Outset Medical, Inc. (Nasdaq: OM) (“Outset” or the “Company”), a medical technology company pioneering a first-of-its-kind technology to reduce the cost and complexity of dialysis, today reported financial results for the second quarter ended June 30, 2023.
Recent Highlights
- Recorded net revenue of $36.0 million in the second quarter, a 44% increase compared to $25.1 million in the second quarter of 2022, and an 8% increase compared to $33.5 million in the first quarter of 2023.
- Achieved gross margin for the second quarter of 21.4% (22.5% on a non-GAAP basis), compared to 15.1% (15.9% on a non-GAAP basis) in the second quarter of 2022.
- Initiated the first Tablo home dialysis program with one of the country’s largest health systems with plans to expand to multiple U.S. sites.
- Achieved the Company’s goal of signing agreements with the majority of U.S. mid-sized dialysis providers, further expanding its reach to patients who choose to dialyze at home.
“Our momentum entering 2023 carried through the second quarter, led by the strong demand from hospitals due to the value realized from insourcing dialysis with Tablo,” said Leslie Trigg, Chair and Chief Executive Officer. “As important, Tablo’s unique ease of use and flexibility continues to drive patient interest and demand from home-care providers, including traditional acute-care providers.”
The Company also announced it has paused the shipment of TabloCart with Prefiltration, an accessory for the Tablo System, pending the Food and Drug Administration’s clearance of a 510(k) the Company plans to submit later this month.
“Since receiving the Warning Letter on July 6, we have made the decision to file a 510(k) for TabloCart with Prefiltration and pause distribution of the product until a 510(k) clearance has been granted,” added Trigg. “As we look ahead to the second half of the year, we expect our strong momentum both in the acute and home end markets to continue to drive the business.”
Second Quarter 2023 Financial Results
Revenue for the second quarter of 2023 was $36.0 million, representing an increase of 43.8% compared to $25.1 million in the second quarter of 2022. Product revenue was $29.3 million, representing an increase of 49.5% compared to $19.6 million in the second quarter of 2022. Service and other revenue was $6.7 million, representing an increase of 23.4% compared to $5.4 million in the second quarter of 2022.
Total gross profit was $7.7 million, compared to $3.8 million for the second quarter of 2022. Total gross margin was 21.4%, compared to 15.1% in the second quarter of 2022. On a non-GAAP basis, gross margin improved to 22.5% from 15.9% in the second quarter of 2022. Product gross profit was $7.1 million, compared to $1.9 million of product gross profit in the second quarter of 2022. Product gross margin was 24.3%, compared to 9.7% in the second quarter of 2022. Service and other gross profit was $0.6 million, compared to $1.9 million of service and other gross profit in the second quarter of 2022. Service and other gross margin was 8.7%, compared to 34.6% in the second quarter of 2022.
Operating expenses were $51.2 million, including research and development (R&D) expenses of $14.9 million, sales and marketing (S&M) expenses of $25.0 million, and general and administrative (G&A) expenses of $11.3 million. This compared to operating expenses of $47.5 million, including R&D expenses of $13.5 million, S&M expenses of $23.2 million, and G&A expenses of $10.8 million in the second quarter of 2022.
Excluding stock-based compensation expense, non-GAAP operating expenses were $41.5 million, including R&D expenses of $12.1 million, S&M expenses of $21.4 million, and G&A expenses of $8.0 million.
Net loss was ($44.0) million, or ($0.90) per share, compared to net loss of ($43.8) million, or ($0.92) per share, for the same period in 2022. On a non-GAAP basis, net loss was ($33.9) million, or ($0.69) per share, compared to non-GAAP net loss of ($36.4) million, or ($0.77) per share for the same period in 2022.
Total cash, including restricted cash, cash equivalents and short-term investments, was $226.1 million as of June 30, 2023.
Full Year 2023 Financial Guidance
Outset reiterated its 2023 revenue guidance range of $144 million to $150 million, and now expects to be at the low end of this range as a result of the shipment pause for TabloCart with Prefiltration. The Company reaffirmed its gross margin guidance for the year to be in the low-20% range, exiting the fourth quarter in the mid-20% range.
Webcast and Conference Call Details
Outset will host a conference call today, August 2, 2023, at 2:00 p.m. PT / 5:00 p.m. ET to discuss its second quarter 2023 financial results. Those interested in listening to the conference call may do so by registering online. Once registered, participants will receive dial-in numbers and a unique pin to join the call. Participants are encouraged to register more than 15 minutes before the start of the call. A live webcast of the conference call will be available on the Investor Relations section of the Company's website at https://investors.outsetmedical.com. The webcast will be archived on the website following the completion of the call.
