Q4 2020 Outset Medical Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the outset medical fourth quarter and full year 'twenty 'twenty earnings Conference call.
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After the Speakers' presentation there'll be a question and answer session to ask a question. During this session you will need your price.
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And I wasn't like we had the conference day obituaries speaker today.
Luby's. Please go ahead.
Good afternoon, everyone and welcome to our earnings call for the fourth quarter and full year 2020.
Participating from the company today will be lastly, trade, President and Chief Executive Officer, and Rebecca Chambers, Chief Financial Officer during.
During the call we will offer commentary on our commercial activity and review, our fourth quarter and fiscal year financial results released after the close of the market today after which we will host a question and answer session.
The press release, along with slides that accompany our commentary can be found in the Investor Relations section of our website at outset medical Dot com.
Call is being recorded and will be archived in the investors section of our website.
Before we begin I'd like to remind you that it is our intent that all forward looking statements made during today's call will be 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 assumptions 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. All forward looking statements are based upon current available information and outset assumes no obligation to update these statements. Accordingly, you should not place undue reliance.
On these statements for listing description of the risks and uncertainties associated with our business. Please refer to the risk factors section of our 424 before prospectus filed with Securities and Exchange Commission on December three 2020, and conjuncture in connection with the company's secondary public offering with.
I'll now turn the call over to Leslie.
Thanks Lynn good afternoon, everyone and thank you for joining us to review, our fourth quarter and our full year 2020 resolved.
'twenty was an interesting year to say the lease for all of US are outset team was tested and stretched in ways, we really could not have imagined heading into the year and yet chime in again. This team rose to the occasion. For example, we were called on by the Department of Health and human services to deploy almost every night dozens of tab.
Low consoles and a travel a support team to train users at 10 different hospitals in New York during the height of the initial COVID-19 surge in the spring and our answer was we will be there later in the year. We were asked if we could possibly fly a tableau team and consoles 21 hours around the world to train nurses to die.
Patients in Guam, and her answer was will be there more recently patients in Texas needed urgent dialysis support power and water dwindle rapidly and our answer again was will be there and in the background, we scaled rapidly and simultaneously across the organization are.
Supply chain team worked in overdrive throughout the year, ensuring continuity against a challenging and uncertain landscape and our quality and manufacturing teams worked tirelessly to lift production capacity, while maintaining an exceptional level of quality.
And so as a result, our team at the moment all the results. We're gonna just yesterday watching an exceptional group of people rise together to do exceptional things is what we will remember amount was about 2020 and in the spirit I'd like to extend my deep gratitude my respect and.
Oh for the outset team behind this success is Rebecca and I are about to share.
So with that color as a backdrop I'll now turn to the quantitative aspects of the company's performance in Q4, 2020, and the full calendar year.
During the first quarter, we continued to build commercial momentum, particularly within the acute market with total revenue exceeding our expectations for the fourth quarter, We reported $17 2 million in total revenue, representing a 143% growth year over year and 25% growth sequentially.
This performance resulted in full year 2020 revenue of $49 9 million representing year over year growth of 231%.
Our momentum in the fourth quarter extended beyond revenue with console orders exceeding our forecast as well we exited 2020 with approximately 550 console in backlog, which provides us with strong visibility into our 2021 revenue trajectory.
As a reminder, we will be providing counsel backlog annually, but we don't intend to provide updates on a quarterly basis.
And it's just your revenue growth gross margin improvement is essential pillar of our commitment to shareholders and to our strategic plan. We are very pleased to report good news on this front non-GAAP gross margin improved by almost 42 percentage points in Q4 to two 8% enabling us.
To reach positive gross margins for the first time in company history significantly ahead of plan.
[noise] achievement was driven by higher margin revenue as well as the teams execution against a very robust ambitious R&D and supply chain driven cost reduction roadmap.
The drivers of our fourth quarter revenue outperformance, where multifactorial. In addition to selling more council's two existing customers. We also broadened our installed base with shipments to new customers all the while continuing to maintain a consistently positive experience for patients physicians nurses and health care administrators we.
Ended the year with approximately 1100 tableau is in the field of which roughly 900, where in the acute setting 100 in the sub acute setting and 100 insulin extend home.
Throughout the quarter. We also continued to lay the groundwork for sustainable long term growth, we signed new agreements with numerous thought leading regional health system and as a result, we are now partnered with approximately 20 of the top 50 regional health system as well as six of the top eight national health system.
But equally as important is that our success extended beyond growth in new customers and in fact, we saw meaningful expansion amongst existing customers, both national and regional that purchase more tableau for additional hospitals in their respective networks due to positive experience with the technology for example in Q4.
We received additional follow on orders from more than half of the national and regional accounts to sign Master sales and service agreements in Q3.
