Q3 2021 Outset Medical Inc Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the outside Medical third Quadri 2021 earnings Conference call. As this time, all participants 19, a listen only mode.

After the speaker's presentation, and there will be a question and answer session to ask a question you into the session you will need the past star one on your telephone if you require any further assistance. Please bear start zero I would now like behind decline friends over at the your spirit today, Brian Johnston. Please go ahead.

Thanks, operator, good afternoon, everyone and welcome to our third quarter of 2021 earnings call participating from the company today at Leslie <unk>, President and Chief Executive Officer, and reveal Ahmed Chief Financial Officer. During the call. We will offer commentary on our commercial activity and review our third quarter financial results released after the close with the market today.

After which we will host a question and answer session. The press release can be found any investor relations section of our website at outset medical Dot Com. This call is being recorded and will be archived any investors section of our website.

Before we begin I would like to remind you that this but he just aren't intense 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, our 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.

Sanctions. These statements involved material risks 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 outside assumes no obligation to update these statements. Accordingly, you should not place undue reliance on these statements.

For a list and description of the risks uncertainties associated with our business. Please refer to the risk factors section about such public filings with the Securities and Exchange Commission, including upsets latest annual and quarterly reports with that I'll now turn the call over to Leslie.

Thanks, Brian Good afternoon, everyone and thank you for joining us to review our third quarter 2021 results.

And the third quarter, we were again successful in delivering strong revenue bread and gross margin improvement while building a foundation for sustained growth in Q4 and into 2022.

Specifically, we reported 26.3 million in total revenue, representing 91% growth you ever yeah.

As the bills will elaborate on giving her progress to the third quarter and visibility into the fourth quarter, we are raising our fiscal year 2021 revenue guidance today.

Our top line growth continues to be driven by our commercial success in the acute market in Q3, we added new customers progressing well toward are your ankle to sign sales agreements with a third of the top 100 largest regional health system R.

Our team also successfully drive expansion within our current customer base propelling the land and expand strategy forward.

As in it should be for health systems are standing here, you said tableau across additional hospital within their networks as a result of a rapidly recognizing economic and operational work with or for that offense.

The C E O of a health system using tableau put it back last week when he said of our team clothes. There are three things I care about when deciding whether to adopt new technology first is it good for patient second does it drive down costs and third will be accepted by my nursing staff.

Tableau made all three of these criteria.

Installed base grows health systems implementing tableau continue to see a 50% to 70% reduction in the cost of a hospital inpatient dialysis program.

Savings are driven by supply it cost reduction labor cost reduction or both for hospitals at a Doc tableau in order to ensure their dialysis service line.

Some of the operational workload advantages of tableau were demonstrated in a study of 100000 consecutive are cute dialysis treatment using <unk> that will be shared at the American society of Nephrology kidney week meeting this week.

Leveraging the power of tableau two way wireless data transmission. This retrospective data analysis showed the tableau with used in a wide range of treatments from two to 24 hours.

I'm afraid and gets you need clinical versatility. The data also showcase labor efficiencies in that the mean number of alarms a nurse had to respond to was just 2.5 for treatment regardless of how long the treatment was which we believe is far lower than conventional dialysis machine.

And last tableau simplicity was highlighted by data on alarm resolution time, which was just 14 seconds on average.

I'll soon to be released at the end conference is an interim preview of our extended study, which analyzed 50 consecutive tableau X T treatment with a medium treatment time at 23.5 hours in the iced tea setting with very high acuity patients.

What is the most common complaints about the conventional dialysis machines used in the iced tea you for extended treatment is a high clotting right. When a cartridge tubing set caught the nurse has to stop treatment disassemble. The machine go through the setup process again, with a new cartridge savings that and restart the treatment.

When patients are prescribed ongoing extended therapy interrupting treatment in this way, it's obviously disruptive to the patients clinical needs.

For these reasons, we are really thrilled with the early results of the extent study, which show just a 4% clotting rates far below what we believe to be industry standard.

<unk> ability to deliver long interrupted treatments provide clinical value to patients and once again operational workload benefits to nurses since a low plotting right means less nursing time required for treatment.

We see these benefits resonating with customers as demonstrated by a continued strike in our S. T attachment right in the third quarter.

In addition to our success in the acute setting. We are also encouraged by your continued progress on the home front in the third quarter chronic and home console bookings again increase significantly on a sequential base. It as we make further and right across the spectrum of existing and emerging home dialysis providers from health system too.

Progressive dialysis operators to other new entrants in this day.

