STIFEL 2026 HEALTHCARE CONFERENCE - OUTSET MEDICAL INC

Financial Performance:

• Q3 revenue grew 14% year-over-year and 6% sequentially, with all revenue lines contributing to growth.
• Console revenue specifically increased 26%, driven by refresh sales, expansion, and new customer acquisitions.
• EMR revenue (implementation fees, maintenance, and subscriptions) grew over 20%, leveraging exclusive integration with Epic and Cerner.
• Approximately 70% of the revenue stack is recurring, driven by consumables (treatments), service contracts, and software fees.
• Consumables represent roughly 50% of total revenue, serving as the primary recurring revenue stream.
• The refresh cycle represents a ~$150 million opportunity over the next two years involving ~3,000 eligible consoles.

Guidance and Future Outlook:

• Maintained 2026 revenue guidance range at $125 million to $130 million despite Q3 beats, citing prudence to set a strong foundation.
• Forecast back-half 2026 growth rate of approximately 17% compared to the first half.
• Aiming for double-digit revenue growth in 2027, aligning with consensus models of ~9.7% if current execution continues.
• Long-term gross margin target is 50%, expected to be achieved over a 3-to-5-year horizon.
• Next-generation Tableau system is expected to launch late Q4 2026 or early 2027, with pricing expected to be higher due to increased value and higher-margin software components.

Business Segments and Product Lines:

• Acute Care: Currently accounts for ~85% of revenue; focus remains on hospital insourcing and console placements.
• Home Dialysis: Maintains strong toehold with >90% patient retention rates at 90 days, 6 months, and 1 year; growth driven by provider expansion and rapid patient training (avg. 10-14 days).
• New Product Launch: Next-gen Tableau includes a new operating system, updated boards, enhanced cybersecurity (meeting 2025 FDA requirements), and advanced software features.
• Sales Force Optimization: New commercial leader implemented smaller territories and adjusted compensation to prioritize "solution selling" and capturing the full revenue stack (capital + recurring) from existing customers.
• EMR Integration: Leveraging data connectivity (uploading 3.5 million data points per treatment) to create stickiness and charge for implementation and subscription services.

Market and Competitive Landscape:

• HHS launched a landmark national plan to transform kidney care, prioritizing home dialysis and new technology adoption, viewed as a potential tailwind for Outset.
• Outset is the only dialysis system directly integrated with major EMRs (Epic and Cerner), providing a distinct competitive advantage.
• Market sentiment suggests hospitals are prioritizing cost reduction (bottom line) over top-line revenue generation in a tightening budget climate, favoring Outset's ~50%+ cost reduction value proposition.
• Competition in home dialysis faces high patient churn; Outset differentiates via superior retention rates compared to incumbent solutions.

Risks and Challenges:

• Policy Uncertainty: While HHS supports innovation, the timeline for specific policy implementation remains unclear, and political changes could impact the pace of adoption.
• Hospital Capital Spending: While not a top concern currently, tightening hospital budgets and shifts in Medicare/Medicaid funding could potentially impact long-term capital expenditure cycles.
• Regulatory & Operational Complexity: The rollout of the next-gen system requires a "slow, methodical" approach to ensure safety and operational readiness across 1,000+ sites.
• Gross Margin Pressure: Near-term increases in console revenue (a low-margin product used to drive market share) may temporarily pull down overall gross margins.

Management Commentary and Tone:

• Tone was confident and pragmatic, emphasizing execution, data-driven decision-making, and operational discipline.
• Management expressed optimism about the "sediment layers" of growth (refreshes, expansion, new acquisitions) and the durability of recurring revenue.
• CFO Renee Gaeta and CEO Leslie Trigg demonstrated strong alignment on the strategy to prioritize recurring revenue visibility and methodical product launches.
• Emphasis placed on the "solution selling" model, framing Tableau as a programmatic care delivery change rather than just a capital equipment purchase.

Analyst Questions and Answers:

• HHS Initiative: Management confirmed the HHS plan aligns with Outset's mission but noted uncertainty regarding specific policy timelines and potential impacts of election cycles.
• 2027 Growth: Management affirmed the consensus 9.7% growth outlook is achievable if Q3 execution trends continue, driven by the refresh cycle and expansion opportunities.
• Recurring Revenue Drivers: Clarified that recurring revenue is driven by consumables (treatments), service contracts, and the new EMR subscription model, with a focus on penetrating larger hospitals (top 250).
• Next-Gen Pricing: Confirmed the new system will command higher pricing and improved margins due to software value and cybersecurity features, though rollout will be deliberate.
• Home Market Strategy: Highlighted that home growth relies on high retention (not replacement) and expanding the provider network, rather than immediate reliance on a new device generation.

Other Key Points:

• Data Capability: Tableau generates approximately 3.5 million data points per treatment, totaling 10 trillion data points in the cloud, positioning the company to leverage AI for service efficiency and clinical insights.
• Customer Validation: Secured a significant refresh agreement with HCA, the largest health system in the US, serving as a strong validation for the refresh and expansion strategy.
• Capital Efficiency: The model features a 9-12 month sales cycle followed by durable, predictable utilization as customers tend to fully convert to insourcing.
• AI Initiatives: Active AI programs are being developed to drive service efficiency and utilize the vast data repository for clinical value.