With marketplace momentum continuing to gather our value proposition is resonating exceptionally well with health system executives, who are the primary decision makers in the acute setting and he was the operating margin improvement that tableau offers to be a key strategic tool.
We think remiss without mentioning COVID-19, given the current environment and for outfit Covid has not been a headwind or an independent sales driver. It certainly has presented opportunities to demonstrate to administrative decision makers and clinician their real world benefits of treating patients with tableau. However, if capitalized clinical versatility.
<unk> its point of care and mobility.
And it's data rich simplicity that really continue to drive adoption and utilization.
Another exciting development for us in 2020 was receiving FDA clearance for the use of tableau in the home and additional home dialysis options are sorely needed for patients as the last new device for home with over 15 years ago, even more gratifying for us last year with supporting our first commercial patients in the home.
As we've previously stated we remain intentionally deliberate in our strategy to expand our home market presence. This year, we are focused on delivering an exceptional tableau home experience for patients and their families. While also gathering real world outcomes and economic data to build a foundation for deeper penetration in the <unk>.
Future.
And to that end, we believe we are very well positioned for further expansion into this market in fact in the fourth quarter, we signed new contracts and grew our home population validating demand amongst providers scan patients, we finalized new home agreements with leading health system, while also signing contracts with several forward thinking die.
Alex's provider committed to aggressively growing their home program.
Additionally, we have already begun generating encouraging user data on training time retention patient outcome, which together demonstrates a favorable impact tableau can have on the total cost of care. For example, we continue to find that it takes consistently just two weeks two effectively.
<unk>, a tableau home patients, which is a very significant reduction compared to the four to six weeks. It typically take to train a patient on the incumbent home Hemo technology on top of that our initial retention data is also tracking above our expectation.
While we continue to sign new contracts place additional systems and expand the number of home patients on tableau, we remain committed to doing it well not quickly, but because of our go slow to go fast strategy. We expect home revenue to remain modest relative to total revenue in 2021.
That said our bullishness on the total addressable market for home dialysis continues to why do you keep several macro drivers emerging as tailwind for home adoption.
Specifically as of January one 2021, Cns's ESR D treatment choices model became effective and as a reminder, with the E. T. C model dialysis clinics receive either increases or decreases to their overall treatment reimbursement based on their success in improving their race at home dialysis.
And patients on the transplant waiting list.
Over the coming years participating dialysis clinics in the U S will see up to an 8% increase in their per treatment reimbursement across the board or up to a 10% decrease in per treatment revenue.
Further he most recently released the specific level of home dialysis adoption that clinics will need to reach in the 2022 payment year in order to avoid penalties or benefit from higher payment and we applaud CMS for setting very ambitious targets that we anticipate will activate greater use of home dialysis.
Also beginning this January dialysis patients became eligible to enroll in Medicare advantage, which commercial payers have cited as a new motivator for taking a more active directive approach to managing costs and improving outcomes for upstream chronic kidney disease management and downstream further members on dialysis we have.
The pay payer engagement just function has another home dialysis tailwind as data in the clinical literature has long shown better patient outcomes and lower cost of care when patients dialyze them at home instead of a dialysis clinic. For example studies have demonstrated meaningfully lower rates of cardiovascular hospitalization.
<unk> and costs with home dialysis compared to in center dialysis.
Now looking ahead to potential home upside in the future CNS established a new program called chip Pony with the acronym T P and ies, which stands for the transitional add on payment adjustment for new and innovative equipment and supplies.
As a reminder to Tony's was implemented by CMS in 2020 to encourage dialysis providers to adopt new technology that represents a significant clinical improvement in 'twenty 'twenty. One the program was expanded to include new capital equipment for home dialysis.
We recently decided to submit an application on the basis of the tableau console, while a positive response from CMS would represent another tailwind for out that receiving approval is not included in our current forecast nor is it required to meet our ambitions in the home. Additionally, if we are not granted the ponies approval this year.
We will have the ability to reapply in 'twenty 'twenty, two with even greater insight into this new CNS program. If we are successful in either year providers would receive incremental reimbursement for tableau home treatments based on rates to be determined by doing that.
As I mentioned earlier, one of our most vital strategic initiatives is to deliver on our cost reduction plan, particularly via our new console manufacturing facility and our second source contract manufacturer for cartridges are.
Our team made exceptional progress on both fronts, culminating in the initiation of commercial production in our new manufacturing that Mexico manufacturing facility a full quarter ahead of schedule. We have now manufactured over 100 counsels there to date this quarter.
We think manufacturing is another example of innovation who've been out that our new facility incorporates a state of the art cloud based manufacturing and documentation system, our integration of manufacturing for Dato technology allows our facility to run paperless with the ability to perform material personnel and equipment trace.
The ability inquiries in minutes not days or weeks.