No matter, what we're seeing with acute customers, we believe that clinical and economic value of tableau for home is resonating with decision makers.

Another day, if that being shared this week at the at the conference draws from the first 1000 real world treatments with tableau at home.

The headline here is that the results neared our Ite's study specifically in this retrospective analysis using tableau as proprietary cloud based data analytics platform. The data showed 100% patient of attention at home, 93% treatment adherence and 95% of the treatments completed within 10% of.

The treatment time prescribed by the patience Nephrologist.

The study also showed a mean patient trading time of just 7.4 days, which is meaningfully lower than the four to six week training time, commonly associated with the incumbent home Hemo machine.

So the number of alarm the patient had to respond to you with just one for treatment with an average resolution time of 10.7 seconds again, highlighting tablets ease of use and also it's unique software and censor design from our earliest days of product development, we focused on eliminating nuisance alarms, which are early market research indicated the patient.

The nurses dislike about the existing machine option.

Alarms are loud, they're stressful and they're intimidated and for someone at home something that is stressful and intimidating probably isn't conducive to retention, which is our most important goal or engineering team develop ways to employ censoring software solutions to minimize it since alarm and deliver a quiet treatment and these study results too.

Yes, we're delivering on that ambition.

We see the accelerating appreciation of tableau as benefits amongst administrators physicians and patients has instrumental in driving demand for tableau at home.

New recently conducted market research study have several hundred nephrologist and dialysis patients, 83% of Nephrologist stated that limitations with the existing HAC device option constituted the greatest barrier to Hh the adoption in the past.

Notably 90% of the same neurologist survey said they were likely to extremely likely to prescribe home dialysis two more patient specifically because of the attribute the tableau. According to those surveyed the most important features driving their preference for tableau or one flexibility in treatment frequent.

C I, a the ability to prescribe three three and a half for five or more treatments per week is needed.

To the system is ease of use and reduction of manual steps and three tableau as remote monitoring capabilities and reduction and supply.

What we also sounds interesting without the efficient market research results revealed that 84% of patients who are currently on home hemodialysis with the incumbent device you tableau is a significant improvement well nearly 60% of in center and P. D patients said they were likely to extremely likely.

To try H H D based on tableau benefit.

Four patients flexibility in treatment frequency the availability of dialysis on demand automated data and remote monitoring ease of use and the reduction of storage requirements were paramount to their decision, making about which device they would choose.

Everytime I have the chance to talk with home patients I'm reminded of the impact tableau can have on someone's life.

Just last week I was talking with the gentleman using tableau at home here in the Bay area, who was an accomplished musical professional who used to tour with some of the grades and someone you learn the craft from his father, who was himself a legendary jazz musician.

<unk> story is both common and uncommon comment in the sense that he set your thigh lightning in center being told without choice what days to show up what time were to set.

I'm comment in the sense that he was fortunate enough to get a transplant.

And then his transplant failed and his choice was back to the learned helplessness of in center or into the new frontier of controlling his own destiny through home dialysis.

<unk> freedom, starting on tableau and his words quote changes your life without changing your surroundings.

He shared with me that what tableau affords him his cloak consistency and pitiful, that's something that I didn't understand until tableau came in control instead.

Instead of sitting in a clinic freezing cold and waiting for a tech to come by to increase his dialysis temperature. He now can adjusted automatically with tableau and warms himself instead of cramping during treatment and it's and in his words quote not wanting to bother any of the nurses to address it he can instantly alter parameters on tableau to make the crap.

And go away he can choose what days and what times he wants to Dialyzed, rather music scheduled he's chosen to increase his knowledge about the links between kidney failure and heart disease. He now views as your Prologist as a peer partner he has changed his diet and his fluid intake.

All because agency and self worth have been returned to have through home dialysis made easier and accessible through tableau.

The power of one over time becomes the power of many in time, our continued focus on creating a differentiated patient experience on lowering barriers around adoption and driving high retention rates are all vital building blocks.

And the service is sustainable Highgrove home revenue over the long term.

As we work to facilitate the expansion of home hemodialysis, we remain encouraged by the new administration's continued demonstration of commitment to the same goal in the final rule C. M. S increased the measurement benchmark for the home dialysis and transplant rate and the E. S 30 treatment choices model known as the.

T C by applying a new incremental 10% increase every 18 months to the benchmark.

C M s's further incentive dialysis providers to continuously improve their rate of home dialysis and transplant beyond the incentive set forth in the original E. T. C model. The expected impact of this change is that whole dialysis and transplant benchmarks will continue to increase through 2027.

