Q3 2020 Outset Medical Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the outset medical third quarter 2020 earnings Conference call. At this time, all participants are in a listen only mode. After.
The speaker presentation, there will be a queue any session to ask a question during the session. Please press star one on your telephone.
If you require any assistance.
During the call. Please press star zero.
I'd like to hand, the conference over to your Speaker today Lynn Lewis. Please go ahead.
Good afternoon, everyone and welcome to our earnings call for the third quarter of fiscal year 2020 participating for the company today will be lastly, trade, President and Chief Executive Officer, and Rebecca Chambers, Chief Financial Officer during the call today.
Since we offer commentary on our commercial activity in review, our third quarter financial results received after the close of market today, after which we will host a question and answer fashion Youve not had a chance to review the earnings release. It can be found in the Investor Relations section of our web site at <unk> Medical Dotcom. This call is being recorded and will be archived in the investor section of our website.
Before I begin I would like to remind you. It is our intent that all forward looking statements made during today's call. We protected under the private Securities Litigation Reform Act of 1995, any statements that relate to expectations or predictions of future events market trends results or performance are forward looking statements. All forward looking statements are based upon our current estimates and various systems.
These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward looking statements.
Forward looking statements are based upon current available information and outside it assumes no obligation to update these statements. Accordingly, you should not place undue reliance on these statements.
And description of the risks and uncertainties associated with our business. Please refer to the risk factor section of our 424 before prospectus filed with the Securities and Exchange Commission on September 16th 2020 in conjunction with our initial public offering with that I will turn the call over to Leslie trade CEO Leslie.
Thanks Liz.
Listening to everyone and thank you for joining us to review our third quarter 2020 is all I'd like to start by saying that we're very excited to be here on our first earnings call post IPO and even more excited to start as a new public company with a strong third quarter results. We're pleased to report 13.8 million and total revenue.
For the third quarter, representing significant growth, so sequentially and year over year or revenue achievement exceeded our initial expectations for the quarter as had low adoption continues to accelerate within the acute market. We completed our initial public offering in September raising approximately 255 million.
Dollars in net proceeds.
So while we had the pleasure of being with many of you over the past month in years.
Yes, we haven't engaged with yet I'd like to provide a brief overview of the dialysis market out there and had low before discussing third quarter commercial trends.
I said, we've built a first of its.
It's kind of technology that had low hemo dialysis system, which was designed as a complete enterprise solution to enable dialysis to be done by anyone anytime anywhere what are the main drivers of our determination to innovate in this space with the number of patients who require dialysis, which is a recurring non elect.
Active and typically the only option for those suffering from end stage renal disease or yes RV.
Before tablo dialysis looked effectively the same as it did in the Navy costly cumbersome and complicated Tablo modernizes dialysis from the hospital all the way to the home.
With Caballos integrated water purification and on demand dialysate production, all one needs to deliver dialysis is a fawcett and the standard electrical outlets and this enables providers to overcome a traditional delivery challenges and lower their cost of care, while simultaneously elevating the.
Raul patient experience.
From a commercial perspective, our near term focus is on the acute care market, which we estimate represents a 2.2 billion dollar total addressable market. We're also entering the home hemo dialysis or H.T. market with an estimated 9 billion dollar U.S. opportunity.
We expect to drive the second phase of our growth we benefit from the ability to leverage a single integrated sales and field support organization to drive penetration across both markets, giving were given we're calling on the same customer base national and regional health systems and innovative care providers. Indeed.
In the acute setting.
Capital resonates with C suite decision makers within these national and regional health systems, because it provides meaningful cost savings and a short capital investment payback period, often less than a year. These cost saving dynamics are driven by caballos ability to reduce the need for infrastructure and specialized labor combined.
And with a lower cost of supplies.
Further tableau uniquely enables the management of dialysis across the entire care continuum from the hospital to the home with a single device platform, which has never been done before.
For the whole market, we'd is on tableau with automation and ease of use in mice and.
I made a touch screen guidance and state of the art sensors makes set up and treatment management simple friendly and approachable, which expands the universe of patients who can be successful at home Tablo empowers patients, who traditionally have been passive recipients the dialysis care to take ownership of their treatments.
