Q2 2022 Outset Medical Inc Earnings Call
Greetings and welcome to outset medical Q2, 2022 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as your mine.
This conference is being recorded I would now like to turn this conference over to your host Mr. Jim Mazzola, Vice President Investor Relations. Thank you Sir you may begin.
Okay. Thank you and good afternoon, everyone I'm here with Leslie <unk> Chair, and Chief Executive Officer, and the BLM, Ed Chief Financial Officer. During today's call. We will provide an update on the listing of our tableau shipboard discuss our second quarter operational and financial results and provide an update on our outlook for 2022. After our prepared remarks, we will host a <unk>.
<unk> and answer session, we issued a news release earlier today and updated our investor presentation, both of which can be found on the investor pages about that medical dot com.
Call is being recorded and will be archived in the investors section of our website.
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 1095 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 on our current estimates and various assumptions.
And involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied outsit assumes no obligation to update these statements for a list and description of the risks and uncertainties associated with their business. Please refer to the risk factors section about the public filings with the secure.
Ladies and exchange Commission, including our latest annual and quarterly reports with that let me turn the call over to Leslie.
Thanks, Jim and good afternoon, everyone and thank you for joining us.
Today, we were pleased to announce that FDA completed its review and cleared our previously disclosed five 10-K submission on updates made to tableau Mrs.
With this clearance we have lifted our home, it's called and we'll read them supporting new patients in the home.
Before providing more detail on our ramp back into the home market I wanted to just step back and provide comments on our overall business and the guidance. We're issuing today. We now expect revenue for 'twenty, if I choose to be in the range of $105 million to $110 million, which reflects growth of two 7% year over year.
Two key factors are considered in that guidance.
First is the impact of the scaffold, which also is the momentum we have established with our home expansion and also disrupting ourselves into the market.
We had forecasted a significant inflection in sale of tableau for home use during 2022 and it started to build very encouraging momentum against this goal in the first half of the year.
During the ship holds there were a large number of patients we're planning to go home with Pablo and understandably hardening alternative choices. We are now working to ramp back up our commercial activities and reengage with our home provider customers. So we feel remain eager to implement tablet.
Well, we have not seen any change in provider interest in finding patients home with tableau, we anticipate it will take US a couple of quarters to rebuild the patient pipeline and regain the lost momentum.
And our acute market the ship hold created some customer uncertainty, which we are actively working to address it.
At quarter and pushed out the timing of some of the deals we had expected to close in the quarter.
The second factor is the impact of nursing shortages and some early signs of capital spending right both of which are primarily impacting our acute market well tableau uniquely enables hospitals to in source dialysis and achieve significant cost savings given typically involves the hospital hiring new nurses, which is a challenge does for national.
And regional health systems across the country towards the end of June our average sales cycle and the timing of installations out of backlog both legs and we're continuing to see that trend into this quarter well, we are not standing still and are working to help providers mitigate these issues, we expect nursing shortages and potentially tighter.
Capital spending playing an even larger role during the second half of the year and into 2023.
I will cover these factors in more detail as I review, our progress in the home and acute market as well would be all in the financial section, but suffice it to say that we expect the impact to moderate our revenue growth trajectory over the next several quarters.
I haven't changed is that our total addressable market remains exceptionally large see end market demand for tableau remains very strong and our competitive position remains highly differentiated.
Turning now to a more comprehensive update on home our focus here is all about regain momentum we established earlier in the year as we.
Many patients who were in training or schedule for trading on Pablo I'd make alternate plan, which means largely rebuild the education.
Having said that we believe we have a solid foundation and reentry point toward engaging with home providers before implementing our chef Paul we were tracking ahead of our goal to establish 100 home programs by the end of 2022.
As a reminder, we define a home program at the location offering tableau for home dialysis and we remain committed to this 100 program goal for the year.
In addition, we have a strong contingent of physicians and providers, who are eager to expand their use of tableau in the home center. We are thrilled that our retention rate with patients at home remains markedly high and that controllable attrition remained negligible through the shuffle.
Now more than ever we continue to believe our high retention rate is essential to high long term growth and we are very pleased to see that the benefits tableau offers continue to enable patients to dialyze at home over the long term.
Further additional encouraging tailwind continues to advance the shift toward home dialysis.
For example, during the quarter CMS issued its annual proposed rule and it requested information from stakeholders on ways to improve access to and quality in home dialysis in the proposed rule CMS reinforced the dialogues and hit home is associated with lower overall medical expenditures and Dialyzer and center and concluded by.
We believe that increasing the race at home dialysis has the potential to not only reduce Medicare expenditures, but also to preserve or enhance the quality of care for ESR D beneficiaries.
As we've discussed in the past we benefit from a very wide competitive moat from both a regulatory and technology perspective.
The results of our recent human factor study further enhanced our position.