In addition to help ensure patients have access to home dialysis and transplant, regardless of race race ethnicity, or assist you economic status CMS finalize a new incremental health equity in such a payment to dialysis facilities to improve their performance and growing home dialysis among disadvantaged population.

Another important element in driving demand for home dialysis is it C. M. S program called Tiffany's, the transitional add on payment adjustment for new and innovative equipment and supplies.

Kidneys was implemented by CMS, specifically to encourage providers to adopt new wheedle related technology. Although this program has been around for two years, none of the applicants today have received approval. However on Friday October 29th that changed when tableau receive tiffany's approval, notably tableau is the first and only.

Dialysis technology to benefit from this new CMS payment policy. The decision was grounded in C. M. S's belief the tableau constitute a substantial clinical improvement over the in combat home hemodialysis system. This incremental per treatment payment will further and said providers to adopt tableau and thereby bolster our.

Economic value proposition to customers. We believe this validation of tableau the advantages over the incumbent home. He must system provides a commercial tailwind to our sales efforts in 2022, and 2023, which is the duration of the Tiffany's benefit.

Beyond Sydney's we continue to work with partners across the space to advanced progressive patient centric policies designed to enable greater flexibility convenience and care setting choice for patients.

We're seeing that even with the change in administration, there isn't a drink commitment of Washington to collaborate on expanding access to home dialysis.

Further we continue to see a growing policy focus on health access equity, which as we've emphasized in the past is a critical component of our mission it out so.

Moving now from top line growth to margin performance. The team delivered another quarter of gross margin expansion Q.

Q3's, 11.4% non-GAAP gross margin enabled us to attain our target is low double digit non-GAAP gross margins one quarter ahead of schedule.

Our supply chain and manufacturing initiatives continue to deliver expected capacity increases in cost reduction despite the top supply chain environment on.

On the console side all of our Council are now built at our facility in Tijuana, Mexico, and our ongoing costs down programs drove sequential reductions in the cost of our console.

On the cartridge side, we continue to productively engage with the F. D. A on our fighting application to enable our new contract manufacturing partner to produce tableau cartridges in Mexico, assuming F. D. A clearance within the expected timeframe. We believe we are on track to start production there in the fourth quarter.

Before turning the call over to to be all I'd like to highlight our forthcoming D. S. G report that we plan to make public on our Investor Relations website in the coming days.

As many of you know help that has been and will remain dedicated to inclusivity environmental impact mitigation, the advancement of social wellbeing and of course, the enhancement and enrichment of the lives of our patients Uhm fleas and all other out that stakeholders.

We strive to be a leader across ESG initiatives and is this report will demonstrate we've taken significant steps on that path already specifically, we have beliefs since our inception and advocating for progressive patient centric policies to improve the lives of dialysis patients to that and we are working with leading patient focused organizations to promote inquiry.

<unk> access to home health care drive better outcomes for all kidney patients and critically it can help you race racial and socioeconomic disparities in access to optimal care.

In fact, CMS pointed out in their kidneys decision that quote while health equity is not as specific to tiffany's eligibility criteria, we strongly support how exactly and believe that the approval of the tableau system will encourage uptake of Hulme H T for vulnerable patients with E. S 30.

At the board level, we have long championed gender diversity and we're proud that out. This board is comprised of more women than men, placing us in a select group of companies that are leading the way in closing the gender gap in corporate boardrooms.

We also have a tight focus on environmental stability at her out that Mexico manufacturing facility setting very ambitious water recycling goals, which we exceeded in our very first year of operation. They're looking ahead, we plan to build on our success and provide periodic updates on our D. S. G initiative.

In summary, I could not be more proud of team out that and their performance in the third quarter as we look to your AD and into 2022, we will remain steadfast in reaching our four key strategic imperatives first expanding within the 2.2 billion dollar acute setting where we see tremendous screen.

Winfield opportunities and the long runway to expand penetration within our current customer base.

Building, a solid foundation for home growth over time by focusing near term on creating differentiated pretension and treatment adherence results for patients and providers.

Third further increasing manufacturing capacity, while reducing costs to facilitate sustainable and profitable financial growth and for continuing to invent with intensity and imagination across all the dimensions of our business.

With that I will now turn the call over to to be able to review our financials and provide more resolution on our expectations and key drivers for the remainder of 2021.

<unk> Hello, everyone as Leslie highlighted revenue 91.3 per cent you reviewed it through $226.3 million driven primarily by increased console shipments through to customers.

Consumable shipments be impressed with extra you upgrades increased services to support our growing installed base and I wouldn't be too just lease agreements.