With digital work instructions and process control tracking we collect from manufacturing process performance day that continuously and we can identify trends and anomalies in real time, we are very proud of the forward thinking approach our team in Mexico has taken to ensure the production behind the product is just as cutting edge.
On the consumable side, our initiative to move most of the production of tableau of cartridges from our existing contract manufacturing partner in Asia to a facility operated by our partner in Mexico continues to track to plan, we plan to submit our five 10-K to FDA in March and expect that the lower Cogs cartridge will benefit the P&L.
In the second half of 2021.
As we execute our strategic plan in 2021, we are focused on achieving three critical objectives.
First driving growth in the acute market by spending more deeply within our current customer base and signing new agreements with large regional and National health system.
Second accelerating home patient adoption to capture incremental user data bolster customer relationships and provide a launch pad for significant growth in 2022, while working to ensure an exceptional tableau home experience for patients and their families.
And third to continue to focus on increasing manufacturing output, while driving gross margin expansion.
Looking ahead, I believe we are better positioned than ever to execute on each of these objectives I remain very confident in our growth trajectory and our promise to dialysis patients and providers.
Beginning now.
And with that I'll turn the call over to Rebecca to review, our financials and provide more granularity on our expectations and key drivers for the remainder of 2021.
Thanks Leslie.
We mentioned fourth quarter revenue grew 143% year over year to $17 2 million driven by the impact of our HHS lease agreement higher Council shipments the launch of our capital S. T products and continued growth in consumables and services tied to our larger installed base.
Our full year revenue equaled $49 9 million, an increase of 231% over the prior year period.
Product revenue grew 111% year over year to $13 2 million.
Total revenue grew 96% year over year for $10 6 million driven by an increase in console shipments higher HHS leasing revenue and recognition of XP upgrade revenue.
Consumable revenue grew 369% equaled $2 5 billion driven by rising volumes associated with our growing installed base and higher asp's as compared to the prior year period.
Utilization in the quarter also increased meeting our expectations based on the end market mix of our adult day.
Service and other revenue grew $3 2 million compared to the fourth quarter of 2019, Q2 equaled $4 1 million.
Growth in service agreements across our larger installed base as low as the impact of H H S. We service revenue contributed to the growth.
Yeah.
Moving 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 and on slide 10.
Our non-GAAP gross margin was two 8% an improvement of 42 percentage points versus the prior year period.
This year over year expansion was primarily the result of significantly lower console and treatment costs as we benefited from our cost down activities.
Higher service margin and the impact of X P deferred revenue release.
Sequentially gross margin improved by roughly 39 percentage points benefiting from a full quarter of the Q3 cost reduction activities as.
As well as higher margin revenue, including the deferred revenue release.
Moving to non-GAAP operating expenses fourth quarter operating expenses equaled $25 8 million up $10 3 million versus the prior year, driven primarily investment by investments in our commercial organization.
As well as G&A expenses tied to operating as a public company.
Compared to the prior quarter non-GAAP Opex grew $4 million higher commissions tied to the bookings outperformance as well as an increase in G&A expenses is primarily attributable to the secondary offering growth.
This sequential pick up in Opex.
As detailed in the GAAP to non-GAAP reconciliation in our earnings release fourth quarter stock based compensation was $6 3 million.
As we recorded expense tied to satisfying the performance vesting condition for certain stock options upon the closing of the IPO.
We expect to recognize an additional 4 million of stock based compensation expense.
Related to see these performance options in the first quarter.
We reported fourth quarter GAAP net loss of $32 million, resulting in a net loss of 75 cents per share.
I'm here to a net loss of $19 4 million or $21 18 per share for the prior year period.
Non-GAAP net loss was 28, $25 8 million or 60 cents per share compared to a non-GAAP net loss was $19 2 million or $21 91 per share for the same period in 2019.
We ended the year with approximately $348 million of cash cash equivalents restricted cash and short term investments.
Moving now to our 2021 outlook.
We expect total revenue for the full year 2021 to be in the range of $89 million.
$94 million.
Which represents 78% to 88% growth over fiscal year 2020.
This guidance contemplates higher sequential growth in the first half of the year as we ship backlog to meet requested customer timing as well as the expiration of the force HHS.
HHS lease in Q3 2021.
Our intention is not to provide quarterly guidance. However, given the timing of this call. We are doing so for the fourth quarter. Specifically, we are projecting Q1 revenue of 21 to 22 million, which represents approximately 190% to 206% growth compared to the prior year period.
Included in this projection is our expectation that we complete the extra day console upgrades and recognize the associated revenue.
With our console manufacturing facility up and running our 2021 gross margin outlook has also improved.
In the first quarter youre projecting gross margins to be slightly lower sequentially due to higher comfortable net.
