion within existing accounts, validating land-and-expand strategy despite broader capital environment variability .

What Went Wrong

  • Elevated OpEx and GAAP losses: GAAP OpEx $40.9M and GAAP net loss $(36.9)M (EPS $(0.78)), reflecting continued investments in commercial, R&D, and public-company costs; non-GAAP net loss $(31.9)M (EPS $(0.67)) .
  • Service margin compression: service & other gross margin fell to 38.6% vs 56.4% prior year, reflecting mix (planned expiration of HHS agreement) despite core service growth .
  • Macro cost pressures persist: management noted continued inflationary pressures and transportation/component cost headwinds; outlook supported by cost-down leverage and cartridge vendor transition, but external costs remain a watch item .

Financial Results

MetricQ1 2021Q4 2021Q1 2022
Revenue ($USD Millions)$22.9 $28.2 $30.6
GAAP Diluted EPS ($)$(0.70) $(0.87) $(0.78)
Non-GAAP Diluted EPS ($)$(0.56) $(0.77) $(0.67)
Gross Margin (%)1.3% 11.8% 14.5%
GAAP Net Loss ($USD Millions)$(30.0) $(41.2) $(36.9)
Total Operating Expenses ($USD Millions)$30.0 $44.1 $40.9

Segment Revenue and Margins:

MetricQ1 2021Q4 2021Q1 2022
Product Revenue ($USD Millions)$18.2 $23.7 $25.7
Service & Other Revenue ($USD Millions)$4.7 $4.5 $4.9
Product Gross Margin (%)(13.0)% 9.3% 10.0%
Service & Other Gross Margin (%)56.4% 25.1% 38.6%
Total Gross Margin (%)1.3% 11.8% 14.5%

Balance Sheet / Liquidity KPIs:

MetricQ1 2021Q4 2021Q1 2022
Total Cash incl. restricted & ST investments ($USD Millions)$310.8 $372.8 $335.6
Cash & Cash Equivalents ($USD Millions)$251.8 $182.3 $114.3
Short-term Investments ($USD Millions)n/a$157.1 $187.9

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)FY 2022$142–$150 $144–$150 Raised lower end
Non-GAAP Gross Margin (%)FY 2022High-teens (target) High-teens (target) Maintained
Home Revenue (% of total)FY 2022Mid-teens % Mid-teens % Maintained
OpEx TrajectoryFY 2022~Q4’21 run-rate ×4 Tracking Q4×4; Q1 sequential decline vs Q4 on payouts timing Maintained framework

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2021, Q4 2021)Current Period (Q1 2022)Trend
Supply chain and cost inflationPlanned Mexico cartridge vendor, freight savings; consoles already in Mexico; margin expansion despite headwinds Continued inflation in components/transport; delivered 14.8% non-GAAP GM; leveraged balance sheet and inventory; no demand misses Improving operational resilience; cost-down benefits accruing
Home hemodialysis adoptionIDE/real-world data; TPNIES approval; targeting 100 home programs; home mid-teens % of FY22 revenue Shipments to home ahead of plan; record home shipments; destination home launched for health systems Accelerating adoption and program build-out
Acute land-and-expand7 of 8 largest nationals and ~1/3 of top 100 regionals by Q4; TAM raised to $2.5B Added the 8th of eight largest national health systems; expansion across existing customers; small hospitals adopting to insource Continued penetration and breadth
Staffing shortages/outsourced dialysisHospitals insourcing; Tablo simplicity offsets staffing; dialysate continuity Outsourced providers struggling; hospitals pulling forward Tablo installs; Tablo enabling more control Tailwind to adoption
XT attachment and clinical versatilityXTENDS study; strong attachment; low clotting XT upgrades uptake above initial projections; ICU capabilities highlighted Sustained clinical validation supports ASPs/mix
Gross margin trajectoryLow double-digit by Q4’21; path to ~50% by 2025 High-teens in FY2022 maintained; reiterates ~50% in 2025 with cost-down, mix, service leverage On track with milestones
International expansionEarly exploration; high bar; accretive focus No near-term entry; continued evaluation Unchanged; U.S.-focused near term

Management Commentary

  • “The first quarter of 2022 was marked by strong revenue growth and gross margin expansion… increasing our confidence for sustained strong performance through 2022 and beyond.” — Leslie Trigg, CEO .
  • “Our first quarter gross margin was 14.8%, an improvement of approximately 13.2 percentage points versus the prior year period… driven by Mexico production, console cost-down programs, and higher consumables mix.” — Nabeel Ahmed, CFO .
  • “Shipments to customers at home exceeded our internal expectations in the first quarter… ahead of schedule in initiating new home programs… goal to establish 100 programs exiting 2022.” — Leslie Trigg, CEO .
  • “We now project revenue for the full year 2022 to range from $144 million to $150 million… tightening our range.” — Nabeel Ahmed, CFO .

Q&A Highlights

  • Guidance confidence and drivers: Raise at the low end attributed to strong Q1 across acute and home plus backlog/pipeline visibility; no COVID disruption cited .
  • Capital environment and staffing: Hospitals still willing to invest given low upfront cost and rapid ROI; Tablo’s simplicity and insourcing mitigate staffing shortages; occasional timing shifts marginal .
  • Supply chain resilience: Teams overcame challenges; inventory secured; delivered sequential GM expansion despite component/chip anxiety; confidence in high-teens FY GM .
  • Cartridge vendor ramp: Mexico-based vendor ramping through H1; majority of cartridges by Q3/Q4; supports GM gains .
  • Long-term GM target and pricing: Reiterated ~50% by 2025 via cost-downs, mix, service leverage; pricing flexibility exists but not specified .

Estimates Context

  • S&P Global consensus estimates for Q1 2022 revenue and EPS were unavailable due to access limits at time of writing; therefore, we cannot definitively assess beats/misses versus Street expectations [GetEstimates error].
  • Implications: The raise of FY revenue guidance and stronger-than-expected home shipments suggest potential upward bias to Street models on home mix and gross margin trajectory near term .

Key Takeaways for Investors

  • Revenue quality improving: sequential growth with consumables mix and non-GAAP GM expansion indicates healthier recurring model momentum; watch service margin mix effects post-HHS agreement .
  • Home is inflecting: record shipments, destination home program, and TPNIES support create catalysts for accelerating home penetration and retention-driven durability in growth .
  • Acute remains a compounding engine: land-and-expand validated by wins across national and regional systems; staffing challenges among outsourced providers are a tailwind to insourcing with Tablo .
  • Margin path intact: high-teens FY2022 and reiterated ~50% by 2025 rely on Mexico manufacturing, cartridge vendor transition, cost-down and service leverage; monitor macro inflation and freight costs .
  • Cash runway solid: $335.6M in total cash/investments supports commercial investment and supply chain strategies; OpEx elevated but aligned with growth agenda .
  • Near-term trading lens: With consensus unavailable, focus on raised FY revenue guide, home shipments ahead of plan, and sequential margin expansion as potential positive stock catalysts into subsequent prints .
  • Governance update: Dale E. Jones appointed to Board and compensation committee, adding senior advisory experience amid scaling phase .

Appendix: Other Relevant Press Releases (Q1 2022 timeframe)

  • Board appointment: Outset Medical names business leader Dale E. Jones to Board of Directors; adds human capital and governance expertise .