And most importantly, we continue to hear reports from patients that they feel well while dialing on tablet with many patients anecdotally, describing you're introducing analytic symptoms and less fatigue after treating on tableau.
In the month since our spring 2020, as FDA clearance for the use of Tablo.
At home, we have carefully and deliberately began building the foundation for the adoption of our technology. We're really excited about the promise of Tablo in transforming the HFC market and as a result, we're focused on delivering an exceptional patient and provider experience and this means that our home rollout is intentionally.
Barry measures because what's more important than doing it quickly is doing it well and along the way we will be collecting training outcomes and retention data to demonstrate the impact tableau has on the total cost of care.
Overtime, we believe our commercial efforts will benefit from several macro tailwinds.
Though our acute and chronic revenue growth is not dependent on them. For example, 2019 presidential executive order set the goals that 80% of new dialysis patients start at home or receive a transplant by 2025.
As recently announced the first call as these step toward this goal.
Through its SRB treatment choices model, which goes into effect on January one 2021 within that model dialysis clinics will receive increases or decreases to revenue based on their success and improving home dialysis and transplant rates the model mandates participation across 30%.
Of all dialysis clinics nationwide.
Second also beginning in January 2021, all dialysis patients become eligible to enroll in Medicare advantage for the first time. We believe this change will result in commercial payers, taking an even greater interest in innovation that works to reduce the cost of dialysis and improve patient.
Recent outcome.
Finally, co that is added yet another play to the Tablo value proposition. In addition to travel as cost reduction and efficiency benefits hospital using it through co. But also realize the advantages of the system clinical versatility rapid training and point of care mobility.
In terms of the cobot impact on the chronic care setting we believe it will continue to influence patient preferences. The benefits of Dialyzers at home have really taken on a whole new meaning compared to traveling back and forth to a dialysis clinics three times, a week and sitting in close quarters with other immuno compromised patient.
So.
I'd now like to shift gears and discuss recent product enhancements and the commercial momentum that we drove in the third quarter.
As you know, we intend to build on tablet value attributes or product updates and enhancements driven by our talented R&D data science and software Engineers. This group is particularly.
Nearly focused on expanding our data ecosystem in ways that deliver economic and operational benefits to our customers alongside initiatives that further improve device performance and lower our cost of revenue.
To this end, we recently launched new functionality on Tablo costs as a reminder, tablo hub.
As our customer facing platform that provides cloud based access to treatment and machine data strengthening patient care, while simplifying billing and compliance related reporting.
As of Q3. This platform now also includes remote treatment monitoring, allowing clinicians.
Simultaneously monitor multiple patients on tablo from afar providers can use remote monitoring whether the patients are at Nic you are a clinic or at home. This differentiating new feature is particularly timely as it helps reduce clinicians exposure to coated positive patients during dialysis treatment.
We also recently launched Tablo XT, which enables treatment for up to 24 hours, we began rolling out at sea, both to new customers and existing customers that previously had purchased access to this new capability.
Moving to commercial trends our traction in the acute market continues to grow and.
We are really pleased with the pace and the scale commercial adoption new contract with National and regional Health systems. In addition to expansion within our existing customer base drove our strong Q3 results during the quarter, we signed agreements with three new national IDN customers as well as three.
And we knew thought leading regional health systems as a result of this progress. We are now engaged with six of the largest national health systems in the country and more than a dozen of the top regional health system.
For perspective, what are these new customers as a regional IDN with over 50 hospitals and long term care facilities.
Net customers purchase decision with tied to a focus on total cost reduction and operating efficiency, which tablo offers compared to income that machine and importantly, their decision was made outside of the health system typical replacement cycle, which is a buying pattern, we continue to see across our contracting.
In the third quarter, we also secured a contract with the US Department of health and human services, which leased an additional 50 tablo console expected to contribute $60 million of product and service revenue over a two year period. These council will be placed into the strategic national stockpile for use during national.
Natural disasters and for the nation Covance response.
On the dialysis home front, our first patients began dialyzers get home on Tablo this past quarter.
Since then we've seen our home patient pipeline grow meaningfully tracking to our projections.
More broadly we've also seen our commercial effort.
[noise] translate into growing interest among health systems and innovative care providers.
In addition to developing a strong customer and patient pipeline. We're also devoting resources to data collection on patient training time and retention on Tablo at home so.
