Executive Summary

Q4 2020 revenue was $17.2M, up 143% YoY and 25% QoQ, with positive non-GAAP gross margin (2.8%) achieved for the first time; GAAP gross margin was 2.4% .
Mix shift and cost-down execution drove margin inflection, aided by Tablo XT deferred revenue release and service margin, while console orders exceeded forecast; backlog exited 2020 at ~550 consoles, providing 2021 visibility .
FY 2021 guidance initiated: revenue $89–$94M and Q1 2021 revenue $21–$22M; management expects full-year positive gross margins, with sequential GM dip in Q1 due to higher console mix and reacceleration in 2H on Mexico production ramp and lower-cost cartridges .
Strategic catalysts: accelerated acute penetration (6 of 8 top national systems), manufacturing brought online in Mexico one quarter ahead of schedule, and consistent home momentum with measured rollout and favorable training/retention data .

What Went Well and What Went Wrong

What Went Well

Positive gross margins achieved ahead of plan; non-GAAP GM reached 2.8% in Q4, ~42ppt improvement YoY and ~39ppt sequentially, driven by cost-down activities, higher service margin, and XT deferred revenue release .
Commercial traction: ~1,100 Tablo consoles in the field by YE (acute ~900; subacute ~100; clinics/home ~100), with contracts across 6 of the top 8 national health systems and ~20 of top 50 regional systems; over half of recent accounts placed follow-on orders .
Manufacturing execution: first consoles produced in Tijuana, Mexico in Q1 2021, a full quarter ahead of schedule; >100 consoles manufactured to date in Q1 and full shift targeted by Q3 2021 (business continuity excepted) .

Quote: “Non-GAAP gross margin improved by almost 42 percentage points in Q4 to 2.8%, enabling us to reach positive gross margins for the first time in Company history, significantly ahead of plan.” — Leslie Trigg, CEO .

What Went Wrong

OpEx stepped up with public company costs and commissions; non-GAAP OpEx rose to $25.8M in Q4 (vs $21.8M in Q3), and GAAP OpEx totaled $32.0M; stock-based comp in Q4 was $6.3M with an additional ~$4M expected in Q1 .
Console margin still negative on GAAP basis in Q4 (product GM -13.2%), reflecting ramp and cost structure pre-full Mexico transition .
Sequential gross margin guide for Q1 calls for a dip due to higher console mix before re-expanding in 2H, implying near‑term volatility despite full-year positivity .

Financial Results

Revenue, EPS, and Margins vs Prior Periods

Metric	Q2 2020	Q3 2020	Q4 2020
Total Revenue ($USD Millions)	$11.7	$13.8	$17.2
GAAP Gross Margin (%)	(40.6%)	(37.3%)	2.4%
Non-GAAP Gross Margin (%)	2.8% YTD H1 (company non-GAAP, not disclosed solely for Q2)*	(36.2%)	2.8%
GAAP Diluted EPS ($)	n/a	(3.44)	(0.75)
Non-GAAP Diluted EPS ($)	n/a	(2.31)	(0.60)

*Non-GAAP values retrieved from company press materials.

Segment Breakdown

Metric	Q2 2020	Q3 2020	Q4 2020
Product Revenue ($USD Millions)	$9.7	$10.8	$13.2
Service & Other Revenue ($USD Millions)	$2.0	$2.9	$4.1
Product GM (%)	(57.7%)	(59.7%)	(13.2%)
Service & Other GM (%)	40.6%	45.1%	53.0%

KPIs

KPI	Q3 2020	Q4 2020
Consoles in Field (Units)	~1,100 (Acute ~900; Subacute ~100; Clinics/Home ~100)	~1,100 (as of YE)
Console Backlog (Units)	n/a	~550 at YE
Utilization (Treatments per Console per Week)	~4.5	~4.5 (mix-weighted expectation maintained)
HHS Lease Contracts	Additional 50 consoles; ~$16M over two years	Embedded in service revenue; lease expiration headwind begins Q3 2021
Cash, Cash Equivalents, Restricted & ST Investments ($M)	$377.5 at 9/30/20	$348.2 at 12/31/20

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($M)	FY 2021	n/a	$89–$94	Initiated
Revenue ($M)	Q1 2021	n/a	$21–$22	Initiated
Non-GAAP Gross Margin	FY 2021	n/a	Positive full-year; expansion in 2H on Mexico production and lower-cost cartridges	Initiated
Sequential Gross Margin	Q1 2021	n/a	Slightly lower sequentially on higher console mix	Maintained cautious near-term view

