Outset Medical's Q3 2025 Earnings Call: Contradictions Emerge on Sales Team Stability, Console Revenue Forecasts, and Sales Forecasting Improvements

Date of Call: None provided

Financials Results

• Revenue: $29.4M, up 3% YOY
• Gross Margin: 39.9% non-GAAP, up 350 bps YOY; product gross margin 45.7% vs 43.2% prior year
• Operating Margin: Non-GAAP operating loss $10.4M; non-GAAP operating expenses $22.1M, down 17% YOY; operating margin percentage not provided

Guidance:

• 2025 revenue revised to $115M–$120M (prior $122M–$126M).
• Full-year gross margin expected in the high-30% range (Q3 non-GAAP was 39.9%).
• 2025 operating expenses expected in the low $90M range.
• Expect to use less than $50M of cash in 2025; cash runway sufficient through breakeven.
• Manufacturing underabsorption headwind ~150 bps for full year, diminishing in 2026.

Business Commentary:

* Sales and Revenue Outlook: - Outset Medical's revised 2025 revenue guidance is now a range of $115 million-$120 million, down from the previous guidance of $122 million-$126 million. - The adjustment is due to a delay in the closing of several large opportunities in Q3 and Q4, and the resignation of the Head of Sales.

• Operational Efficiency and Cost Management:
• Non-GAAP operating expenses declined by 17% to $22.1 million compared to $26.5 million in Q3 2024.

• This improvement is attributed to actions taken during the second half of 2024 to remove $80 million of annualized spend, which reflects a drive for profitability.

• Product Revenue and Gross Margin:

• Product revenue for Q3 was $20.6 million, slightly higher than the prior year period, with a non-GAAP gross margin reaching 39.9%.

• The growth in gross margin is attributed to disciplined expense management and efforts to optimize inventory levels.

• Sales Leadership Transition and Organizational Strategy:

• The resignation of the Head of Sales was accepted, and a search for a new leader is underway.

• The focus in hiring is on individuals with a background in capital equipment and enterprise sales, to drive predictable deal close timings and enhance execution.

Sentiment Analysis:

Overall Tone: Neutral

• Management trimmed 2025 revenue guidance to $115M–$120M and noted timing shifts of large enterprise deals and a recent Head of Sales departure, but emphasized progress: non-GAAP gross margin expanded to 39.9% (+350 bps YOY), non-GAAP op expenses down 17% YOY, and reduced cash burn with cash balances of $182M.

Q&A:

• Question from Rick Wise (Stifel): Is the $6–7M guidance trim driven by one order, multiple orders, or is extra insurance baked in given headquarters-level approvals?
  Response: Trim reflects timing shifts of several large enterprise console deals (one large deal moved from Q3 into Q4/2026) and management prudently factored potential disruption from the Head of Sales departure.

• Question from Rick Wise (Stifel): Console revenues were strong this quarter—how do you reconcile that with the timing/forecasting issues?
  Response: Console sales grew (Tablo console sales +8% YoY) and average deal size is up ~20%, but the company must improve predictability of enterprise deal close timing.

• Question from Rick Wise (Stifel): What profile are you seeking for the new Head of Sales, how quickly can you hire, and what are implications for 2026?
  Response: Searching for an experienced capital-equipment, enterprise-sales leader who is strategic, detail-oriented, and an exceptional coach; search underway; short-term selling disruption possible but hire should improve long-term predictability.

• Question from Shagun Singh (RBC): Given 2025's ~3% growth, what does that imply for 2026 and what is the long-term growth cadence (mid-single, high-single, low-double digits)?
  Response: No 2026 guidance yet; demand and pipeline are growing and management aspires to growth well above mid-single digits, contingent on executing improved deal-timing and commercial predictability.

• Question from Shagun Singh (RBC): Are forecasting/process changes complete and should investors view 2026 as a transition year?
  Response: Consumables forecasting improvements are planned for 2026 and are actionable; console forecasting requires further refinement and remains the heavier lift.

• Question from Marisa (BTIG): What caused the mismatch between treatment utilization and consumables ordering and how will you prevent it?
  Response: Mismatch stemmed from a small number of high-volume customers' ordering/supply-chain practices; company will work closely with those customers to align orders to actual utilization and expects normalization.

• Question from Marisa (BTIG): When did the Head of Sales resign and how much of the guidance cut is due to timing versus salesforce disruption?
  Response: Head of Sales departed last week after quarter close; the guidance reduction reflects both late-September order timing shifts and a cautious assumption around potential near-term sales disruption.

