Outset Medical (OM) Q3 2025: Gross Margin Jumps 350 bps as Deal Timing Pushes Revenue into 2026
Outset Medical’s Q3 revealed a widening gross margin and disciplined cost control, but deal timing volatility and sales leadership turnover forced a guidance cut and a more cautious outlook into 2026. The company’s shift toward large enterprise insourcing deals is expanding the pipeline and average deal size, yet highlights new forecasting challenges and execution risk. Investors should watch for improvements in deal closure predictability and customer ordering alignment as the company pursues profitability and market share gains in acute dialysis.
Summary
- Deal Timing Volatility: Large enterprise insourcing deals slipped into Q4 and 2026, driving guidance reduction.
- Margin Expansion Outpaces Revenue: Gross margin neared 40%, even as top-line growth lagged expectations.
- Execution Focus Intensifies: Sales leadership transition and pipeline management signal a pivotal period for commercial discipline.
Performance Analysis
Outset Medical posted modest revenue growth, with Q3 sales up 3% year over year, driven by an 8% increase in Tableau console sales and steady recurring revenue from consumables and services. However, the timing of several large insourcing deals with major health systems slipped beyond Q3, directly impacting both reported results and full-year guidance. Acute care customer demand remains robust, evidenced by a more than 20% increase in average deal size and a growing pipeline, but the company’s ability to forecast deal closure remains a work in progress.
Gross margin expansion was a clear highlight, with non-GAAP gross margin reaching 39.9% (up 350 basis points YoY) despite a manufacturing overhead absorption headwind. Product gross margin improved to 45.7%, and service gross margin doubled from the prior year, reflecting operational leverage and pricing discipline. Operating expenses declined 17% as prior-year cost actions flowed through, driving a 35% reduction in operating loss and a 39% lower net loss. Cash burn fell sharply, with the company projecting more than a 50% reduction in 2025 versus 2024.
- Recurring Revenue Resilience: Utilization of installed Tableau units remains high, supporting a stable recurring revenue stream even as ordering patterns fluctuate.
- Pipeline Quality vs. Predictability: The shift to enterprise-wide deals increases potential revenue per order but complicates forecasting and lengthens sales cycles.
- Cost Discipline Drives Loss Reduction: Operating expense controls and margin gains are accelerating the path to cash flow breakeven.
While the company’s fundamental demand drivers are intact, near-term revenue visibility is challenged by sales execution, order timing, and internal leadership disruption. Margin progress and cash runway provide a buffer, but sustainable growth will hinge on closing large deals and aligning customer ordering to actual utilization.
Executive Commentary
"Several large opportunities that remain in the final stages of our sales process were forecasted for the third and fourth quarters, and we now expect them to close over the fourth quarter and into 2026. This is a shift in timing, not in our expectations for closing these significant insourcing opportunities with large nationally recognized health systems."
Leslie Trigg, Chair and Chief Executive Officer
"Non-GAAP gross margin expanded another 350 basis points from last year, reaching 39.9% for the quarter, even with a 138 basis point headwind from the underabsorption of manufacturing overhead... We are making progress against our plan to optimize inventory levels and gradually increase production, which further mitigates the gross margin impact of the manufacturing underabsorption we have discussed all year."
Renee Gaeta, Chief Financial Officer
Strategic Positioning
1. Enterprise Insourcing Sales Transformation
Outset’s commercial strategy is shifting from individual hospital wins to large, enterprise-wide insourcing deals with national health systems. This approach is increasing average deal size and pipeline value, but introduces complexity in deal closing, requiring multiple approvals across decentralized hospital networks. Management is actively refining its sales process, sales rep profiles, and go-to-market tools to address these longer and more unpredictable sales cycles.
2. Margin Expansion and Cost Discipline
Gross margin progress remains a cornerstone of the profitability roadmap, with Q3 marking a step change toward the 50% target. Cost actions taken in 2024 have right-sized the expense base, and further improvements in inventory management and production efficiency are expected to mitigate manufacturing headwinds. The company’s focus on recurring revenue from consumables and services, as well as pricing discipline, is supporting both gross margin and cash flow improvement.