However, we are now projecting positive gross margin for the full year ramping as we move more harmful production to Mexico and benefit from the anticipated delivery of lower cost cartridges in the second half.
In summary, we are very pleased with our progress through 2020, despite unprecedented times and believe we are well positioned financially and operationally to build on our success through 2021 and beyond.
Thank you for your time, we look forward to providing an update.
On our Q1 progress during our next earnings call. We will now move to the Q&A session. Operator, Please open the line.
Thank you a reminder to ask a question you will need to press star one on your telephone.
And to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Okay.
And your first question from David Louise Your line is now open.
Good afternoon, and thanks for taking my question Congrats on a great quarter gross margins in a very constructive start to the year on guidance. So a lot of my congratulations there all in one.
So a couple of a couple of things here I wanted to kind of isolate I think the.
The first thing I guess free Leslie you Rebecca.
Michigan upside relative to our expectations for 2021, and I'm going to try to isolate what that is so the two part question one that first quarter dynamic obviously it doesn't feel sustainable Q2 through Q4, I think Rebecca you talked about that in terms of HFF relative to backlog just sort of help us understand what the biggest drivers are that are driving 2020 seems like it's acute care traction.
But why wouldn't those acute care <unk> specified sort of be sustained post the first quarter. That's question one I'll stop there and I've got a couple of quick follow ups.
Yeah happy to handle that David.
Obviously, we're very pleased with the strong demand from the fourth quarter and the strong demand. We are projecting for this year and we did mention that we are exiting the year with 550 consoles and in backlog.
Which sets us up for a really solid 2021 that demand as you can imagine came from customers that want their console quickly, which obviously is a high class problem. If you will and will really deliver those comparable in the first half which is part of what's leading to the dynamic on the sequential trends that you are asking about also.
I did mention HHS, if you think about the trends on HHS.
It is the highest from a revenue component in the first quarter.
And you know is a headwind each quarter from there on out for the rest of the year. So you know we.
We absolutely do see strong demand continuing in both the acute and in the home setting it's really revenue puts and takes throughout the year that is lending itself to the sequential commentary.
Okay. That's super helpful. So just two quick ones from me and I'll jump back in queue I guess, the first and probably most important question is just on gross margins I think that was a key focus of the story and it is obviously dramatically better here in 'twenty. One. The question. Rebecca is does this reflect just a stronger trajectory now over the next several years. So your comfort level in sort of pulling forward gross margin.
<unk> on a multiyear basis relative to just a 2021 and then second question would be in terms of 2021 I'm, assuming most of the upsides acute just help us understand how we think about the kind of home traction in 'twenty. One we would have thought that was I don't know if something around 10% of the mix in 'twenty. One is that changing in an appreciable way or should we assume.
Most of this traction in 'twenty, one is more acute in the whole mix is.
Pretty stable. Thanks, so much and once again congrats again.
Thanks, David Yeah. So to answer your question in 2021.
And on gross margin and obviously over over the forecasting period.
With us being ahead for 2021, I do think that's a fair conclusion to.
To plus or minus you know plus or minus a forecasting margin of error. If you will choose to propel that forward. Obviously in the first half of this year. We do have specific dynamics that we've talked about in the prepared comments. So I don't think it's.
Perfectly applicable to take quarter by quarter, and just pull it ahead, three or four quarters.
But we are ahead and that does propel itself through through the forecasting period again.
The margin of error in any given period, depending on depending on many different factors, including you know console mix as well as a S. P with regard to home traction I think that unless we can speak about that qualitatively or quantitatively I.
I think roughly but the mix issue that you're sharing is is not outside the realm. We are seeing traction in the acute the upside is primarily coming from the acute and we do have as well yeah, and we do have good outlook pipeline.
And backlog for at home I'm, just again being very prudent with regard to the rollout for the reason who shared numerous times.
Yeah.
Yeah.
Great. Thanks, so much.
Thanks, David.
And your next question from Bob Hopkins.
Yeah.
Oh, Thanks, and good afternoon.
So just wanted to follow up on it on a couple of quick things here first Leslie I'd love to get your view on on on the home and I realize you guys are going to go slow and it makes all the sense in the world, but I'm. Just curious you know now that you're you know.
Out in the marketplace.
Are you learning about demand because I think that remains sort of the key question I mean, I think people agree you've got really interesting technology for the home I think the question Mark is really been around what is the patient demand can ultimately look like so understanding that you're going to go slow and you want to make sure. The patient experience has the right experience, but you know if you've learned anything interesting about demand.
It makes you more bullish more cautious.
Now that you're you know out in the marketplace.
Yeah, sure and I'm happy to comment on that.
I think the short answer on patient demand is is probably has not ever been higher if you look back over the last 10 to 15 years and I do attribute that you know in the prepared remarks, he talked about the <unk>.