As you May recall from our June update call human factors data with the last remaining item under review by FDA at the time with this submission now player. We are pleased to share some of the key results.
Kidney study health care professionals patients and care partners completed a three hour training and were then asked by independents facilitator to perform thousands attack.
The breadth and depth of these studies with significance for example, the total number of tasks covered in our two study with 10 times greater than the only human factor study ever published by a competitor or.
Our results were highly differentiated as well and the health care professionals group there was a 0.5% error rate roughly half of what was reported in the competitor study and the patient and care partner group. There was a 0.9% use a rate less than a quarter of what was reported and the competitor.
Their study.
What's more the clinical evidence base supporting tableau continues to grow as well for example, this past quarter at the highest number of clinical abstracts in the company's history with the minute on tableau many of our customers to the American Society of Nephrology annual Scientific conference taking place. This fall these abstracts cover a y.
Mid range of outcomes from tableau as performance in the ICU to treatment adherence and retention among home patient.
The breadth and volume speaks to the growing number of customers recognizing tableau clinical benefits. In addition to operating advantages both in the acute at home environment.
Taken together these tailwind does validate our conviction and tableau clear advantages and the very large and growing home market over incumbent and emerging technology.
Now I will turn to a review of our acute performance.
As we anticipated we experienced disruption in the acute market in late June which continued into Q3 as customers digested the home chef old news.
We have also started to see a clear shift toward nursing shortage is playing a role in the elongation of our sales and installation cycle.
As we've outlined before tableau generated cost savings in two ways supplier cost reduction and labor cost reduction accessing the incremental and significant cost savings related to labor involved the hospital using tableau to change from outsourcing their dialysis to in sourcing and owning and patient dialysis themselves.
For example, one large regional player.
Recently conducted an internal analysis of how much money they save today by in sourcing with tableau their analysis validated at nearly 40% annual cost savings by converting from an outsourced dialysis model to in sourcing that tableau.
Our footprint has continued to expand across the country and hospitals are recognizing the benefits of in sourcing with tableau. The vast majority of our pipeline mix has shifted to in sourcing opportunity.
In sourcing dialysis delivered powerful cost reduction benefits and it also requires hiring new nurses to get there while the health system and our deal pipeline consistently report a willingness to hire in order to access the benefits of in sourcing they remain uncertain about the timing of their ability to use that as a result, we have seen some delay.
The hospital purchase decision and also a slower expansion aided among current health system customers Youll buy consideration about the time it may take them to hire them.
That said we are in the early phases of rolling out some proactive program ideas, we believe could help alleviate shopping as a headwind in the future and beyond that as we adapt to a longer sales cycle and the current hospital operating environment. We're also taking the opportunity to strengthen and sharpen our commercial infrastructure and improve our sales processes to address that.
Antral opportunities that exist and set the company up for long term success. We weigh these factors in combination with the cautious commentary from our customers regarding their future capex spending in establishing our guidance for the remainder of 2022.
[noise] foundational eight tableau provide a transformative solution and an $11 4 billion dollar U S market with an incumbent dialysis technology that is complicated burdensome and flexible our footprint in the $2 5 billion dollar U S. Acute care market provides us with a strategic entry point.
The $8 9 billion dollar U S home market, which remains significantly underpenetrated unlocking innovation the previous triple and current macro factors do not directly impact the magnitude of the market opportunity. In fact, we do not believe we've lost a single deal as a result of them and no orders have dropped from a backlog today.
I also want to emphasize that we see no change in the underlying market fundamentals are strong demand for tableau and either the acute or call and market.
But we have work to do what we are seeing is our progress slowed and we now need to regain our homebuilding and adapt to the current environmental headwinds in the acute setting we remain confident in the strength of our technology, our competitive position and importantly, the need for tableau and our large and growing end market.
I want to close by thanking the entire out that team for all they do every day on behalf of providers and patient as we work through this challenging period archaean admirable focused on improving the lives of dialysis patients and their caregivers have not labor with that I'll now turn the call soon to be all to review our financials.
Provide more granularity on our updated outlook for the third quarter and the remainder of 2022.
Thanks, Leslie Hello, everyone overall, our second quarter revenue of $25 $1 million was in line with our guidance and non-GAAP gross margin of 15, 9% exceeded our expectations product revenue decreased four 9% year over year to $19 $6 million with the largest draw.
The decline in consumer.
Console revenue decreased by 21% year over year to $13 $2 million, driven primarily by lower console placements as Leslie mentioned, we saw meaningful disruption in our home and acute customer base from the ship holds as well as early signs of the broader macro headwinds impacting the business.
In addition.
The ship hold them in the absence of home console placements during what we anticipated would be a record June .
Importantly, we have not yet had any customer cancellations out of our backlog.
Consumable revenue was $6 $4 million, an increase of 69% versus the prior year, reflecting a larger installed base.