• Question from Josh Jennings (TD Cowen): Have any orders dropped out or been canceled and are there additional salesforce transitions beyond the Head of Sales?
  Response: No deals have dropped out—only timing shifts; the only significant personnel change is the Head of Sales departure and VP-level commercial leaders remain in place.

• Question from Josh Jennings (TD Cowen): Update on the home channel, MDOs, and SNF opportunity?
  Response: Home channel retention remains high, MDO programs continue to expand, and SNF is considered a future growth vector.

• Question from Shagun Singh (RBC): Will orders that missed 2025 likely fall into Q1 2026 and should we expect a stronger Q1?
  Response: Some deals have slipped into Q4 and into 2026; the ~$7M trim is the starting point for 2026 planning and detailed 2026 guidance will be provided later.

• Question from Rick Wise (Stifel): Is it possible that the $7M shortfall could still be realized in Q4?
  Response: It is possible but guidance did not assume all delayed deals would close in Q4; management took a prudent approach when revising the range.

Contradiction Point 1

Sales Team Stability and Impact on Guidance

It involves the stability of the sales team and its impact on guidance, which is crucial for investor expectations and operational planning.

Could you provide details on console revenue and its impact on Q3 performance? - Rick Wise(Stifel)

2025Q3: The departure of the Head of Sales is also considered a potential disruptor, factored into the guidance. - Renee Gaeta(CFO)

Can you elaborate on the commercial strategy transition and how it will impact the 2025 outlook and beyond? - Frederick Allen Wise(Stifel, Nicolaus & Company, Incorporated, Research Division)

2025Q2: The commercial organization is now significantly improved. The changes resulted in better forecast accuracy, improved visibility over sales processes, and higher conversion rates. - Leslie Trigg(CEO)

Contradiction Point 2

Console Revenue Growth and Timing

It pertains to the growth and predictability of console revenue, which is a significant component of the company's financial performance.

Can you discuss console revenues and their impact on Q3 performance? - Rick Wise(Stifel)

2025Q3: Console revenues grew better than expected in Q3. - Leslie Trigg(CEO)

How sustainable is the pipeline strength, and have newer products like TabloCart driven increased sales? - Marie Yoko Thibault(BTIG, LLC, Research Division)

2025Q2: Our pipeline includes several enterprise-level agreements, which we believe will sustain growth for multiple quarters. - Leslie Trigg(CEO)

Contradiction Point 3

Sales Process and Forecasting Improvements

It concerns the improvements made to the sales process and forecasting, which are critical for operational efficiency and revenue prediction.

Can you discuss console revenues and their impact on Q3 performance? - Rick Wise(Stifel)

2025Q3: The company is working to refine its ability to forecast deal timing, especially with larger deals. - Leslie Trigg(CEO)

Can you quantify the internal efforts to transform the commercial organization? - Unidentified Analyst(RBC)

2025Q2: The commercial team has been restructured with new enterprise sales skills and tools. A new sales process has been implemented, leading to improved forecast accuracy and better execution. - Leslie Trigg(CEO)

Contradiction Point 4

Sales Process and Forecasting

It highlights inconsistencies in the company's ability to predict sales timing and order patterns, which are crucial for revenue forecasting and investor confidence.

How did console revenues impact Q3 performance? - Rick Wise (Stifel)

2025Q3: Console revenues grew better than expected in Q3. However, there was a challenge in consistently predicting deal close timing. - Leslie Trigg(CEO)

What factors contributed to the increase in console revenue, and is the disruption resolved? - Marie Thibault (BTIG)

2025Q1: The sales transformation has shown remarkable progress, with increased tenure in the team contributing positively. New proprietary sales tools and a depth of forecast accuracy have improved performance. - Leslie Trigg(CEO)

Contradiction Point 5

Console Revenue Growth Expectations

It highlights changes in expectations regarding console revenue growth, which is crucial for understanding the company's financial outlook and strategic positioning.

How did console revenues affect Q3 performance? - Rick Wise (Stifel)

2025Q3: Console revenues grew better than expected in Q3. - Leslie Trigg(CEO)

Can you provide a qualitative and quantitative outlook for the console business? - Marie Thibault (BTIG)

2024Q4: We've had a lot of change in 2024, but the sales management and change management steps are behind us, increasing our conviction for strong console growth in 2025. - Leslie Trigg(CEO)