In fact that that Covid has had on the acute business, which was for US again, it's neither a single independent sales driver.
When I would say on the home side I do think it's had a material impact from the way that the dialysis patients think about you know where and when and how they want a dialogue.
We have seen only a steadily increasing patient interest in and and activation around going home and I think that part of the reason is COVID-19 I think other reasons of course, we believe that we have a technology that is finally accessible enough and simple enough.
To help patients over comedy apprehension. They may have about their ability to manage in the home. So I would say what we've learned is patient demand has exceeded my personal expectation.
I don't think that we've learned you know beyond that because we have learned a lot and we're learning every day every hour and we are continuing to find that our training time and this isn't a very widely diverse.
Patient population, but that our training time on tableau. He has a lot less our goal was to get that.
Again across really any patient anywhere of training time that was going to be under two weeks and we've met that with the with the current technology choice in the market training time is four to six weeks, so getting that down to you know sort of let's call. It days not weeks. It is a big deal for people and I I continue to be.
Very bullish that that will also lift one of the adoption barriers I think that's hurt this market in the past.
Second you know we have learned that so far the retention times on tableau do appear to be longer than than some of the data around retention reported with the incumbent device again very very early innings in small population, but hum, but I like what I'm seeing there and and so my confidence is building little by little of that.
That's that people will stay on home longer with tableau and lastly, I think we validated that.
Allowing patients to Dialyze three times a week at home is a game changer it.
With the incumbent technology patients are kind of force to require.
Dialogue more frequently five six times, a week and that's been a barrier to adoption and retention and so we we've seen and heard a lot of really good feedback from patients that are now choosing to go home with tableau and maybe had refused it in the past simply because tableau allows the means to maintain my.
A three times a week schedule that they have in the clinic, that's without cause or some highlights the reported so far.
That's helpful.
From a record what do you what are you guys embedding in guidance here in terms of how many patients will be on your home hemo system in 'twenty 'twenty. One and then also on the gross margin progress does this progress you know change your view at all on the long term targets that you guys had.
And I talked about previously or is this mostly an acceleration of the timeframe. It will take to get you to your previous targets and thanks very much.
Yeah, My my point about things thanks for the questions on the home and on the whole patient number I don't think I'm going to.
At this time that that's something that we really want to focus on really what we want to focus on is everything like we just mentioned, ensuring there's really solid patient and provider experience and.
And the assumption in guidance is you know relatively immaterial compared to the total revenue number.
Again, I think that's a 2021 it is very much about setting the stage if you will over the longer term.
Gross margin progress great question, and I I would absolutely love to say that yes, the dynamic has changed versus the non.
Non-GAAP profile that we shared as of roughly 50% on the gross margin line and 20 per zone on the operating expense line.
That being said you know I think that we're literally you know a quarter or two who's being public hearing and that's four or five years away and so well you know while I think we're very pleased with the trajectory and the progress being significantly ahead of schedule I think it would be premature to say that the profile has changed.
So I think we still have we chopped a lot of wood, we still have a lot of her to shop.
And hopefully at some point in time, and what we'll be able to share an update on that but but again I think it's bringing terrific.
Okay. Thank you.
The sequential pace should be there in two quarters not just kidding.
Thanks for taking the question.
Thank you.
And your next question from Mckesson.
I need from oven.
Well. Thank you very much just a couple from me.
Maybe I'll start with guidance on and then the acute side I think just one of the key priorities that you. You noted was new agreements with top health systems in and I Wonder. If you can just give us a sense of how much visibility you have there when you make that comment and how much of that is kind of baked into this guidance that you're giving for <unk>.
The year.
Yeah, I'm happy to take that.
We obviously have a deep pipeline that we are working again and that pipeline is contemplated in guidance.
That being said.
We do have an opportunity to potentially potentially do better than we had planned but we are 10 weeks into the year. If you will and you know where.
We're already significantly ahead of our projections more than 20 million compared to where we originally projecting you know just six or seven months ago.
So you know what while there is potential there we want to be really prudent and focus on execution.
And I think you know Leslie maybe you can mention also another kind of qualitative limiting factor if you will.
Yeah, No I agree with everything you said, Rebecca maybe I'd just add that I think we really do pride ourselves in terms of commercial execution of making promises that we keep them. So that's always an element in our mind as we kind of balance demand with implementation is making sure that again, we do think that.
Well not quickly it's sort of a mantra and so we always have that.
That lens when we look at how we're growing in it and in sort of at what pace.
So I don't know if that had anything but [laughter].
That's helpful. And then just as a follow up on on the home side again kind of just hanging off of some of the comments you had made on some of the new home agreements, leading health care systems and independent providers I'd Love just a more color on the health system side, just you know which type of health systems. These are are these zone.