So far patients have been vocal about their positive experience.
Earnings is on Tablo, especially those with previous HD experience on the incumbent machine, who decided to switch to tablo when it became available in their area. We're.
We're finding that they consistently takes about two weeks to effectively train at Tablo home patient, which our customers have noted as a very significant reduction.
During compared to the four to six weeks. It typically takes on the incumbent Eightg technology retention. While early is also tracking above our expectations.
We also recently bolstered our leadership team as we announced on Monday, we appointed Steve Williamson as our Chief Commercial Officer, Steve joins.
From Becton Dickinson, where he was most recently president of the company's $1.5 billion or peripheral intervention business.
He has a proven track record for scaling commercial organizations, while driving operational excellence and we look forward to his leadership here at half that.
So in the quarters ahead, we are focused on three.
Critical objectives first growing revenue in the acute and sub acute market top down through national and regional health system. While also laying the foundation for deeper expansion into the home market over time second driving down the cost of our products and third scaling our business.
Before ending my prepared remarks, I'd like to circle back to our mantra, which is better begins now and each part of that declaration says something really important about our mission. The first word better underscores our determination to radically elevate the experience for patients and reduce the total cost of care for provider.
Last two words begins now reveals our sense of urgency after after decades of receiving good enough patients and providers deserve great. They deserve amazing not tomorrow not next month not next year they deserve it now and.
And with structural market Tailwinds at our back first.
This kind technology and an aspirationally execution focus team. We believe we are uniquely positioned to deliver on this very promising.
So with that I'll now turn the call over to Rebecca Thanks, Leslie as Leslie mentioned third quarter revenue grew 423% year over year.
For to $13.8 million this.
This result was driven by strong acute adoption, including the impact over HHS contracts and Cokers related orders that we received during the second quarter as well as growth in consumables and services tied to our larger install base.
Product revenue grew 349.
Sure Brent year over year to $10.8 million.
Comparable revenue equaled $9 million compared to $1.9 million in the prior year period.
Consumable revenue grew 263% to equal 1.8 million driven by our larger install base and increased ASP as compared to the prior year period.
Service and other revenue grew $2.7 million compared to the third quarter of 2019 to equal $2.9 million.
Growth in service agreements across our larger installed base, including HHS and freight revenue contributed to the growth.
While common has been a tailwind for us in the second and third quarter.
It is now embedded within the many tablo advantages that drive our customers purchasing decisions.
Therefore, we don't anticipate meaningful revenue driven solely by covered in the fourth quarter.
Our base business is expected to continue to grow significantly and as a result, we anticipate Q4 revenue to be similar.
Yeah, what we reported in the third quarter.
Turning now to gross margin and operating expenses I will highlight our non-GAAP results.
I encourage you to review the reconciliation of GAAP to non-GAAP measures, which can be found in today's earnings release.
Our Q3 non-GAAP gross margin.
<unk> was 36 minus 36.3%.
An improvement of 165 percentage points versus the prior year period.
This year over year expansion was the result of significantly lower console material costs as our R&D and supply chain teams delivered our cost down activities ahead of plan.
One as well as a reduction in our finished goods balance and associated lower of cost or market accounting treatment.
Sequentially gross margin improved by four percentage points.
Consumable margin expansion as a result of moving to a lower cost logistics provider coupled with higher services.
Arjun stemming from improved utilization of our field service team contributed to the sequential improvement.
Console margin was slightly lower sequentially as expected given startup and labor costs to support our manufacturing and sourcing initiatives.
These expenses offset a meaningful sequential reduction in the cost.
As more standard cost.
In the third quarter, we finalized the build out of our console manufacturing facility and are tracking to launch our in sourced council manufacturing efforts in the second quarter of next year.
Our initiatives to move the production of Tablo cartridges from our existing contract manufacturing partner.
Thailand to a new contract manufacturer and Tijuana, Mexico also remain on track.
We saw significant gains in our cost down initiatives during the third quarter and our plans to further drive gross margin expansion continues to advance rapidly.
Looking ahead to the fourth quarter gross margin is.
Our elected to improve sequentially.
Further investment in the start up and labor costs to support our console manufacturing initiatives is expected to be more than offset by a full quarter of the cost reduction benefit as well as the as the release of a portion of the Tablo XP revenue deferral.