<unk>, 102% year over year to $21.8 million in the third quarter.

She'll review by 71% year over year $215.4 million, driven by higher console placements and increased a S. P. You can be availability of and demand for tableau X T.

Superbowl revenue was $6.4 million, an increase of 257% versus the prior year driven in part by a large customer.

Service in W. Revenue grew by 53% year over year, two four and a half million dollars cause we service the larger installed base and recognize the impact some HHS lease service revenue service and other revenue was down slightly on the sequential basis as strong renewals in service contracts.

New console placements, we're all set by the expected extra you have a portion of our <unk> service agreements as we have discussed previously.

Moving to gross margin in operating expenses I will highlight are non-GAAP results I encourage you to review the reconciliation gap to non-GAAP measures, which can be found in today's ruling please <unk>.

<unk> gross margin was 11.4 person ahead of our expectations and then please me people proximately 48 percentage points versus the prior year period, and a sequential improvement of approximately seven percentage points.

This improvement compared to 2020th was primarily the result of ongoing cost reduction activities, which are meaningfully lowered console inconsumable costs, while enabling increased cancelled.

Notably this progress was made despite emergency supply chain headwind is there a commercial and operations.

Closely with our customers and our suppliers to respond to challenges posed by the global disruption and ensure our ability to fulfill orders and needs. The growing demand for products. We also saw some benefits in two three from the large conceivable ordered that I previously mentioned.

Non-GAAP operating expenses in the third quarter were $33 million up $8.4 million versus the prior year period.

Primarily by headcount growth, resulting from investments in a commercial organisation investments in R&D and PNA expenses, sorry, two operating as a public company compared to the prior quarter hour non-GAAP opec's increased by $3.2 million as a result of the investments, we're making a commercial execution and an R. N E. R. G M.

And an expense in queue trees down by point $7 million sequentially, largely as a result of a favorable conclusion to the primary manufacturing relationship we had with our contract manufacturers.

We reported third quarter job net losses $30.5 million, resulting in a net loss of 65 cents for sure compared to a net loss of $42.3 million or $3.44 per share for the prior year period.

Are non-GAAP net loss was $27.6 million.69 per share compared to a non-GAAP net losses, 20th $4 million or $2.31 per share for the same period in 2020.

You failed in our press release and to go up to non-GAAP reconciliation, our stock compensation expense and two 321 is $2.9 million decrease compared to two 320, largely because there are two 320 results included expense associated with the completion of our I P. O. We ended the quarter with a strong balance sheets.

Including approximately $406.4 million in cash cash equivalents restricted cash and investments.

I'd like to move now toward 20th 21 outlook, We project revenue for the <unk>, 20th 21, two weeks from $99 million to $101 million, which represents approximately 98% to 102% growth over fiscal year 2020 revenue. This compares to prior revenue guidance of 97 million.

To $100 million are updated guidance from flakes are unchanged conviction around so it can have 2021, given our backlog position and our visibility into two four shipments schedules and in spite of some recent trends were monitoring around hospital nursing shortages.

You also expect to exit 2021, and a backlog position, which should set us up well and 322.

Moving to gross margin, we were very pleased with our sequential improvement in the third quarter, enabling us to reach our expectation flew low double digit gross margin ones will go ahead and schedule an in line with their previous guidance, we expect to roughly maintain a low double digit margin level in queue for notably.

This expectation constantly some level of emergency distribution and logistics headwinds specifically around the transportation costs shipping a record produced from southeast Asia.

You have been our anticipated transition to a new car cruise manufactured in Mexico. We expect this elevated level of transportation cost exposure to decrease wants to Mexico cartridge production comes online. Both this cartridge production moved to Mexico, and our ongoing close down initiatives are expected to contribute to long through margin expansion.

Finally, we continue to forecast sequential increases in operating expense Cuban planned investments to drive longterm revenue growth.

In closing we have been very pleased with our financial results 223, and look forward to a strong finish to the operator. Please open the lines.

A reminder to ask a question you will need to press star one on your telephone to withdraw your question <unk>. Please stand by will be compiled that come into your roster.

[laughter].

Your first question from the line of <unk> from Goldman Sachs. Your line is open.

Hey, this is Phil on for me Thanks for taking my question.

I guess I, probably should start with guidance.

Right I wanted 2 million over the beef and three Q, but implies slot put down sequentially. It's like I just heard.

What might be part of the answer on the shopping for I'm, hoping you can give a bit more detail on on what's driving the sequentially flopped down number four two and then what's gonna change moving forward as there's some acceleration experts at almost sequential basis Doctor after <unk>.