Some of your kind of existing larger health systems, whatever you can tell us about those.
Are those that are that are now kind of moving into the home with more kind of sky contract contractual bigger if you will and then on on the independent independent providers, if that's dialysis clinics.
How much color you can give it to me that seems to maybe be a confidence builder and kind of.
Showing that there is margin for them on on on this business as well if you can provide some color there. Thanks so much.
Sure.
Sure. So so to start back on the first part of that health systems.
What kind to are they why you know what what's driving the interest. These are these are health systems that regardless of size when theres, a nice mix in there I mentioned to answer your question.
Some of the National player players regional players et cetera, but the common denominator is the interest in an enterprise solution. That's the driver here and so it starts with the sort of the economic efficiencies the operational efficiencies of a health system being able to down.
Black to one device.
Managing that patient from the acute setting all the way to the home, whereas today when they deliver dialysis across their enterprise, it's requiring them to buy and maintain a number of different machines.
Obviously, it is more cumbersome and more costly. So the common denominator is all of these contract for home were tied to a larger kind of enterprise solution deal. That's one comment on that on the health system and then on the.
The provider side, yes, we are talking about dialysis clinic providers I believe that's what we were referring to in the prepared remarks and and so these are dialysis clinic providers that I think see what's going on with the T C.
Maybe components of their payment connected to value based care models.
They could have a real progressive view of the future and see both the patient satisfaction and the quality of life improvements and then ultimately the total cost of care reduction to come from home and are making a very sort of new and have set specific targets for themselves and moving greater proportions of their patients to the home environment.
Thank you for that.
Your next question from Danielle until fee.
Your line is now open.
Hey, good afternoon, ladies thank so much for taking the question Rebecca the first question might be for you and it's around sorry, it's another guidance question, but just trying to get a sense of.
What level of visibility you have into the into the second half and it sounds like you guys talked about utilization increasing in Q4, but you know your install base, presumably is growing as we move through the year, yet Q1 guidance is over 20% of total guidance for the year, So maybe a little bit of color on how you're thinking.
Utilization for the existing installed base and and is there some dilution happening there as you bring new as you build the installed base or how should we we should think about that that's the first question.
Yeah happy happy to take those Danielle with regard to the first part of it specifically level of visibility into the second half.
As I mentioned, we were we exited the year with significant backlog and we do expect to operate within our backlog environment.
Through the course of 2021 and so.
So to that end, while we'll be shipping you know the vast majority of the Q4 backlog in the first half will build that backlog and therefore, the visibility in our minds will will be pretty consistent throughout the year. Obviously today, that's in the form of pipeline and not in the form of orders, but that's the cases as you go through any given year if you will.
So we do feel we do feel good about the visibility through the remainder of 2021.
With regard to utilization of the installed base our forecast for 2021 is it plus or minus a small bet. If you will of the expectation of each of the sub end market for the appropriate utilization that we talked about so we're not forecasting dilution as we add on.
One new customers if anything you know the customers, we're adding on now often our whole house conversions and those tend too well while it takes some time those tend to be very high utilizing a few customers and so we're pleased with where the utilization is currently forecasted in 2021 and you know we look forward.
To really kind of doing whole house convergence for major health systems over the course of the year.
Understood that is Super helpful. And then my next question is as it relates to the acute market and what Youre seeing from a competitive standpoint, you know just trying to get a sense of are your competitors getting more aggressive on the counter detailing side of thing I've got things. Obviously this is a high growth market. So maybe it doesn't matter.
At a time, but just curious what you guys are seeing out there. Thanks so much.
Sure maybe I'll I'll provide some color on that.
When when our sales team enters discussions with a health system of any size the conversation really anchored around again, reducing costs and simplifying operations.
It's not so much a conversation about hey, we have a device and there's a southern device and ours is better and here's all the feature and benefit reasons why.
It really is a strategic cost reduction initiative for them an opportunity for them to view a dialysis service line strategically which is the first time that hospitals and health systems, if they kept them the opportunity to do that.
And so I think because our commercial team is having a different kind of conversation, we usually don't find ourselves in conversations around let's say, an RFP process, where we're not entering where the hustle just need to replace old machines or theyre looking to buy new machines, we are really presenting them with it with a new idea.
Yeah.
New way to meaningfully increase operating margin.
Across a range of DRG with data from a couple of years ago showed that dialysis ends up being delivered across 600 different types of procedures DRG isn't because hospitals are not separately reimbursed.
The dialysis that they provide in the acute setting.
This is a real pinpoint and and so we continue to find it very powerful end to get us a pretty immediate receptivity to the idea that by lowering their cost of dialysis and also controlling their outcomes that they can get a pretty significant operating margin lift across a pretty wide base of their procedure volume.