Earnings Call Themes & Trends

Topic	Previous Mentions (Q2 2020)	Previous Mentions (Q3 2020)	Current Period (Q4 2020)	Trend
Acute market penetration	COVID demand and HHS order referenced later	6 national IDNs, >12 regional; acute traction accelerating	6 of top 8 national; ~20 of top 50 regional; follow-on orders; strong 2021 visibility	Strengthening
Manufacturing & cost-down	Ramp plan in motion	Facility buildout; in-sourcing plan tracked; Q4 GM to improve sequentially	Mexico facility started Q1 2021, one quarter ahead; >100 consoles; cartridges second-source 510(k) in March	Ahead of schedule
Home dialysis	FDA home clearance (Mar 2020), early steps	First home patients; training ~2 weeks vs 4–6; retention tracking well	New contracts; measured rollout; patient demand rising; training time ~2 weeks; retention above expectations	Building deliberately
Regulatory tailwinds (CMS ETC, MA, TPNIES)	ETC effective 1/1/21; MA eligibility	TPNIES capital inclusion final rule; application path	TPNIES application submitted; decision timeline mid-year proposal/fall final; possible 60–65% add-on if approved	Potential tailwind (not in forecast)
COVID impact	Q2 orders and utilization effects	COVID tailwind embedded; Q4 similar to Q3; base business growth	COVID neither sole driver nor headwind; value proposition anchored in cost/versatility	Neutralized, supportive

Management Commentary

“Console orders exceeded our forecast… We exited 2020 with approximately 550 consoles in backlog, which provides us with strong visibility into our 2021 revenue trajectory.” — Leslie Trigg .
“Our non-GAAP gross margin was 2.8%, an improvement of 42 percentage points…primarily the result of significantly lower Console and treatment costs, higher service margin and the impact of XT deferred revenue release.” — Rebecca Chambers .
“Manufactured the first Tablo consoles at our new facility in Mexico during the first quarter 2021, one quarter ahead of schedule.” — Company press release .
“We finalized new home agreements… we are focused on delivering an exceptional Tablo home experience… training time ~2 weeks vs 4–6 weeks.” — Leslie Trigg .

Q&A Highlights

Gross margin trajectory: Management comfortable that Q4 margin progress “propels forward” multi-year, with near-term variability from console mix/ASP; full-year 2021 GM positive with 2H expansion .
Acute vs home mix: 2021 upside primarily acute; home remains modest by design; analyst estimate of ~10% home mix seen as “not outside the realm” .
Manufacturing timeline: Full console production shift to Mexico by Q3 2021 (with business continuity exceptions); cartridges benefit in 2H from productivity/logistics .
TPNIES: Application submitted; CMS mid-year proposal/fall final; framework suggests ~60–65% add-on to treatment rate if approved; not in current forecast .
Sequential trends and HHS lease: Strong H1 shipments from backlog; HHS lease a headwind post-Q1 on a quarterly basis; revenue puts/takes through the year .

Estimates Context

Wall Street consensus (SPGI) for Q4 2020 could not be retrieved due to S&P Global daily rate limits at time of request; therefore, estimate comparisons are unavailable.

Key Takeaways for Investors

Acute momentum and backlog support 2021 revenue guidance; Mexico manufacturing and cartridge second-sourcing should structurally expand margins in 2H 2021 .
Positive gross margin inflection in Q4 marks a key de-risking milestone; watch console/service mix and ASP for near-term margin variability .
Home strategy remains intentionally measured; leading indicators (training time, retention, provider contracts) are favorable, with regulatory tailwinds (ETC, MA, potential TPNIES) poised to support medium-term growth .
Operating leverage is not yet evident given elevated OpEx and stock-based comp; track progress on cost-down, service efficiency, and manufacturing ramp for path to profitability .
Key upcoming catalysts: CMS TPNIES decision, continued national/regional health system rollouts, and visible margin expansion from Mexico transition and lower-cost cartridges .

Appendix: Additional Data and Cross-References

Q3 2020 results and operating metrics: revenue $13.8M; GAAP GM (37.3%); non-GAAP GM (36.2%); GAAP EPS $(3.44); non-GAAP EPS $(2.31) .
Q2 2020 reference metrics: revenue $11.7M; product $9.7M; service $2.0M; GAAP GM (40.6%); product GM (57.7%); service GM 40.6% .
Q4 2020 detailed financials: segment revenue/margin; OpEx by function; GAAP and non-GAAP reconciliations; cash and balance sheet .

Notes:

All quantitative values are sourced from company filings and press materials, with citations embedded. Non-GAAP values referenced from press materials.

Outset Medical, Inc. (OM)·Q4 2020 Earnings Summary