3. Leadership and Organizational Resilience
The recent resignation of the head of sales introduces near-term disruption, but also creates an opportunity for deeper executive engagement and a reset in commercial execution. The search for new sales leadership prioritizes capital equipment and enterprise selling experience, with an emphasis on standardizing large health systems and driving predictable deal closure. The sales team’s tenure and commitment are seen as stabilizing factors during the transition.
4. Data-Driven Clinical and Economic Value Proposition
Clinical evidence continues to accumulate in support of Tableau’s insourcing model, with new data sets presented at Kidney Week highlighting reductions in adverse events, improved staff retention, and strong ROI for hospital customers. These outcomes underpin Outset’s competitive moat and support the narrative that insourcing with Tableau should become the standard of care in acute dialysis.
Key Considerations
This quarter underscored both the potential and the operational complexity of scaling enterprise dialysis solutions in acute care. As Outset Medical navigates sales transformation and leadership change, several factors will shape investor sentiment and future results.
Key Considerations:
- Deal Closure Predictability: The ability to accurately forecast and close large, multi-hospital deals is now the gating factor for revenue growth and guidance credibility.
- Customer Ordering Alignment: Improving visibility and collaboration with high-volume acute care customers is essential to better match consumable orders to actual utilization and reduce revenue timing swings.
- Sales Force Stability: Leadership transition may temporarily distract the commercial team, but also presents a chance to upgrade enterprise selling capabilities.
- Recurring Revenue Durability: High utilization rates and retention in both acute and home channels provide a stable base for recurring revenue growth, even as capital sales fluctuate.
- Margin and Cash Trajectory: Sustained gross margin gains and expense control will be critical to reaching cash flow breakeven and funding growth without further dilution.
Risks
Execution risk remains elevated as Outset Medical manages the transition to large-scale enterprise deals, with the potential for further revenue timing slippage, internal sales disruption, and forecasting challenges. Customer ordering variability and supply chain policies could continue to create near-term revenue headwinds. Intensifying competition and the need for ongoing clinical validation of the insourcing model also represent material risks to sustained growth and margin expansion.
Forward Outlook
For Q4 and full-year 2025, Outset Medical guided to:
- Revenue of $115 to $120 million, down from prior $122 to $126 million
- Full-year gross margin in the high 30% range
- Operating expenses in the low $90 million range
- Cash use below $50 million, more than halved from 2024
Management cited several factors informing the outlook:
- Deal timing for large enterprise insourcing contracts, with some expected to close in Q4 and others slipping into 2026
- Sales leadership transition and potential for internal distraction in Q4
- Acute care customer order patterns expected to normalize as utilization and ordering realign
Takeaways
Outset Medical’s strategic shift to enterprise insourcing deals is expanding its market opportunity but amplifying execution risk and revenue timing volatility.
- Margin and Cash Progress: Gross margin expansion and disciplined cost management are accelerating the path to profitability, providing a cushion as commercial execution is refined.
- Sales Execution Remains Key: Leadership transition and improved pipeline management will be critical to restoring growth momentum and guidance credibility in 2026.
- Watch for Predictability Improvements: Investors should monitor progress in deal closure predictability, customer ordering alignment, and enterprise sales leadership as leading indicators of future growth and stability.
Conclusion
Outset Medical is building a scalable, clinically validated platform for acute and home dialysis, but must overcome near-term sales execution hurdles and leadership transition to fully realize its growth potential. Margin gains and cash discipline provide a solid foundation, but sustainable upside depends on operationalizing the enterprise sales model and improving revenue visibility.
Industry Read-Through
Outset Medical’s experience highlights the challenges medtech companies face when scaling from point solutions to enterprise-wide adoption in hospital systems. As health systems consolidate purchasing and seek standardized platforms, sales cycles lengthen and forecasting becomes more complex, raising the bar for commercial discipline and pipeline management. Gross margin expansion and recurring revenue durability remain key differentiators in device markets, but companies pursuing large, multi-site contracts must invest in enterprise sales talent, data-driven customer engagement, and robust forecasting tools. The acute care insourcing trend may accelerate as hospitals seek clinical and economic value, but execution risk will be a persistent theme for sector peers navigating similar transitions.