Super helpful. Thank you so much.
Yeah sure.
And next question from Rick Weiss Your line is now open.
Good afternoon, Hi to both you and I'll add my congratulations and.
Great to see I'm I'm going to start just a follow up on a couple of your points.
[noise] perspective manufacturing.
I don't know if it's a.
Ask your 'twenty 'twenty, one goals, maybe talking about both from the console side and the cartridge side.
No.
I guess a couple of questions around both sides, what one if all goes smoothly when are you 100%.
And maybe you said this is like I said I apologize when you're 100% manufacturing your consoles and then it was sold.
When would you expect that to be the place.
To be the situation.
Ditto for on the cartridge front Oh.
You've talked about the gross margin benefit in second half 'twenty one.
Maybe you'll also as part of this answer quantified.
That expected benefit annualized benefit if you will when you get to a 100% if that makes sense.
Yeah, Yeah. It does makes sense with regard to our our goal on the on the Council as Leslie mentioned, we're making great progress with 100 over 100 coastal manufactured to date in Q1 that will increase sequentially.
And you know what well manufacturer, even even more in the second quarter by the third quarter with the Miss the expert.
Exception of business continuity planning will be fully you know will be fully based out of out of Tijuana.
There'll be you know Q2 will be more of a mix between the two and then in Q3, you'll see our.
Our facility down in Mexico, really being that this will provider obviously with the exception of business continuity, which is just prudent planning.
You know I think with regard to the cartridge I don't want to quantify them today, Rick I will say that the gains are coming primarily from bull.
From both increased productivity of the seconds from roofing manufacturer as well as reductions in distribution and logistics costs are given where obviously trucking over the border versus coming from Thailand. Similarly to the console. We will also always amaze you.
Continue to have.
A portion of the business at the current contract manufacturer so.
It's probably not not worth it if you don't want to get wrapped around the dollars and cents between the two but it will be on a blended basis, but we'll see that benefit in the second half as well.
Okay.
Leslie maybe you could expand on your comments on.
Some of it some of the CMS right.
Payment or reimbursement initiatives.
You know, particularly the two components.
Program you submitted.
And a couple of questions.
When would you expect to hear realistically what kind of payment are we talking about them.
If it's approved maybe you can help us think about the dollar impact and I.
Could you loud and clear it may not happen this year, but whether it happens in 'twenty, one or 'twenty two.
How would we think about that impact.
Sure.
The impact for outset or the impact of our providers.
So either or both but obviously most interested mouser.
Okay sure.
So yeah, let me maybe take a step back on onto coatings I mean.
I said in the prepared remarks, I mean, I think first and foremost the big win is that this program even exist.
Nothing like this has ever existed for new technologies in the renal space. So that's that's when number one.
I think whenever two was that they did expand it to include capital equipment. Originally it was only gonna cover supplies.
So that was a big win and then I think the third win coming online here was that the capital equipment inclusion pertains, specifically and only two new home dialysis devices. So I think that is all very very good news.
But it's new.
And I think with anything new there's going to be some learning all the way around it's new for industry, it's new for them for CNS and so so for that reason, we are thinking about it conservatively and I think it is why is not to count on it or put it into our projections, but I mean, we do feel really good about what we put forth and we think it's a compelling.
<unk> body of evidence that anchors the application. So I guess with that kind of is that as a backdrop.
When do we expect to hear.
The proposed rule that CMS initial commentary onto ponies application.
Wil is expected I should say to be in the proposed rule, which typically is in that mid year timeframe, usually around July and then they invite public comment they consider the public comment and then their final decision is published as part of the final rule in the fall and we would expect it to follow a similar time frame.
What payments that could portend, no short answer a premature.
Early to tell if the application was.
Except it then we would go into a dialogue with with the invest about sort of the pricing methodology.
Methodologies that they would use ultimately to calculate for percentage payment but.
The framework of the program itself setting tableau aside is that I'm seeing that as I said in the past that they would pay for perhaps approximately of 60% to 65% overpayment on the treatment rate, but again more details to be revealed.
And we'll just be very kept ourselves very very lucky and pleased to be accepted either in 'twenty, one or in 2022.
I think the impact you know four for providers I would hope is an additional nudge kids, you're moving more patient settlement day, moving her patients home with tableau and therefore, the potential impact on outset could be in future years could be emphasis could be a potentially accelerated home adoption rate.
That would preference tableau versus other choices.
Yeah, that's great. Thank you.
One last.
For me.
You emphasized.
Had extraordinary success in contracting with as you said six of the top National Health systems 20 of the top 50 regional health systems.
And you're pretty extraordinary.
Can you give us any more color on.
The conversations that are underway or what we might see or what youre, hoping for in.
In 'twenty one.
Are you talking you know with the other two already speaking with the other.