Q2 cartridge utilization continues to be in line with our expectations.
Service and other revenue of $5 $4 million was higher by 18, 5% compared to the prior year.
Core service and other revenue doubled with the growth of our installed base, but was offset by the planned extra you are a component of the HHS agreements.
Moving to gross margin and operating expenses I will highlight our non-GAAP results.
Courage you to review the reconciliation of GAAP to non-GAAP measures, which can be found in today's earnings release.
Second quarter gross margin was 15, 9% an improvement of approximately 11 five percentage points versus the prior year period, and a sequential improvement of 110 basis points. This.
This improvement compared to the prior year period was primarily the result of the transition of our control manufacturing into our Mexico production facility.
Our ongoing console cobblestone programs and our revenue mix with a higher percentage of our Q2 'twenty two revenues stemming from a consumables compared to the prior year period.
Our cartridge manufacturing transition is well underway and our new Mexico based center continues to ramp up their volumes.
Operating expenses in the second quarter were $40 2 million up $13 $2 million versus prior year periods and in line with our guidance.
The increase in Opex was driven primarily by head count growth investments in our commercial organization investments in R&D and G&A expenses.
We reported second quarter GAAP net loss of $43.8 million, resulting in a net loss of 92 cents per share compared to a net loss of $32 million or 66 cents per share.
non-GAAP net loss was $36 $4 million or 77 cents per share compared to a non-GAAP net loss of $26 $3 million or 57 per share for the same period.
We ended the quarter with a strong balance sheet anchored by approximately 295 4 million cash cash equivalents restricted cash and investments.
And minimal debt.
Moving to our third quarter and full year 'twenty two.
Starting with revenue we are moderating our near term growth expectations as we work to regain our momentum and take into consideration our expectation that staffing pressures and potentially capex constraints on acute customers.
Persist for at least the second half of this year and likely into two groups.
Okay.
These factors have elongated both our backlog and pipeline conversions.
As a result, we now anticipate 2022 revenue in a range of $105 million to $110 million, an increase of two 7%, which makes me.
We further expect the Q3 revenue will be roughly in line with Q2 and that our ability to move towards the top end of our guidance range was predicated on the pace of the ramp in home customers and in our ability to mitigate the acute headwinds we spoke.
Yeah.
Margins will continue to expand in 2022 relative floor at seven 7% gross margin in Q1, primarily as a result of our cost down programs on the console ongoing cartridge utilization and lower freight costs.
We expect margins for the huge success meaningfully on a year over year basis and be roughly in the low to mid teens range.
Also our lower anticipated console and consumable shipment volumes relative to our plan.
Further we expect the margins in the third boardroom stepped down sequentially before stepping back up into the fourth.
We expect our Q3 onshore mix with a higher proportion of whom placements as we work to restore our presence in the homework and we will see the X three of the final components of our HHS agreement and the food.
Over the long term.
You have high conviction in our ability to generate gross margins.
As we discussed in our June 15th call. We have implemented cost reduction measures designed to better align our spending with our anticipated 20 snakes results, while ensuring that we continue to invest to drive long term revenue growth and margin expansion.
This makes a deferred spending and some structural changes, including Opex and capital spending will also provide benefits into 2023.
While these measures resulted in only a modest reduction in spending during the second quarter.
Spect it to deliver greater benefits in the second half as a result, we now expect 2022 spend to be roughly $10 million lower relative to where previously.
Lastly, turning to our balance sheet, we are fortunate to have a strong balance sheet with minimal debt that gives us the capacity to focus on her home in acute opportunities.
Our revised spending forecast will also help preserve our cash runway and we will continue to evaluate additional opportunities to defer spending in ways that preserve our cash runway without jeopardizing, our ability to grow revenue and expand our gross margins. We continue to have conviction in our ability to get to cash flow breakeven with the.
Timing dependent on revenue growth and reaching a milestone of 50% gross margin.
To close we remain very confident in the value proposition tebo will provide and our ability to further penetrate the $11 billion long term market opportunity over time.
And every member of our outfit team are pleased with the resumption of tableau assistance in the home market and are excited about delivering on our promise to dialysis patients and providers in the acute and home settings.
With that I think we're ready for Q&A operator, please open the lines.
At this time will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you might start to move your question from the queue for participants using speaker equipment, and maybe necessary for you to pick up your handset before pressing the star.
Archie one moment, while we poll for question.
Our first question comes from the line of Travis Steed with Bank of America. You May proceed with your question Hey.
Hey, guys. Thanks for taking the question.
Wanted to touch on the revenue guidance, but there's really no improvement in the second half versus Q2 levels, but basically 25 million a quarter is what it looks like so just why not see better momentum over the course of the year and in the second half guidance basically about 30 ish million or more versus the livestock loft I'm just curious why such a big reduction in the second.
I think staffing used to be more of a tailwind now its a headwind just want to make sure I understand exactly what's changed in the last three months.