Use of Non-GAAP Financial Measures
The Company may report non-GAAP results for gross profit/loss, gross margin, operating expenses, operating margins, net income/loss, basic and diluted net income/loss per share, other income/loss, and cash flows. These non-GAAP financial measures are in addition to, and not a substitute for, or superior to, financial measures calculated in accordance with GAAP. The Company’s financial measures under GAAP include stock-based compensation expense, as listed in the itemized reconciliations between GAAP and non-GAAP financial measures included in this press release. Management has excluded the effects of this non-cash expense item in non-GAAP measures to assist investors in analyzing and assessing past and future operating performance and period-to-period comparisons. There are limitations related to the use of non-GAAP financial measures because they are not prepared in accordance with GAAP, may exclude significant expenses required by GAAP to be recognized in the Company’s financial statements, and may not be comparable to non-GAAP financial measures used by other companies. The Company encourages investors to carefully consider its results under GAAP, as well as its supplemental non-GAAP information and the reconciliation between these presentations, to more fully understand its business. Reconciliations between GAAP and non-GAAP results are presented in the Appendix A of this press release.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements are based on management’s current assumptions and expectations of future events and trends, which affect or may affect the Company’s business, strategy, operations or financial performance, and actual results and other events may differ materially from those expressed or implied in such statements due to numerous risks and uncertainties. Forward-looking statements include, but are not limited to, statements about the Company’s possible or assumed future results of operations and financial position, including expectations regarding projected revenues, gross margin, operating expenses, capital expenditures, profitability and outlook; statements regarding the Company’s overall business strategy, plans and objectives of management; the Company’s expectations regarding the market sizes and growth potential for Tablo and the total addressable market opportunities for Tablo; continued execution of the Company’s initiatives designed to expand gross margins; our ability to respond to and resolve any reports, observations or other actions by the Food and Drug Administration or other regulators in a timely and effective manner; as well as the Company’s expectations regarding the impact of macroeconomic factors on the Company, its customers and suppliers. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Factors that could cause actual results or other events to differ materially from those contemplated in this press release can be found in the Risk Factors section of the Company’s public filings with the Securities and Exchange Commission, including its latest annual and quarterly reports. Because forward-looking statements are inherently subject to risks and uncertainties, you should not rely on these forward-looking statements as predictions of future events. These forward-looking statements speak only as of their date and, except to the extent required by law, the Company undertakes no obligation to update these statements, whether as a result of any new information, future developments or otherwise.
About Outset Medical, Inc.
Outset is a medical technology company pioneering a first-of-its-kind technology to reduce the cost and complexity of dialysis. The Tablo® Hemodialysis System, FDA cleared for use from the hospital to the home, represents a significant technological advancement that transforms the dialysis experience for patients and operationally simplifies it for providers. Tablo serves as a single enterprise solution that can be utilized across the continuum of care, allowing dialysis to be delivered anytime, anywhere and by anyone. The integration of water purification and on-demand dialysate production enables Tablo to serve as a dialysis clinic on wheels, with 2-way wireless data transmission and a proprietary data analytics platform powering a new holistic approach to dialysis care. Tablo is a registered trademark of Outset Medical, Inc.
Outset Medical, Inc. Condensed Statements of Operations (in thousands, except per share amounts) (unaudited) | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenue: | ||||||||||||||||
Product revenue | $ | 29,330 | $ | 19,621 | $ | 57,109 | $ | 45,285 | ||||||||
Service and other revenue | 6,710 | 5,436 | 12,398 | 10,322 | ||||||||||||
Total revenue | 36,040 | 25,057 | 69,507 | 55,607 | ||||||||||||
Cost of revenue: | ||||||||||||||||
Cost of product revenue (2) | 22,212 | 17,718 | 43,029 | 40,828 | ||||||||||||
Cost of service and other revenue | 6,125 | 3,557 | 12,347 | 6,555 | ||||||||||||
Total cost of revenue | 28,337 | 21,275 | 55,376 | 47,383 | ||||||||||||
Gross profit (1) | 7,703 | 3,782 | 14,131 | 8,224 | ||||||||||||
Gross margin (1) | 21.4 | % | 15.1 | % | 20.3 | % | 14.8 | % | ||||||||
Operating expenses: | ||||||||||||||||
Research and development (2) | 14,906 | 13,521 | 28,699 | 24,352 | ||||||||||||
Sales and marketing (2) | 24,985 | 23,198 | 49,318 | 43,575 | ||||||||||||
General and administrative (2) | 11,290 | 10,784 | 23,077 | 20,493 | ||||||||||||
Total operating expenses | 51,181 | 47,503 | 101,094 | 88,420 | ||||||||||||
Loss from operations | (43,478 | ) | (43,721 | ) | (86,963 | ) | (80,196 | ) | ||||||||
Interest income and other income, net | 2,668 | 459 | 5,316 | 579 | ||||||||||||
Interest expense | (3,103 | ) | (481 | ) | (6,045 | ) | (903 | ) | ||||||||
Loss before provision for income taxes | (43,913 | ) | (43,743 | ) | (87,692 | ) | (80,520 | ) | ||||||||
Provision for income taxes | 133 | 96 | 325 | 211 | ||||||||||||
Net loss | $ | (44,046 | ) | $ | (43,839 | ) | $ | (88,017 | ) | $ | (80,731 | ) | ||||
Net loss per share, basic and diluted | $ | (0.90 | ) | $ | (0.92 | ) | $ | (1.79 | ) | $ | (1.69 | ) | ||||
Shares used in computing net loss per share, basic and diluted | 48,951 | 47,882 | 49,085 | 47,686 | ||||||||||||
(1) Gross profit and gross margin by source consisted of the following: | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Gross profit | ||||||||||||||||
Product revenue | $ | 7,118 | $ | 1,903 | $ | 14,080 | $ | 4,457 | ||||||||
Service and other revenue | 585 | 1,879 | 51 | 3,767 | ||||||||||||
Total gross profit | $ | 7,703 | $ | 3,782 | $ | 14,131 | $ | 8,224 | ||||||||
Gross margin | ||||||||||||||||
Product revenue | 24.3 | % | 9.7 | % | 24.7 | % | 9.8 | % | ||||||||
Service and other revenue | 8.7 | % | 34.6 | % | 0.4 | % | 36.5 | % | ||||||||
Total gross margin | 21.4 | % | 15.1 | % | 20.3 | % | 14.8 | % | ||||||||
(2) Include stock-based compensation expense as follows: | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2023 | 2022 | 2023 | ||||||||||||||