Yeah, Phil Thanks for the question. So first of all we are really pleased with two three coming in and 91% year over year growth and then being able to guide to between 98 and 102% full your growth here in four Q now when we sort of talk about our guidance and we I think back to our comments and all.

Just our business is really performing the way, we expect to to to giving a commentary in August uhm and the one thing we had in the third quarter here was this large consumable order, which contributed to our beads and so if you think about it sort of excluding that if you will the business is performing just the way we expected.

From the August comment.

Okay, I'll switch gears, a little bit here in touch on a trip to me is that there was one specific one.

CMS provided an estimate for payment from their perspective of two and a half million dollars back here Uhm I'm wondering if you can put some context around that and in light of the 950 for treatment add on payment. There's there's pretty simple math implies a number of treatments that are embedded in that 2.5 million number but I'm, hoping that you can put some conquer.

Maybe maybe explain if that's the right way to be thinking about it. Thanks.

Yeah sure have a good so I think we're we're talking about two different things here. So let's talk about the the per treatment.

Add on payment.

And just to clarify.

Yeah, the applicant still apply for an amount of payment we apply for approval that the device meets the substantial clinical improvement threshold, which which CMS of course affirmed that it get.

And so CMS that says okay, we're going to remember 65% of the cost of using this new this new device in this case tableau less and offset for what already baked into the Medicare base rate.

Regarding the cost of equipment and that base rate. So the AD on the extra add on payment is not expected to be $9.50.

We expect it to be somewhere in the neighborhood of 23 to $25. We will know for sure what the final add on payment amount will be it until the end of the year kind of beginning of next year. This becomes effective January one and again, it's a new program, it's new to us. So we're expecting it we don't know.

But we now have to complete a process with CMS that involved submitting our invoice pricing working with CMS and the Mac to finalize that payment amount, but our expectation remains what we've communicated over the year, which is likely something can be 23 to 25 dollar per treatment amount above and beyond the bundle.

Right.

The second part of what you referred to is $2.5 million.

So varied kind of at the back of the final rule.

Mass has to estimate the aggregate impact of any and all new proposals that it it ratifies and the final rule.

And so what what CMS estimated was simply his calculation of the number of Medicare beneficiaries currently on home hemo.

And uhm really kind of a flag for lack without a word at what percentage of those beneficiaries.

Might actually go on to tableau during the <unk> period, and this is really a calculation our estimate that they make.

Before it goes to review from the office of management and budget and so there is no implication really in the 2.5 million four outset or for any of the provider that effectively a communication tool that CMS uses it and communicating the potential impact to healthcare system costs.

Okay. That's gonna just one quick follow on you specified, but it's likely be on a per treatment basis is there still any room or flexibility that there could be a component of the switch for the upfront capital or is that not really on the table for this year.

Well that effectively is what they are helping providers to defray the costs down actually so our application was on the basis of the tableau console because it with the tableau console that met the newness criteria.

<unk> because that also received home Clarence in March of 2020, and that that is one of the criteria you ought to meet unit.

And so what CMS did and I don't want to get into too much elaborate detail uhm, but I'll tell you at a high level. They use the calculation methodology that starts with what they believe to be the average selling price a tableau uhm divided by a five year sort of operating or useful life period.

Divided by the number for the average number of treatments per year, and that's kind of what you. What you use to calculate this roughly 23 to $25 per treatment benefit.

And so the idea of this per treatment incremental payment actually specifically ties back to the cost of the tableau console. It's just that the payment mechanism or the incentive mechanism that CMS is using is being delivered to providers on a per treatment.

Great. Thanks, Thanks for all the details.

Sure. Your next your next question comes from Bob Hopkins with Bank of America.

Your line is open.

Good afternoon.

Just a couple of quick follow ups on the.

Mexico Uhm shipped to Mexico from a cartridge perspective could you just remind us when that happens.

Yeah, Bob So we are expecting FDA approval here late in the fourth quarter and then we'll be ready to go once we get that the real benefit from that will be in 2022 and it'll come in two forms one the cost of the actual car cruises lower in Mexico than it is at our current manufacturer.

And two we won't have the supply chain it'll be a shorter supply chain right coming from Mexico here. So it's a cheaper simpler supply chain to navigate.

Okay, that's great and then on the on the on the guidance question I assume that the queue to consume the order was maybe one or $2 million something like I was just wondering if you could confirm that and are there any other issues. It back and go through the queue for the sequential trends would you you mention staffing I'm just curious you sort of just.