Shall I go with maybe maybe I'll start with the back part of your question can be addressed that the guidance you know he Travis yeah. So let me speak to sort of the the macro impact and and and the impact and into Asia in particular.
I think first and foremost we are contending with two challenges right now I mean, obviously the first is the momentum we lost on the home Brian .
As a result of being on the ship hold for the last two plus months and at the time of our June announcement, we just didnt know, how many patients would way versus choosing other home alternative in China's marched on here it became apparent that yeah.
The uncertainty around FDA timing, when leaving those patients to choose other path, which is completely understandable, but now that those cards have been turned over yeah. We now know that we need to build a new patient pipeline largely again from from scratch and I'm not worried about our ability to do it but I think it will take time and we wanted to be realistic about that as we thought through our growth expectations.
Asian mm for the next couple of quarters. So that's that's kind of part one and our second challenge.
On the nursing shorting shortage front on this one this challenge is an interesting one because it is sort of start life earlier in the year is more of a tailwind for us we've talked about it actually is more and more of a tailwind than a headwind.
The extent to which it was affecting our sales cycle became very apparent at the end of the quarter as the team here. It was trying to close deals and hospitals started just delaying their contract decision, making in order to do more diligence on their ability to hire their own nurses and Jeff you really sure again, the confidence that they would be able to do so on a timely basis.
I think the impact of the of this macro factor on on nursing with probably also exacerbated by the fact that our pipeline has evolved to the point where today almost all our opportunities a good problem to have but all of our opportunities are connected to hospitals wanting to purchase tableau for in sourcing. So long story short this is not demand related and in our view it.
This related and I think the reality of the new case for however, long it persists required us to retool our expectations at least the near term around growth, but I mean has anything fundamentally changed about our market opportunity or for you know tableau has advantage is our ability to grow longer term not not in the least in my view.
And then Travis just to sort of address the first of your questions So guidance and kind of the the ramp here through the second half so.
Our guidance really depends on a couple of things one is our and our providers the ability to ramp back home customers remember as Leslie mentioned, we did have cut the home patients who were trained and set to go on tableau who's now going on to other therapies and so we need to sort of rebuild.
Patient identification and training pipeline, that's number one and then with respect to the acute two depends on our customers' abilities to mitigate these nursing shortages.
The low end of our guidance, obviously, assuming that these two factors take longer to sort of work through and then as you move into the higher end of our guidance. What we're seeing is that look Q3 is roughly a flattish quarter and then as our home and acute customers you know sort of prove that they can.
Work through these issues that we talked about that we'd get back to growth in the fourth quarter.
Okay. No that's helpful and I guess looking a little further out like what do you think about 2023 I realize you can't guide at this point, but when you think about bigger picture do you think somebody's staffing issues. The lost momentum you had will still impact 2020 three in a negative way or maybe it's the other end you know more of a catch up year and you can kind of get back from the loss of a minimum this year and so maybe it's a little bit.
Better than neutral I was just kind of bigger picture thoughts on a little further out and then a couple of quarters, what would love that thank you.
For sure. So Travis let me first say that you know our end markets for large and growing and we're in a strong competitive position and as Leslie pointed out we haven't seen any abatement of end market demand. So our foundational growth drivers are alive and well as we look through the far far into the future.
Now having said that the visibility we have is for the second half and we're really focused on executing through the second half on both our ramp and helping our customers work through the staffing shortages, we will guide to 2023 as we always have.
Wishes women into our Q4 results.
But look based on the visibility is a little visibility we have today into 2023, we would expect that our twenty-three growth rates to moderate relative to what we had previously thought.
That's helpful color, Thanks for taking the questions and I'll hop back in the queue.
Thanks Charles.
Our next question comes from the line of Josh Jennings with Cowen You May proceed with your question.
Hi, good evening, thanks for taking the questions.
I wanted to just start off and ask about the human factors data.
And it hasn't been formally submitted to the F. T. I think you referenced on the prior caller.
Had a couple of months ago, but just wanted to make sure that the full submission was in and is there a timeline for the FDA to sign off on the data Center is.
Closeout that requirement.
Sure Yeah, Let me, let me take that.
So Josh Yes, we had to formally submit the human factors data as.
As part of that five 10-K submission and what the FDA communicated to us back in early June .
With that their review of the human factors test data was the final remaining gating gating item or the item gating there their ability to clear and so with the clearance that we received here lately on Friday.
On the F. D. A is indicating that they have reviewed all of that human factors data formally.
And signed off on it and granted a clearance on the basis.
Okay.
Excellent excellent.
Any.
Not on.
Pricing.
As you're looking to regain momentum and remove some of the risk associated with the capital spending slow down in half two channel.
Have you implemented any pricing changes were considered.
Question discount strategy too.
Country moderates from Jefferies. Thanks, a lot.