Moving to non-GAAP.
Operating expenses third quarter operating expense equaled $21.8 million up $8.9 million versus the prior year, driven primarily by investments in our commercial organization.
Compared to the prior quarter non-GAAP operating expenses grew $2.4 million.
Higher commissions.
Missions tied to bookings growth as well as an increase in DNA expenses associated with operating as a public company drove the sequential pickup in Opex.
As detailed in the GAAP to non-GAAP reconciliation in our earnings release third quarter stock based compensation expense was $13.9 million as we.
We recorded expense tied to satisfying the performance vesting condition for certain options upon the closing of the IPO.
We expect to recognize an additional $10 million of stock based compensation related to these performance options over the next two quarters look.
Looking ahead to the fourth quarter, our basic share count will be approximately.
18 million shares.
We reported third quarter GAAP net loss of $42.3 million, resulting in a net loss of $3.44 per share compared to a net loss of $16.7 million or $18.93 per share for the prior year period.
For non-GAAP net loss was $28.4 million or $2.31 per share compared to a non-GAAP net loss of $16.4 million or $18.67 per share for the same period in 2019.
As Leslie mentioned, we raised approximately $255 million in the IPO.
We ended the quarter with approximately $378 million of cash cash equivalents restricted cash and short term investments.
In summary, I also has made exceptional progress to date on each of our 2020 initiatives. We've expanded our commercial footprint launched exciting new product update improved our gross margin and secured.
FDA clearance for HD.
We remain dedicated to delivering for our customers their patients our employees and shareholders by continuing to innovate and execute we look forward to providing an update on our Q4 progress during our next earnings call. Thank you for your time, we will now move to the Q and a session operator.
Now please open the line.
Certainly ladies and gentlemen, if you have a question at this time please.
The star in the one on your Touchtone telephone to move yourself from queue. Please press the pound key our first question comes from Bob Hopkins with Bank of America.
Line is open.
Oh, great. Thanks for taking the question and congrats on your first quarter is a public.
The company.
Wanted to start by asking just a little bit about some of the moving pieces to the quarter.
I think you suggested Rebecca.
At about $1.8 million in consumable revenue in the quarter I was just wondering if you could talk about that number as it relates to how you did in Q2, and what kind of utilization trends you're seeing per system.
You know can you are you you know did.
Did the utilization sort of come in as you expected in the quarter.
Yeah, Thanks, Bob I'd be happy to do so.
In the second quarter consumables were approximately $1.5 million, so a nice pick up sequentially.
And roughly in line with expectations we.
See on a year over year basis.
Very strong ASP, which on a sequential basis, what was roughly flat. So so the strength in ASV has continued.
That that we are seeing in the second quarter utilized.
Utilization on on a per machine basis was around.
Around four and a half treatments per week across the across the installed base.
And and really a couple of factors there.
I would say we placed a number of consoles in the second quarter as you well know and those number of hospitals did include some of the cobot related console, but that we referred to.
Earlier in the script.
Yeah, those counsels are trending towards expectations, though a little bit slower ramp than than the overall installed base.
So on a net net basis.
An additional utilization continues to trend as we'd anticipate.
And we do expect those cobot canceled in the fourth quarter to.
Getting back to more normalized trends.
Thank you for that very thorough and then for the order Rebecca just wanted to know it's very helpful.
Just wanted to kind of talk about your comments on on Q4.
And how are you quantifying and I'm sorry, if I missed this how are you quantifying that the covert benefit.
So we can get a sense for maybe the Q3 to Q4 trend you know kind of without that without that covert benefit.
Okay, Yeah happy to Bob and I think lastly is going to tag on a a couple of points here. So.
We didn't quantify it we're happy to.
Back over the summer we talked about.
Million dollar machine.
With that to order and we recognize just around three of that in the second quarter and you should think about the vast majority of the delta being recognized in the third quarter.
It would seemingly significant if you will in the third quarter as expected.
As expected back.
When we when we shared our expectations with you.
So that was a large cobot related order.
That we recognize over the quarters and if you do remove this impact and look at just the underlying trend of the base business. We saw steady sequential growth not only throughout Q3, and Q4, but really each quarter of 2020.
And again Q4 is no different.