You're actually seeing that impact the business towards the end of the quarter, you're just you're kind of that you needed because it's it's a it's a chopper just wanted to get a little more clarity on on on those two topics.

Yeah of course, Bob So let me maybe talk about the consumable order and then maybe Leslie to touch on the stuffing with respect to the consumable order you are essentially right. This consumable order. The magnitude you gave us in the zone. It really was the big driver of the beat what we are seeing intended to be what I'm really pleased with is that Q3 played almost.

Actually the way we expected it to given the backlog in the pipeline that we had as we left Q2 and that actually gives me a lot of confidence into our queue for trajectory given the backlog in the pipeline we have sitting here today. So hopefully that helps there unless we do something about the yeah sure well I guess like they are obvious.

Staffing shortages are on everyone's mind, and it's something that we are monitoring very very closely and our experienced hospitals are definitely contemplating staffing levels and thinking through that when they are planning out the timing of when they want to implement their tableau program and get the training done in the install.

[noise] excuse me uhm.

On the other hand, the simplicity of the device in the clinical versatility does give hospitals, new flexibility and who can deliver dialysis and patient and that flexibility can and is helping to alleviate staffing pressures. So I did short it has not reached a point for us where it's significantly affected our bookings where are <unk>.

<unk> schedules, but it's it's most certainly a trend that we're watching closely.

But I I would think it would kind of be equal parts of potential positive going forward is you know maybe a negative depending on how big your problem is cause you. Like you said you are a solution to this problem. So I would try it I think I might actually be a net benefit.

Yeah, No I think he said it well I think there's probably two sides of this coin and so where we've got our eyes and our ears open but I also credit. The team are are are clinical in our commercial implementation team I think much like our supply chain team.

The the group here is navigate and I think a lot of the challenges that we've heard from other medical device companies navigated it very very very well various julie.

There are usually one last quick one are you seeing any are you selling into skilled nursing facilities, yet in any kind of magnitude and then maybe just some preliminary thoughts on that as an opportunity.

Yeah, I, you know I think I'm speaking for myself and the team we continue to be very enthusiastic about the skilled nursing facility opportunity and view it getting bigger in the future.

For a whole variety of reasons, we can we can talk about later.

But that being said I'd say, we're in kind of in the first inning.

We have really have barely scratched the surface. There. So I think that's a whole nother long runway of of growth for us in the future. It's not something that we have penetrated into with any magnitude to your word only because we've just had so much kind of goodness and richness in the core part of the acute business by absolutely looking for it it certainly is.

Part of.

The opportunity that we're excited about.

Great. Thank you very much yeah.

Yes, Thank you same spot.

Next question comes from and Daniel and <unk> with S V been learning to your line is open.

Hey, good afternoon. Thanks, so much for taking the the question Lastly, just a question for you on on two ponies Tiffany's or however.

I I like the ponies, because I like pony, but how can we think about the potential incentive. Thanks for all the color to the first question on how they calculate it and all that so just how meaningful is that.

From an incentive perspective, when you think about the margins that these dialysis service providers operate under I mean is this is just a meaningful incentive is it just incremental how shall we be thinking about it as far as motivating centres, even more than they already are to build home program.

Yeah, well first of all let me start off by saying that I too like Tony So we have that.

[laughter].

But.

Yeah, I you know I think if we just obviously if we do the math does that does bundled rate was elevated another piece of good news.

And old right was out all of it into 257, so if you're in the 23 to 25 zone again, if we speculate that will be your your it here. It is eight 910% improvement and I, Yes, I think it's a kind of margin that providers typically operate within for the Medicare population at least.

That is meaningful uhm that is meaningful.

Don't think we're going to hear from any providers that they don't want to be paid more.

Right. So that's bad I think we've always that and hopefully consistently communicated that our view on on kidney, there's a nice to have and certainly a very a very nice to have but not a need to ask you know in terms of meeting our internal growth projections over the next couple of years and we still feel that way certainly will not.

I think provider is very likely are happy to hear that they're going to receive higher payment even beyond the T. C beyond the new house equity incentive and but I think beyond that it's probably too early for us to prognosticate or tried to quantify the impact but is it is it a good news story almost certainly to.

Yeah. Okay. That's helpful. And then a quick follow up and it says on the the home business and I know, there's a lot of moving parts I mean, COVID-19 and the labor shortages, certainly aren't helping at least as it relates to the.

The end stage renal disease patient population and things like that but when when do we start to think about the home business and flashing I mean, my sense is that you guys are really kind of controlling or holding the reins on the launch to some extent. So you can ensure that you can supply the acute market correct me if I'm wrong, there and have learning from <unk>, you know I'm working.