Yeah, Hey, Josh show pricing is certainly one of the levers that's available to us in our contracts. You know we are really focused on getting back to both of our homes.
Markets as expeditiously as possible and there are a bunch of levers that are available to us I don't want to go into what specific actions, we may or may not take other than to say other than to say that sort of we've baked all of that into guidance do you mind, if I ask them.
One thought that come to mind, Josh is just maybe for some more color around kind of the capex spending environment.
I think what's probably most important to take away and tableau is a solution. It's an important solution and I think the value proposition around our capital spending which is kind of day. One dollar one saving has never been more relevant. So while we are seeing hospitals take you know just take a second or third look at the financials.
Sharpening in and re sharpen the pencil.
We have not seen any deals fall out of our pipeline where out of backlog because of that and I wouldn't be really clear about that what again, what we are seeing maybe let's say earlier. This year last year. It was probably more of a measure one's caught one conversation on capital investments with the hospitals. It really wasn't a it was a short conversation today.
It's probably worth thing, it's more of a measure a three five start once behavior.
Hospitals are evaluating capital proposal, but what we do continue to hear over and over again is that at tableau.
He quickly rises to the top of that capital spending priority list.
Of the very real and tangible cost reduction benefits. It has all of that said again, we don't see a demand problem or one that would be related to pricing or other I think it is really just he's related more than anything else.
Great. Thanks for taking the questions.
Our next question comes the line of Suraj Kalia with Oppenheimer. You May proceed with your question.
Good afternoon, Leslie the Bill can you hear me all right.
Yep Yep.
Perfect.
Congrats on resolving this hold issue I.
I think so jumping in between many colds. So guys just bear with me so lets see I remember the number 1200 or 12 51 somewhere in that ballpark in terms of backlogs.
And then the Bill's prepared remarks, there was this comment about new cancellations from backlogs.
So I'm just trying to connect the dots there whose contribution.
If my memory serves me right it was.
<unk> doubled in FY 'twenty two.
And the math is suggesting roughly around 20 million a little over that in the home brands. So first can you tell me. If we are approximately right and if you're starting to build the funnel again I'm curious as to your confidence level.
The remaining four months of the quarter and where do you all still stand in the hundred active home programs by end of FY 'twenty two.
Yes, suraj, so lots to unpack there let me maybe start and then you can jump in if we miss something.
First of all on the backlog. So we entered the year with 251 consoles in backlog and a significant number of them were home consoles and suraj backlog for US means the provider has a binding commitment to take tableau from us.
So what has happened is as we entered the ship hold we're set to deliver consoles out of backlog, but no. We can't do choose these patients because you know we're on ship hold and so these patients who were trained and ready to go on tableau. They found other therapies.
So that backlog remains nobody has canceled the consoles out of backlog, but now our provider partners need to identify new patients and so they need to identify patients at the top of the funnel make sure that they are suitable for home and then train them to get home and so what we've talked about is that the bad.
<unk> conversion.
Engagement Suraj. So those consoles don't go anywhere they just deliver on a longer cadence if you will than we previously anticipated.
And remember that backlog for home was always longer tenure.
Our provider partners are signing longer term commitments to send patients home.
So that's sort of part one.
With respect to whom revenue contribution to the full year. Our previous commentary was at home would be roughly mid teens as a percentage of our full year revenues and we continue to believe that within our guidance range.
He used to have a path to getting home roughly to that same percentage again. It just depends on how we'd provider's ability to help train identified patients trained patients. So they can get them home over the next six months.
Over the next remainder of the year.
Does that answer your question Suraj.
Fair enough.
One last question hop back into queue soon to be old in your prepared remarks again. Please forgive me jumping in between calls you mentioned longer hospital sales cycle.
And also mostly I think so I heard something about staffing pressures I know somebody asked about this.
Forgive me I did not connect the dots here so.
Syed Tableau was you know since the whole value proposition argument was.
Now being a pressure relief for the staffing issues.
But now that our staffing issues and they are serving.
And not being factored into our guidance reduction.
Forgive me I did not connect the dots there folks. Thank you for taking my questions.
Sure. Thanks, Mike I think I can jump in and address that.
So answer is I don't know if you listen to this part, but just going back in time, taking a step back there are two ways that hospital excuse me that tableau drive cost reduction for hospital way number one is just supply cost reduction it just literally costs less to perform a treatment with tableau in the acute setting than it does with other choices the second.
Cost reduction driver can be labor some hospital outdoor cats, historically outsourced their dialysis some hospitals have always been source it and just use tableau for offer supply Cross section, we what would I remarked on was we actually started to see our pipeline mix shift them you know in the end.
Let's say it did not make Q2 time for words to mostly hospitals that are a very very motivated to use tableau in order to in source dialysis.