The remaining two national Health systems are you talking to another 10 or all of our regional health care system.
Just the backdrop.
What's going on would be great to hear thank you so much.
Sure. Thanks, Rick.
I think that look we're an ambitious bunch so [laughter].
This commercial team knowing him that they do is unlikely to be satisfied with six of the eight.
We're a group of people that tend to focus on but what about the other two.
And what about the other 30 of the top 50, and then once we get to the top 50, it's going to be great and then how do we get to the next 50 in the next 50 after that so I would say, Rick I mean, where we're really proud of the <unk>.
Address today's in a relatively short period of time, but we are we are just getting started.
It's just starting to roll forward and and I think that D. D. I'm you know additional customers in additional facilities really gives us the benefit of just a deeper and wider successful a base of reference results.
Brand awareness visibility and and sort of word of mouth and so I think this is a really nice early start to the flywheel that I expect to get only faster in the coming quarters and years and just one thing to add to that Rick I think the commercial team's focus is not only signing additional additional new customers, but also.
We're equally focused on expanding across the customer base of those that we already have good point and we're so early in the penetration curve and the acute market that there's there's plenty of opportunity from all.
So in general you know, we're really excited about the acute market and the value proposition of tableau and this effect. We have had any the success we continue to plan that.
I appreciate the color. Thanks again.
Thank you.
As a reminder to ask a question you will need to test star one on your telephone and the next question comes from Suraj Kalia. Your line is now open.
Hi, Leslie Rebecca can you hear me all right.
Yes, all right perfect Hey, congrats both good quarter. So let's see here I know you provided qualitative comments from the quarter and we appreciate that maybe I missed the numbers can you quantify the pull through from Covid related sales what were same store versus new store sales and also maybe Rebecca Rebecca if I could just.
I was gonna esoteric question, what was the average treatments per week per console relative tracking currently.
Yeah.
Can you repeat the first question I apologize I was just all day.
I was just cash.
The bonus pool.
[laughter], Yeah, Covid related yep, so, let's take those one at a time.
So on the on the Covid related we had said earlier on in the year Suraj, but we expected roughly around $7 million of total COVID-19 related revenue in 2020, what we delivered was.
Exactly right. So we didn't have a couple of hundred thousand dollars more than than expected, but still rounding to $7 million. So you know I think that really the reason for that is as Leslie mentioned in the script.
Covid. It is just a demonstration of our value proposition for the technology and has.
It has been an opportunity to highlight the technology, but really you know this is more about cost reduction and and you know for the reasons that you cited COVID-19 is not a single handed value driver.
Adoption, if you will with regard to your upholstery question.
And I can go through this offline with you, but effectively are we.
We have expectations for each end market for pull through and the business traffic exactly to that on our installed base weighted basis. If that statement makes sense. So you know and in the quarter. We were just around four and a half times, which is on the nose given the mix of income.
We'll base that we shared.
With regard to same store and new store sales you know what I don't think it's necessarily that's not a number that we plan on sharing on on on a routine basis. The penetration as I mentioned is so nathan that that and we're seeing growth across both our figures if you will.
That overall, it's a good news story of a profitable, but probably not worth quantifying it not certain how much thought without.
Got it let's see one question from my side than on the hop back in queue. The patients you'll look targeting four for home hemo.
How should we admittedly. These are early early stages right. So things will change over time should be considered the initial targets more suite converts from system, one or do you know how these de novo patients in a commercial setting. Thank you for taking my questions.
Yeah sure Yeah, that's that's actually a really really good question.
You know it actually has mirrored our clinical trial by accident I mean, we don't you know we don't select the patients obviously add that those patients are invited to two dialects at home on tableau by the low providers mm.
That they were affiliated with but it has kind of interestingly near at the clinical trial in the trial was about half and half we had about half of that we're coming off of an incumbent's device had already been dialogues and get home and then about half who renewed at Holman and again roughly speaking in it with a margin of error.
The real World population has has been similar and also similarly diverse actually one of the things that I found most interesting about the trial is that it really did near the the real World. We had the vast majority of patients had hypertension and about 60% of diabetes.
70% of the patients in the trial, where you know where we're either African American Hispanic.
And that's actually also followed in this population I am in the real world. So we've been really happy to see the sort of very consistent result in a pretty diverse population.
Yeah.
Operator, if there are there any other questions.
And ladies and gentlemen, and Ms showing any further questions at this time.
I would tell my people had to call back.
Thank you.
As a reminder, a replay of this call will be available as a webcast in the investors section of our website as well through the dial in instructions contained in today's earnings release. Thank.
Thank you for joining US today. This concludes our call. We look forward to our next update from them to close their first fiscal quarter of 2021 banks and have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Right.
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Okay.
Okay.
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