Further I think it's important to note that Q4 is ahead of our expectations for even just a few months ago.
And we have a lot of confidence in this given we're operating we continue to operate in a backlog and buyer. So.
Hopefully that elucidates the trends here, a little bit more clearly for you, but again significant.
Than the base business as as you.
I'm, sorry is that covert related impact in the third quarter.
Maybe I'll I'll, Hi, Bob Hi, Needless to say a couple of points to the last part of your question about how we thinking about Cove AD in in the coming fourth quarter I.
I think.
Growth first important point to make is that dialysis is not an elective procedure its not optional [laughter].
Patients are going to get dialysis three times, a week or more 52 weeks a year, whether there's a pandemic or not so our business is a little bit unique in the medtech sector and for that reason it 'cause it hotspot continue to pop up through Q4 and.
Thats 2021 in various parts of the country that that did not impact our competence or near our projection in the fourth quarter or beyond.
I think in terms of the co that upside.
Because it is really just in that Ed within all the reasons that customers are deciding to adopt tablo. It's it is a factor, but it's one.
One of many factors driving the capital purchase decision versus being I would say.
Discrete standalone purchase decision driver and it's one of many and and I think the main reasons health systems are adopting again goes back to cost reduction.
As you probably recall Theres no DRG for inpatient.
Its purpose and that means that every time, a hospital have to deliver dialysis or eating the cost.
We talking on the road shows and National data that showed that about 60% of the inpatient stays and involve dialysis result in a negative operating margin for the hospitals and so the need for cost reduction has never been more acute.
Intent.
How did.
I do think some of that could be further fueled by by Cove. It as I think we've all been reading in the new that health system executives are bearing down more than ever on cost reduction as a means to improving operating margin given their continuing uncertainty around the restoration of elective procedure volume so.
I think caballos fits squarely within strategic mandates as a pretty powerful solution cobot or no covet.
Great very helpful. Thank you.
Thank you and our next question comes from the line of David Lewis with Morgan Stanley. Your line is now open.
Hi, good afternoon.
Just a few quick ones from me I.
I guess, Rebecca just thinking about maybe Tribeca and lastly, but just thinking about the console placements.
Help us out the second half versus the first step for console placements be up.
In the second half relative to the first half of the year and then let me kind of related for you just sort of be.
What are you seeing right now in terms of activity as it relates to large national systems versus sort of the regional regional hospitals nine a couple of follow ups.
Yes, David I'll take the first fit and absolutely they will be higher in the second half of the year. Then then in the first half year and that is embedded in our guidance.
Okay, Great I'll take it from here.
Regional versus.
National I'd and site.
I think as we as I mentioned in the script. We now have signed Master service agreements with six of the largest national health system inclusive of the DNA in the country and three of those new sort of marquee national.
Our system came came onto our roster in the in the third quarter.
I I guess, what I'm excited about is how well the national players are understanding the value of the single enterprise solution.
What we're what we're seeing typically with these national Rollouts is that.
Kind of a typical cadence where they'll start with a.
I'll hall or number of hospitals in their network integrating cab low and quantifying the cost reduction impact how easy it is for them to train their their own nurses to deliver dialysis and then once that data has been established we see in their next step pretty quickly to be spreading that model.
Hi, Ross Craft Division, our group of hospitals and then.
Fairly quickly over time network wide. So I would say we have a sales force that is equivalent we focused on the top 50 regional hospitals and the National Hospital health system, but.
In general we've been very very.
Encouraged and excited about how quickly the uptake has been occurring with these large national health systems in particular.
Okay very helpful and Rebecca sorry, I was on mute there I would say awkward silence I was also trying to get the well.
Well Q placements grow fourth quarter, so placements be higher in the fourth versus the.
Third.
And I'll.
I'll ask you just a couple here just does he just for yesterday bundled payment kind of the path forward now kind of post the proposed rule a couple of weeks ago. Its number one and number two just an X T. It's nice to see that that come through how do you think that changes the conversation with the average hospital system now that you have extra revenue.
Sure there were some who are doing national rollout for their system. There are some that we're sort of doing more targeted placements at as having CRT changed the conversation with some of these ideas and regional systems. Thanks, So much.
Okay record was over okay. Yeah.
Yeah, David Thanks, So on the maybe I'll take that these in sequential order says.