<unk> lunch, but in 2022 the year. This really starts twin slack does it farther out how do we think about when we're talking about number putting numbers around the home business on these quarterly earnings call. Thanks, So much yeah.

Yeah sure.

Well first and foremost just around the numbers that our plan is to provide our installed base numbers.

At the end of the fourth quarter and as we head into 2022, both for acute and also to separate that out into chronic which will be both the the home and then the <unk> the clinic or the transitional carrying it.

Environment.

In terms of the inflection point or they you know I know people sort of said when we need to flip the switch I don't think you'll ever hear me use the words flip the switch even like 10 years from now so I don't know 10 years, maybe 10 years now, but that's just not in keeping with our commercial strategy period I.

We've looked at other devices and you can argue the incumbent device arguably sort of flip the switch or inflected rapidly after FTA clearance and while that ride might've been kind of fun and exciting in the beginning there were challenges that materialized later like high dropout rates et cetera that I think could have been avoided by a more patient linear approach.

That really focused on nailing the consumer experienced one patient at a time and that's how we've conducted a roll out in 2021 focus on really getting the fundamentals right, which we continue to believe and see are producing the right sort of results.

So I don't think you'll deserve to any change in commercial strategy, we feel so great about it what what I continue to anchor too is.

The results in the study that we are presenting a day I sat around 100% retention in 90 plus percent is Sharon.

Treatment time compliance <unk> those are the things that physicians and providers really care about so I believe that if we continue to kind of deliver on those promises.

All the rest will follow in the out years. So so no particular change of commercial strategy I think what we're doing is helping us win and all the ways that we projected that we would win in 21 and 22.

Thank you.

Next question comes from Dusk Jennings coffin your line is open.

Good evening, thanks for taking the questions and it's great to see the the components Tiffany's <unk> excuse me question on follow up on on Tiffany's, just with the success that you had with with C. M S.

Ministers is usually a leading decision maker.

For private payers is very well.

Alex I can take with with car repairs to convince them. It's the tableau is the best machine for their their dialysis population and potentially secure some type of similar head on pavement and the private payment paid arena.

Hi, Josh Uhm I think that's a really interesting question short answer too early to tell obviously prepaid premature with this just coming out of a few days ago commercial payors pay for dialysis treatments, whether it's in the clinic or at home.

In the same way I E a single bundled rates.

They don't break it out by this much for the device and this much for drugs and so it follows the the third of the Medicare payment mechanism and so so technically today as it stands there is no existing mechanism for private payers to quote unquote pay more prefer actually for advice.

But I think the idea that you raised is a very interesting one.

Understood you should too early but.

We'll see how that plays out and then just <unk>, but there are also a couple of partnerships this year, which try them satellite any any updates on whether or not you've seen hardly traction from from those channels.

Thanks for taking my questions.

Of course, yeah on the on the home side the the progress in the last this last quarter was similar to the cute in the sense that we both added new customers. A couple that were really really excited about.

And then also saw expansion I E more patients being put hall commerce at home.

Within our current customer base. So again continue to be pleased with the progress and we obviously it unintended press release ever new customer.

But yeah, we we had some some pretty nice I would say meaningful new partnerships that were in the third quarter on home.

Great. Thanks again.

Yeah.

Next question comes from <unk> with Morgan Stanley. Your line is open.

Alright, thanks for taking the questions just.

Taking a longer term until next year I know you're not ready to provide guidance can you. Please help frame maybe some of the the pushing takes that we should be thinking about is we're kind of getting her models geared towards next year from from a revenue perspective or or gross margin perspective, I I understand that won't.

Won't be a flip the switch type of a bad but just maybe broader about your ear chewed opportunity or some of those skilled nursing facility.

Yeah true. Thanks for the question so with respect to 22 as you said, we are not giving guidance, but also in a couple of things first we run our business and the backlog position this year and we expect to end 2021.

A basketball position again, we will distribute sure that number will be printer queue for results and that'll give us a lot. It's really good visibility into the opening of 22 now our strategy 22 is really an evolution in the acute setting of our 21 strategy, where as we exit this year, we will have signed agreements with seven of the eight large nationals.

And a third of the top 100 regionals and we'll look through shorted expand those relationships in place more acute more calm shows into the acute sitting there will also look to continue to expand working through the 1200 regionals and beyond so there's a lot of land and there's a lot of expense.