Because it generates even more dramatic cost reduction in doing so most not all but most of those hospitals have to hire an incremental new staff in order to implement the program. So wild tableau, absolutely is still a solution as it is simpler offers operating efficiency.
D a.
It is a it is a solution for staffing shortages in the hospital for those that choose to in source dialysis. There can be an impact just on the duration of our sales cycle at the hospitals are taking extra time just to make sure that they have visibility on how quickly they can hire their staff.
I think what ive been listening for though really intently Gan customer conversation is the distinction between for example, hey, do hospitals, just not want a deal did they just not want to hire staff do they not want to in source I have not we haven't heard that at all.
Kingston is they just have some uncertainty about how long it will take them to hire that stop and you're not talking about hiring dozens of people, who typically have a small handful of stuff.
But in their decision, making process and wanting to again kind of measure three times and cut one their execution speed or question Mark around that has extended our sales cycle or at least started to here in the back half or back back portion of the border.
Our next question comes from the line of Rick Wise with Stifel. You May proceed with your question.
Good afternoon.
We had no bill.
I was just reflecting on things that maybe are a little more in your control of some of these relative to some of these uncertainties.
Maybe talk us through this.
The topic of rebuilding the patient pipeline.
And maybe Leslie you could give us a little more color on what you have to do how long it takes what are the steps.
And you know.
What are you expecting.
Yourself.
As you said goals internally for the organization in terms of getting back.
Rebuilding your move out to there.
Yeah sure and thanks, Rick for the question.
Well, let's see I mean, first and foremost I'd like to say that our home providers have been incredibly supportive and maintain their belief around the benefits at tableau can bring them to their overall home dialysis census, their goals around increasing our offensive and and for their patients and I do you want to take the opportunity.
<unk> to think that Oh, I'll provide our customers that we have.
This was certainly you know it's that bad, but nothing I would describe as permanent damage in and I want to stress that we don't see any insurmountable barriers to re engaging and rebuilding momentum there's no structural delays here in front of us.
Now let me get to your question, though about well what is what is that funnel look like.
I'll try to keep it brief but in short it looks like providers first identifying patients who they think are candidates for home broadly edgy.
Educating and influencing those patients to choose home, giving those patients are at an option between you know this technology or that technology for home and those providers are really encourage the patient can make their own choice to make their own decision and then of course, the final step training location and getting them home.
Those are the basic steps and my expectations are not that this is years in the making but because we've never been through this before quite frankly rec. You know we haven't had the experience of building up a lot of momentum getting that flywheel going and then having deposit and halted and then having to restart again.
I just don't have.
Under my belt to accurately predict exactly.
Exactly how long that's going to take but I guess, what gives me a lot of confidence.
In a theoretical is the strong results that providers have seem to continue to see what their patients who are already home that very high retention rates.
And their experience now with a very fast predictably fast training rate gives me a lot of confidence that our home customers well you know effective immediately start identifying those patients at the top of the funnel and flowing them through as quickly as feasible.
Gotcha.
Two other questions I'll ask them both.
I just wondered in terms of being ready to ship ready to Reaccelerate.
We've heard a lot about supply.
Supply chain and chip shortages component shortages, our electro mechanical product shortages I just wondered.
Anything new there and my last question is.
I apologize for asking it.
And maybe what you you should have an appeal get stuck with this one but.
To what extent do you feel like you've given us.
Is this based on what you know today like the.
The most conservative imaginable scenario for the second half.
A sort of a middle of the road scenario, where you've tried to incorporate.
You've not assumed aggressively your ability to re ramp et cetera, how do I, how do I think about.
What you're giving us your typically thoughtfully conservative I believe in your public communication, if you could frame that at all.
Be very grateful.
Yeah, Rick so with respect to supply chain. The first part of your question. So supply chain continues to be tough in the macro but we continue to have a strong team that's been executing through these headwinds for a while now and so there's nothing new to report the Big thing we're focused on.
These are a cartridge transition down to Mexico, that's going well and honestly, there's nothing to say other than that on supply chain.
With respect to your guidance I mean, Rick look our objective is always to give guidance based on the visibility we have won by our backlog and our pipeline.
I talked to in answer to an earlier question that our ability to execute through the guidance range really depends on two things number one is our home ramped back which as Leslie mentioned you know we haven't sort of done this before and so we've modeled what we think the ramp looks like number one and then number two base and.
The acute setting on our acute customers' ability to weather or work through the staffing shortages that we've talked about so again, it's both of those bode well, we will certainly move up into the guidance range.
<unk> continues like in any period should be based on the visibility.
Yeah.
Alright, I appreciate the color and appeal.
Thanks, Brad.
Next question next question.
Comes from the line of Amit Hasan with Goldman Sachs. You May proceed with your question.
Thanks, and so on for me. Thanks for taking the questions same line of questioning so a couple of slightly different angles, if I could so mobile when it wont be a responses earlier I believe puts roger's question.