The proposed rule. So we really viewed the proposed rules a win for innovation frankly in the renal say the open question coming out of the proposed rule was whether CMS would indeed implements.
Proposal to include capital equipment in the live with pronounced chip Pony TP.
And I'd add.
Which is that sort of very similar to a new technology add on payment, but the question was whether they would include capital equipment in the deposit eligibility criteria or whether they would only include supplies.
Their eligibility criteria and what came out in the final rule is that yes capital equipment is included.
And all the capital equipment that constitute new home dialysis machines cleared by FDA. After January 2020, so we.
We were hoping this would be the outcome and obviously were pleased to see the allowance for this kind of capital will have an opportunity to reapply in the future with a 21 or 22.
And we have some flexibility there because we'll still meet the newness criteria in either year I think if we did receive this designation in the future. It certainly would be something we consider to be a tailwind pad compared to our base case, but not something that we're reliant on or that we baked into our expectations.
[music].
So thats how were thinking about the proposed rule on the maybe I'll move to the X.T. question than we can certainly double back on the final.
Final rule, if we need to.
On the equity front, maybe let me take a step back in and maybe just talk about what this new feature.
Yes, so the XT provides a new functionality it enables tablo mechanically to run for up to 24 hours now CRP, which which you mentioned that is a specific clinical treatment that often involves therapies such as.
CVD HTS graffiti.
Yes, sure Scott that Tablo does not provide so Kevin.
Hello is not as the Iraqi machine is a new feature just allows users in the acute setting to run regular dialysis.
That lower flow rates for a longer period of time I.
I think the second part of your conversation here your question, though as well how does it change the conversation.
I think the way it add value in the acute setting is by offering more flexibility right right now, particularly in the IC you.
Physicians and nurses don't always have a lot of options, but it's a fairly boxed in you can do this or that and I think by offering treatment.
They can run up to 24 hours. It really enables the IP U.S GAAP to customize the parameters of the dialysis treatment time for the specific needs of the patient and the IPO. So going back to your question David commercially I think this feature just allows our team to talk about tableau and.
Simplify for the acute customers the ways in which Tablo offers clinical versatility sort of mobility and flexibility that results in we believe a higher quality of care for their patients.
And David to answer your question with regard to comfortable unit trend sequentially third quarter to fourth.
Effectively as we shared with overs with you all over the summer console units are expected to be down sequentially in total across the total company unit placement number that being said if you do strip out. This large order that we received in the second quarter and that trend is much less.
It's not the same effectively the.
It will be flat to slightly up in terms of clinical unit.
Smith on a sequential basis.
Other driver to console revenue sequentially that that we should think through is the HHS order, which we will benefit from a full quarter of of in both the console line as well as the service line. So just helping.
Puts and takes.
Great very clear congrats on the first quarter. Thank you.
Thank you and our following question comes from the line.
Hassan with Goldman Sachs. Your line is open.
Oh, Thanks, Hey, congrats on all the milestones I'll add that as well.
Now let me just start by saying if I can get you to comment on 2021, and obviously, you're not giving a formal.
Formal guidance, but can you talk just.
Qualitatively to any puts and takes that we should be thinking about whether it's related to console placements or other.
Other items you would.
I want to call out for us.
Yeah, I'm happy to happy to think qualitatively about it with you I think for the question I think one when it comes down to 2021, we're obviously in the midst of our planning process right now and as we ended out the rest of this year that being said.
You know the trends that we saw in the third quarter and we expect to continue in the fourth quarter. We don't view these to be I'm curious specific and we view. It did you give us confidence in our 2021 outlook, so not really willing to comment beyond that but but just to say that you know we're pleased with how the business is going our confidence in the fourth quarter.
It's very high and that lends itself to to also a positive outlook for 2021.
They did just a quick follow up on on home for me and then get back in queue I'm on the kind of acute to home you you've talked about in the IPO process leveraging your your health system customer base is kind of the entry.
<unk> point into home expansion, maybe just give some color on how that's going and in these early days.
Sure maybe I'll comment on that Rebecca.
So short answer is is going very well I I think we've been Ah you know pleasantly surprised at how quickly the.
The pipeline continues to build.