<unk> to do for us in the acute settings and in that will propel you know that will propel or twenty-two growth and we're optimistic about 22 now shifting to gross margin. The three large drivers margin expansion for us on the cost side, our number one there's given the move of our console manufactured in Mexico.

So we'll continue to drive productivity and absorption benefits. They're number two will continue to run our costs down programs that have taken out and we will continue to take out meaningful cost out of our ponceau and number three once we get this F. D. A approval on the cartridge you expect and wait for.

Q here, we will see benefit in 2022 from both lower component costs on the cartridge, but also from savings. So we will look you know we will look to grow top line revenue and also look through sequentially expend gross margin twenty-two again, we will provide more details when we prince Q4 and sort of.

Give you a view over a 22 guidance, but hopefully that sort of helps green 22.

Got it I appreciate the details thank you and Luckily for you.

I think I'll check recently hired a out of international.

I know at our conference I asked you about international but I mean with this higher it seems like maybe this is more in the next 12 to 24 months, then five years away, which kind of curious about your thoughts there on approaching the international opportunity now thank you.

Yeah for sure. So international we have said that international is something we're going to explore and hiring a refers kind of international is really just helping us uhm cement who's gonna do that exploration certainly and so nothing has really changed internationalism exciting opportunity for us we believe that you.

This is only 30% of the global dialysis marketing. So there's a huge time that exists outside the U S for us that we fully intend to explore international is not big students, who are curtains project. She drew and so again, when we're ready to go and and through a market, we're going to ask for the bacon into our assumptions what I will.

We have a high bar for international expansion that business to the extent, we enter your country needs to be accretive to us both from a revenue growth perspective, as well as a gross margin perspective, so to use the Leslie analogy, we're gonna measure twice and cut once before we enter any countries.

Thanks for taking my questions.

Thank you thanks.

As a reminder to ask a question you will need to pass or one on your telephone. The next question comes from <unk> with Oppenheimer and call. Your line is open.

Good afternoon would love seat there'll be able can you hear me all right.

Yes, hi.

Perfect. Okay. Thanks for taking my question to them, but luckily it congrats are molded E. S. G efforts, so let's get a couple of close to you or maybe.

I'll put it into the vehicle sure she's check these.

As I understand it.

[laughter] outley for a certain period for a certain number of beneficiaries and that's that in your back calculate to 23.8 $3 treatment based on Christmas per week.

If an H D patient work to do four to five treatments per week with the stolen levels still hold.

Yeah.

Yeah. So I think two separate two separate ideas here that are related but separate so one is the methodology that CMS used to estimate the benefit okay. So the methodologies that they used to estimate it was based on.

Three treatments per week or is it said in the final rule 156 treatments per year. So again, what they did was they looked at what they believed was.

Think they used an estimated like 40000 dollar tableau AFP and again, we have yet to submit our actual invoice pricing. So this was their their gas and then over five years and divided by 156 treatments per year. So that's the calculation methodology that establishes what was estimated the final rules to be a.

About 23 $24.

But once that once that incremental payment benefit is established again, let's say it is $24 taken the midpoint between 23 and 25 then the provider has the ability to use they build a heck picks code, which has been newly assigned to tableau.

For any and all treatment that that patient complete at home.

Does that make sense.

Yep got it fair enough and maybe in the Bill to look cute cases, it comes with the hype cause your local orders. This corker did they give me five 6 million or maybe there was a different amount and maybe you could characterize it what's the ZIP code for sale or was the specific.

Issues customer specific issues.

The order has to be a large order I guess I'm just trying to understand from our customer specific perspective, just a utilization change or was this put forward.

Yes for sure. So first of all our total consumable revenue was $6.4 million inclusive of this order and all of the other orders. This order I mean, there where you can think about it is it's really the driver of our upside in the quarter right. So it was a big order but.

Really not you know not not not $6 million now in terms of in terms of sort of these large orders we have C. One large customer placed an order in two one you may remember and we've seen another one here I think as we grow we will start to see more of these there's no reason why a cuss.

Would you do it for you know maybe it's the lockdown their own supply chain considerations or maybe it's just to make sure that they can deploy to their facility. So I think we'll just C DS more and more now at this particular order with unique through this one customer you know it is not it is not sort of a huge.

<unk> from two four and sort of it isn't inflicting our queue for in any particularly negative way. So we speak to an hour to two expectations into a revenue guidance that I've shared 424 does that answer the questions right Yep.

Yep fair enough. Thank you.

Yep.

And ladies and gentlemen, I'm not showing any further question at this time I would now like to turn to call back to your speakers for any further remarks.

Great. Thank you well thanks to all of you for joining today and have a great evening.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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