It.
It sounds like it's just a few million dollars, maybe $5 million to $7 million of 40 million card versus our last guidance is going to come from the home side, just a much smaller revenue base. So I'm wondering if we can try and parse out with all the different factors that are being talked about the different variables on the acute side. If you can try and parse out sort of what are the factors that were attributable to the disruption from.
The ship hold that you called out for <unk>, obviously in June and then into three two if you could try and quantify or just give us an idea of how much of the shortfall in that $30 million to $35 million on the acute side is from that factor versus sort of the broader environment that you've seen evolving in front of you.
Yeah, Jamie So first of all.
Wanda sorry.
Right.
Oh, sorry about that look we had a couple of factors happened right. As you pointed out one is sort of the ship hold and its impact on both our own and our acute businesses and second is this elongation of the sales cycle with less we talked about we haven't broken out each of those.
Components individually, but maybe you could give you a bit more perspective, you know we talks about entering Q2 and certainly entering the ship hold with a lot of momentum in the home and we were expecting to otherwise deliver a pretty robust quarter of home shipments right.
And we expected all else being equal for that momentum to carry through the end of the year. You know it's hard to say what would have actually happened, but that's nonetheless, how we were thinking of our performance going into it.
And so you know I mean could you sort of infer that we were running on track through or ahead of our mid teens percentage of homes. That's entirely possible now as we look at the remainder of the year and based on the guidance. We gave we factored all of that in.
So we haven't broken out each of those components individually.
Okay thought it was worth trying maybe you can remind us just kind of qualitatively what.
Home ship hold drove acute disruption just just to give us a flavor again above what cause that disruption if you can't quantify it for us.
Yeah, I can I can comment on that qualitatively I think there is a.
Well a couple of things that that occurred all pretty understandable from at least from my vantage 0.1, We obviously had a number of them hospital potential customers that you saw the news and had understandable questions about what will what exactly does that mean and where and when does it apply and so our sales team has been.
Still a healthy amount of time I'm, just laying down the fact base and answering all those questions in a responsible way. So that has some effect again no permanent damage that had some effect on our sales cycle and if an extra you know 4567 conversation have to happen in your two weeks before the end of the quarter.
Another example of impact we had a number of a number of contracts that we would call enterprise solution that are covering the use of tableau in the acute setting sometimes in the sub acute setting into the home setting all all helped us centric.
And so we were also faced with the challenge of trying to separate out home from those contracts redo them get all of the signals for us lined up we redline etcetera etcetera and there is obviously just an administrative reality of one's ability to do that again with just weeks remaining in the quarter.
Those are just examples bill I, just again I'll stress.
None of it all of it painful none of it fine, but nothing that I would consider to be permanent damage and I feel very confident that.
That we will be able to you know to remove the distraction factor of V. A home ship hold on the acute care in the very near term.
Okay. That's helpful. Just one last one if I could sneak it into stock.
Maybe talk about what's happened in the FDA process. Since you last updated US a June how things went anything unexpected and then kind of what's what's been put in place now moving forward so that something like this doesn't happen again.
Yeah sure.
Totally fair question, well, so what what transpired in the first part of your question what transpired since our June update calls, whereas exactly what FDA has communicated to us which was that they needed more time to complete their review of the human factors data M. B, a human factors review team inside of F. D. A.
Did exactly that.
And so that that that really was the primary or the principal activities that between early June and when we just received as Clarence I think as I mentioned these studies were very very robust.
Totaling in all you know closer to a thousand pages and so there was certainly a lot to review I you know I think what you're speaking to what would we do differently are there any changes that we're gonna make them.
First and foremost I mean, we are very proud of our track record we have filed and received clearance on six five fan caves in the last five years, which is more than any other competitor both in the acute and the home based so we're we're obviously very proud of our track record here.
What was different this time around was the human factors bar and we learned a lot it was painful learning, but but invaluable them now and wait to create a competitive advantage for outback. It by the way we own this learning Oh Boy I think we had not fully appreciated.
How substantially the Fda's expectation had elevated in and frankly, that's on US we have since established a commitment internally for HIV to be a core competency here something that we're really known for and I'm certainly not going to claim we're there yet, but that's our aspiration and our commitment the steps we've taken so far are hiring.
<unk> very senior seasoned leadership and human factors, which we had not previously had.
And now understanding at a very granular level, how to construct and can adopt these protocols in ways that meet fda's expectations.
Our next question.
Drill run here with Morgan Stanley You May proceed with your question.
I wasn't going to be all thanks for taking the questions. Luckily maybe just for you.
Just in terms of thinking about the patients that might have gone too competitive systems in the near term.
Maybe talk about maybe what the switching cost would be for them to come back to tableau, how big could that be if that's factored into any type of your guidance I know, it's not necessarily like maybe at the top of mind thing because you have a broader market opportunity, but just kind of curious about that near term.