Particularly among health systems that are viewing this as an opportunity to compliment, let's say, they're sort of episodic revenue stream in patients with a chronic ah very predictable chronic annuity revenue stream.
Outside the four walls of the.
If at all and I think another factor that health systems are really realizing is that they they have access to all of the assets that.
Make them a good partner for patients right from their their network of physicians Nephrologist Keryx vendors on many of these health systems already have.
Nurses and.
Hi, and nurse practitioners, providing care in the home and they really offers for the full package and and so I think what I've been pleased to see again early early days here for sure, but what I've been pleased to see qualitatively is the number of I would say very well known thought leading.
National.
Funnel organizations that are really leaning forward into the home and I'm getting excited about you know extending their reach and managing patients from the acute to the home setting.
Thanks, so much.
Thank you. Thank you and our next question comes from the line of.
Danielle Antalffy with SCB Your line is open.
Hey, good afternoon, ladies thanks, so much for taking the question I have one question for I think it would be for you likely and my second question is for Rebecca allegedly I'm. My first question is when you think about the acute therapy sale.
How should we be thinking about where you are at the hospitals, where you do have some penetration how should we be thinking about where you are on that penetration curve. So I guess I'm trying to get a sense of how much of the incremental growth I know, it's still very early there's not been here incremental growth, we had but how much is is going to.
Same store sale versus new centers coming online and then I'll follow up with Rebecca.
After okay sure great, Yes, I think maybe a couple of thoughts to share there I mean first first of all suffice it to say we believe we have the we're just getting started here we have a very very long.
Anyway with an emphasis on the top 50 regional health system I think we mentioned in the prepared remarks that that we are in over a dozen of them, but gosh that means we've got a tremendous amount of opportunity between over a dozen and 50 not to speak of the smaller hospital networks there on.
From from there so that's.
Thats, a little bit of qualitative color and then on the national side.
We are really making very good progress there when you think about being already in six of.
The top national systems, and so what we think about there is our penetration within those networks right.
Because we are very intentionally because we're focused on a national regional strategy.
We are paying just as close attention to the number of individual facilities as we are to our total number of customers and the breadth of the opportunity in each of these national fit.
It is pretty remarkable so within.
Each of the six national customers that we've talked about publicly we still have tremendous opportunity to expand more broadly in and around their individual hospital facilities across the country.
Got it Okay. That's helpful and then Rebecca for you just on the gross margin front I mean, you did a little bit better than.
And then we expected I think the street had expected during the IPO process, we laid out a strategy to improve gross margin should we be thinking about this as like okay. This was one quarter. We would have a lot of things go our way and the revenue upside contributed or are you tracking faster than you expected to get to your sort of gross margin goals.
Over the next few years, thanks, so much.
Thanks for the question Danielle and completely for one obviously, we were very pleased with with our quarter really Courduroux. We result, but I view I just caution one quarter doesn't necessarily make a trend rate. We are confident in the plan that we laid out and we're executing.
You plan and to that end, we are confident in our ability to deliver on these new manufacturing and sourcing initiatives for the console it and second source initiative on the cartridge side in the second quarter, but but I think that should remain the base case here and we will continue to progress to that plan.
And but but again, one quarter doesn't necessarily make a trend we're willing to call yet.
Totally fair. Thank you.
Hugh.
Thank you once again, ladies and gentlemen that star one to ask the question. Our next question comes from Rick Wise equal Your line is open.
Good afternoon.
As William Hi, Rebecca Mead.
Maybe another aspect that you highlighted.
In terms of investments lastly, revolved around the sales organization.
Im just.
Be curious to hear your.
Im sure ever evolving thoughts about it.
The team, where you're investing and.
Where you're where you are focusing people.
Sure, Yeah, Hi, Rick happy to answer that.
The so yes people people matter and the matter a lot at hand out that because in fact, and we talk about this frequently that what we're really focused on delivering on that.
Two patients into providers is not just the device, where we aim to deliver an experience and so when you have that mindset to deliver a differentiated experience.
Here, then heavily reliant on the quality of the individuals that you play around the execution. So we spend how many enormous time.
On sort of an excessive amount of time.
Thinking about this the right people in the right places at the right time, but with that as a backdrop and speaking more specifically now our investments today are probably focused in three areas that I'll touch on one our national accounts team.
And we do have capital sales reps that are are geographically focused.
