STIFEL 2026 HEALTHCARE CONFERENCE - OUTSET MEDICAL INC

Explicit Guidance:

• Revenue: Maintained FY2026 guidance range of $125–130 million, with management noting the second half of the year is expected to deliver approximately 17% growth compared to the first half.
• Long-term Growth: Reiterated ambition to be a double-digit revenue growing company in FY2027 and beyond, aligning with current street consensus models (~9.7% growth projected for 2026 by analysts).
• Gross Margin: Targets a 50% gross margin as a 3–5 year planning horizon goal; management indicated this is "within that realm" and could potentially be achieved sooner depending on the mix of higher-margin software revenue, though near-term console mix may exert downward pressure.
• Refresh Opportunity: Quantified the refresh addressable market (consoles reaching 6–7 year useful life) as a $150 million opportunity over the next couple of years.

Business-Segment Outlook:

• Refresh Cycle: Projecting a "virtuous wave" of console refreshes starting now and extending into 2027–2028, with approximately 3,000 consoles eligible; units not refreshed in 2027 move into the 2028 pipeline.
• Expansion: Identifying "hundreds of millions of dollars" in expansion opportunities within existing health systems via same-store sales (expanding from ICU to non-ICU) and geographic rollout across health system facilities.
• New Customer Acquisition: Focusing sales efforts on the "white space" of hospitals still utilizing outsourced dialysis to capture first-time insourcing deals.
• EMR Integration: Noted EMR revenue (up >20% in Q3) as an accelerating revenue stream, leveraging unique integration with Epic and Cerner for upfront fees and subscription models.
• Home Dialysis: Acknowledged 85% of current revenue is acute care; while home remains a "marker for the future" with a larger TAM than acute, near-term strategy remains focused on acute profitability. Home growth drivers include high retention (>90% at 1, 6, and 12 months) and average patient training time of 10–14 days.

Market and Competitive Outlook:

• Demand Trends: Anticipates sustained demand driven by hospitals seeking cost reduction (50%+ savings) rather than top-line revenue growth, making the value proposition "evergreen" even in budget-tightened environments.
• Pricing Strategy: Plans to launch the next-gen system at a higher price point to reflect increased value, cybersecurity features, and improved gross margins.
• Competitive Advantage: Leverages a $2.2 billion acute care TAM and a unique data advantage (1,000+ sites, 1 million treatments/year, 3.5M data points per treatment) to create stickiness.
• Utilization: Projects "predictable, visible, and very durable" utilization post-installation, with customers typically making a "full conversion" to the model.

Macro / Industry Outlook:

• Policy Environment: Views HHS's new national kidney care plan as a potential tailwind, expecting continued bipartisan congressional and White House support for home dialysis and new technology adoption regardless of election outcomes.
• Hospital Budgets: Does not anticipate hospital budget tightening negatively impacting Tableau adoption; argues that cost-cutting pressures will actually accelerate insourcing decisions.
• Cybersecurity: Anticipates meeting 2025 FDA cybersecurity requirements with the next-gen release, positioning the company as a leader in compliance.

Strategic Initiatives:

• Next-Gen Tableau Release: A major software and operating system update is in preparation; launch timing is "methodical," likely rolling out in late Q4 2024 or early Q1 2025 (back half of 2027 timeline noted for full rollout).
• Sales Force Optimization: Refinements to compensation, territory sizing, and leadership (new commercial leader hired April 2023) to focus on total revenue stack (capital + recurring) rather than just new logos.
• Clinical Excellence Team: Established to drive expansion within existing accounts by demonstrating clinical and financial results.
• AI & Data: Active ideation on using AI on 10 trillion data points to drive service efficiency and clinical value; exploring modern data connections (Power BI, QuickSight) to increase stickiness.
• Product Roadmap: Future innovation prioritized toward software, data, and EMR connectivity rather than significant hardware form factor changes.

Risks and Headwinds to Outlook:

• Regulatory & Political Uncertainty: While optimistic, acknowledged the outcome of the "election or election outcome" in Washington could impact the speed of policy implementation, though management views kidney care reform as having bipartisan appeal.
• Implementation Complexity: The next-gen release carries high risk due to the large install base; "do no harm" is the primary rule, potentially delaying launch speed to ensure operational readiness.
• Console Mix Impact: Increased near-term console revenue (a lower-margin product used to drive recurring stickiness) may temporarily pull down overall gross margin before software/service mix improves it.
• Home Churn: While current retention is high, high patient churn historically remains a structural challenge in the broader home dialysis market that could impede if not maintained.

Management Tone on the Future:

• Confidence: High confidence in the ability to execute double-digit growth in 2027 and maintain the $125–130M FY2026 guidance despite Q3 beats, driven by a "thoughtful, prudent conservatism."
• Strategic Patience: Emphasizes a "slow, methodical, deliberate" approach to the next-gen rollout to protect the customer base, mirroring the successful Home launch strategy.
• Market Focus: Shift in tone toward maximizing the value of the existing, "enviable" customer roster (expansion) rather than solely chasing new logos, suggesting a maturation of the sales strategy.
• Profitability: Strong focus on the path to profitability via gross margin expansion and recurring revenue leverage, with a clear acknowledgment that the acute segment is the primary engine for the next 3–5 years.

Miscellaneous:

• Data Volume: The system generates approximately 3.5 million data points per treatment.
• Install Base: Currently supporting over 1,000 sites and approximately 1 million treatments annually.
• Financial Structure: 70%+ of total revenue is derived from recurring revenue sources.