Uh-huh Yeah, Yeah, I understand the question I went through I will say in in in all transparency and honesty, the orange or Crystal ball here is very very imprecise I'm not having the opportunity to talk to each and every individual some patients.
You've chosen to stay in center or some patients have chosen P. D. Some patients had chosen the incumbent HFC technology et cetera. So there's a number of different pathways here that were available to them Geech, perhaps had its own switching costs is it possible that maybe some of the patients that just shows the same center, where you would argue that.
There's the lowest switching cost at least at a piece of paper is it possible that some of those could be could you hold back and reenter trading in and really learn and get ready for a home yet yes, it's absolutely possible that's not an assumption that we factored in and again just based on our lack of visibility quite frankly are our lack of data I would always prefer.
To make data driven decisions, we don't have any any data or evidence that gives us you know that sort of confidence that the X percent what would come back, but it's certainly possible.
Got it and then just two quick questions.
Kind of given the reset you're having in terms of the business. Our guidance is there any way that you can just give us an update on maybe where the home install base stands today I understand that you're trying to get or you're still on track to get to 100 programs by year end, but just if you could update that number and then lastly, Leslie you talked about having a still very high.
High retention rates, but could you put some numbers around there just curious where you are thank you.
Maybe I'll start yeah for sure so do on their own.
Installed base. So remember we entered the year with 300 patients in their home and clinic setting.
And then had a really strong Q1, we were gearing up for a strong Q2 when does schuh pulled went in place in the month three wishes when we deliver the largest typically deliver the largest amount of consoles, both home and acute and so we definitely saw installed base growth.
In the first quarter, but not as much as we'd hoped in the second quarter, we still fully intend roos, who provide that installed base number when we put into our Q4 results, which has been our which has been our normal practice. That's part one you know with respect to home growth over time, believing.
Indicators really is the number of home programs and again, we are still on track to get to this 100 home programs goal by the end of this year and again, that's going to drive installed base growth in the home moving forward.
Let me, let me pick up on the retention question here so the.
I think the really good news is that retention rates have not changed materially at all.
And and remain very highly differentiated in the marketplace.
We said in the past it to anchor that a little bit more specifically, we have talked about observing about a 15% rate of death and transplant, a combination of death and transplant them.
Before and that that we didn't see any new trends in in that category.
And what I would describe it is extremely negligible numbers of patients today, who are just opted at tableau and so that's those trend lines are continue we saw no deviation from that through the course of the home shuffle.
Okay.
Our next question comes from the line of Josh Jennings with Cowen You May proceed with your question.
Hi, Thanks for let me circle back a bunch of my initial question earlier.
Wanted to really to make sure that our five 2000 2022 order.
In regards to human factor testing.
With that requirement has been satisfied with the current submission or is there another human factors.
<unk> said that the FDA will require post approval.
Sure, Josh I'm happy to take that.
The human factor study that was the subject of the 522 post market surveillance.
That was in connection to the version of Tableau that was cleared in 'twenty 'twenty.
Since that Vernon is no longer being marketed are used commercially the FDA has notified us that we no longer have to conduct this study and lesser until the old version is reintroduced into the market, which of course, we have no intention anyway.
Okay, I guess the confusion I think isn't your from your filing you guys talk about somebody to catch up I think.
And then using that version of tableau for human factor study is required in the front of 'twenty two.
But that's just that's on my mind.
I'm, just probably just a little bit confused I apologize.
No no no. It didn't look at using him Josh and just to make you feel better about yourself. In this is this is new information. So this information will be included in our upcoming 10-Q the call. It just happened to be occurring before the 10-Q. So this this is new information about the FDA notification that we don't want that.
To conduct this study.
While I have you might as well just throw one more you know I think maybe the silver lining of the ship hold was learning that that some of your orders within your acute Youku channel, we're tied to home console orders as well and suggesting that maybe you've had some more success convincing.
Hospitals or hospital systems to take ownership of home patients any any updates there I know, it's probably hard to talk about just getting out of the ship hold but just in terms of the progress you've made prior to the ship hold and how you see that opportunity evolving thanks a lot.
Sure well I'll have to frame it is prior to the ship hold them because we you know the FDA asked us not to all the sports market or distribute the device in and we were fully compliant with that so we have not engaged in conversation recently since the ship hold with health systems regarding home prior agenda ship home, yes. It is.
Absolutely fair to say that the interest in the I call. It the activation of the health systems around the concept of standing up their own called out the service lines continues to grow.
Great. Thank you so much.
Yeah, you bet.
Ladies and gentlemen, we have reached the end of today's question and answer session I'd like to turn this call back over to MS. Leslie trade for clothing were called.
Thanks, operator, and thank you all for joining today have a great evening.
This concludes today's conference you may disconnect your lines at the Sun. Thank you for your participation during the rest of your day.
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