And we feel that we're making good progress toward.
Ensuring that we have adequate representation in all of the big regions that contain these top 50 regional health system, but we put even greater emphasis on a.
Okay powerhouse national accounts team.
But we're really proud of seconds.
Is our what we call the Tablo program specialist team non Tcs is for short and these are our sort of our day to day quarter backs for the implementation not only the installation, but the capital.
Oh program implementation, which is a whole lot more than just installing advice if you do it right.
And so we think of the Tcs is as the the quarterback of each and every hospital facility that adopt tablo and they're responsible for ensuring.
From the beginning for example that.
Training.
Is done well and that the first patient treatments are go well and that you know the nurses and the tax and the physicians continue to gain confidence quickly they really understand the who and how in the way of prescribing tablo for their patient population.
Thats, probably our second area of Anda.
The focus is expanding that Cps team as our installed base and our new order growth continue and then lastly is our field service support team and this is another absolutely vital group vital to our success and the field service engineers partner with the exit there that is I guess for those the co quarterback.
Thanks.
Maybe the running back I don't even know if thats I can't go there on a football analogy so anyway.
I should say that they are important copilot, probably with a better analogy I can actually speak to accurately.
In ensuring the success of each and every new facility implementation with Tablo. So those are the those are the three groups.
Rapidly within our we'll call it our field organization and that we're really focused on investing in and as we add as we continue to experience very very high growth in the acute installed it.
Got it thank you.
You bet a couple of comments during the call that we're very.
Compelling.
I mean first of all you outperformed this quarter, you're sort of indicating that the fourth quarter.
Starting up strongly much like.
Quarter volume.
And you're saying the adoption is accelerating in the queue market. Your home pipeline is growing and I appreciate your call.
Caution and your Calpers carefulness.
Hi, Bob guiding us and wanting us to be too far ahead.
So and I apologize.
In your very first quarter as a public company first conference call, but it's hard for me not to ask about.
2021.
I know you're not ready to give.
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But we're going to have to be all go back and.
Play with our models and reflect on what.
Third quarter performance likely fourth quarter, better numbers than I said modeling and the.
Implications for 21, so my question after that well from wind up is.
Hi.
And it seems like you have a lot of momentum going into 21 is that the right way to think about that doesn't seem to be reason why growth would slow, particularly given new products the market, although the excellent things that are happening.
Maybe react to that and maybe the same problem because although you want to help us.
Balance those positive thoughts with some.
Some of the challenges that we should be reflecting on this we contemplate the year ahead. Thanks for that.
Yes, thank you as well for the great. The Great summary, I think there are a couple of things that come to mind by definition with regard to growth rates.
Great we are.
We are getting too to a point, where we're not comping off of low single digits of revenue anymore, and so from a growth rate perspective, I, obviously would caution extrapolation. So so that would be one one comment.
But with right.
With regard to the trends of the underlying business. We're obviously pleased we would we would encourage you to not again extrapolate the cobot related trends from from the second to third quarter and think about it more from the from the base business and the base business continuing to grow.
Year over year versus what we saw in.
In 2020.
Market as Leslie mentioned, we are in the early stages of penetrating and that is expected to be the vast majority of the revenue growth driver in the in 2021.
And then home, while we are seeing pipeline growth and new customer or provider contracts, we do need.
But also just remember that this is this is a rollout.
Rollout that we're participating in driving in in a very.
Nickel way and so I would be caution you to get too far ahead of our skis on hold we are as Leslie said very methodically doing this in a long term way.
And not necessarily looking for driving huge patient numbers in the near term more ensuring that the patient experience is very positive. So hopefully that that brings you back in a little bit Rick.
[laughter] and as we all are excited as we sit here today, there is still lots to do over the course of.
Q4, and 2021, but our confidence is strong.
Thanks, so much.
Thank you.
Thank you and ladies and gentlemen.
Im not showing any further questions at this time I would now like to turn the call back to your speakers for any further remarks.
Thank you and as a reminder, a call. It a replay of this call will be available as a webcast in the investor section of our website as well as through the dial in instructions contained in today's earnings release.
Thank you again for joining US today. This concludes our call and we look forward to our next update following the close of the fourth fiscal quarter, Thanks, and good night.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a good evening.
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