Q3 2022 Outset Medical Inc Earnings Call
Good day, and thank you for standing by and welcome to the outset medical third quarter 2022 earnings Conference call.
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I would now like to hand, the conference over to your Speaker today, Jim Mazzola, Vice President of Investor Relations.
Go ahead please.
Great. Thank you and good afternoon, everyone welcome to our third quarter 2022 earnings call here with me today are Leslie Trig Chair and Chief Executive Officer, and the BLM edge financial officer. During the call. We will discuss our third quarter operational and financial results provide an update on our outlook and host a question and answer session.
When you issued a news release after the close of market today and updated our investor presentation, both of which can be found in the investor pages about medical Dot Com. This 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. These statements relate to expectations or predictions of future events are based on our current estimates and various assumptions and involve material risks and uncertainties that could cause actual results or events.
Serially differ from those anticipated or implied outset assumes no obligation to update these statements for a list and description of the risks and uncertainties associated with our business. Please refer to the risk factors section about the public filings with the Securities and Exchange Commission, including our latest annual and quarterly reports with that let me now turn the call over to Leslie.
Thanks, Jim and good afternoon, everyone and thank you for joining us.
We are very pleased to share our third quarter 2022 results, which were marked by strong revenue growth and at home re ramp that outpaced our expectation.
On the acute side, we were encouraged by meaningful tableau expansion among current customers and adoption from new customers. Despite lingering staffing and inflationary pressures on the home front. The early success of our rebuilding process validated our strong relationships with home providers and patient preference for tableau.
What's more just following the close of the quarter, we shipped our one millionth treatment for tableau.
Densely proud of the impact our team has been able to make in the lives of patients in such a short period of time.
Based on Q3 momentum, we are raising our fiscal year 2022 revenue guidance today.
It reflects our continued confidence in the strong underlying market fundamentals and demand for tableau across our acute and home and market.
Since the third quarter marks the beginning of our home reroute I wanted to start by sharing an experience I recently had visiting a patient using tableau in her home. This individual had tried every form of dialysis possible from in center dialysis peritoneal dialysis to the incumbent home Hemo machine the first.
And she said to me when I walked in the door was I love like Tableau. It's quiet. It gives me the flexibility to alter my treatment schedule, what I need to it's super simple to set up its been extremely reliable and I feel good on it.
As I was leaving a couple hours later I heard her and her husband discussing a weekend drive up to a festival freedom that home dialysis affords them.
This individual is just one of many who now have been dialyzer on tableau for over a year for experienced underscores why tableau is retention rate continues to set far above the historical retention rates on the home.
Combat Hemo system.
Our real world data indicate that at 12 months, the controllable attrition rate excluding that their transplant is nearly 50% lower than what is reported in the U S. Rds database for home hemodialysis.
We believe part of Tableau is retention advantage is because patients report feeling better physiologically during and after tableau treatment.
Also report learning tableau quickly and not feeling overwhelmed or intimidated by it and they talk about the simplicity of managing tableau at home with no long involved advanced preparation required and none of the space requirements that kept many of them from considering volume in the past.
Despite all of these advantages we were unsure how many patients would choose to wait for tableau through the home ship whole, particularly because the timeline was unclear and uncertain. While our information is qualitative what we now know is that the majority of the patients decided to wait for tableau and.
Anecdotally, we are aware of several patients who chose to go home on another home hemo system, and then as their provider to switch to tableau. After it became available I guess.
Another card turned over in the quarter with customer reaction customers could have migrated back to primarily using another home device.
We learned was that all our provider customers return to tableau and quickly.
The choices made by patients and providers enabled us to close Q3 ahead of our expectations for home growth, we signed a record number of patients' homes. During the last 30 days of the quarter and entered Q4 with a healthy backlog due to tableau home orders more than doubling compared to Q3 2002.
'twenty one.
Our third quarter ramp also speaks to the expertise and commitment of our service and support team who is focused on improving the lives of dialysis patients and their caregivers is unwavering as.
The number of patients to Dialyze at home with Tableau continues to grow so does our home footprint, which now covers major U S geographies and approximately 60% of this thing.
We have strong conviction around the ability to grow as we work to continue ramping our pipeline with new physicians and providers, who are eager to expand the use of tableau in the home setting.
While our progress in the quarter was a positive step toward rebuilding our home order book in patient pipeline I do want to emphasize that it's early and our work to fully reestablish our momentum will continue to build that.
That said, we do expect the fourth quarter to be another strong one for home placements given our large backlog for home console. This visibility provides conviction in our ability to deliver on our original 2022 goal of more than doubling our home revenue exiting the year, representing roughly mid teens as a percentage.
Total level.
Okay.
Turning now to a review of our acute performance our team executed well and continued to broaden our footprint as part of our land and expand strategy.
A key highlight for the quarter was expanding within one of the largest regional health care systems in the country with 50 hospitals in nine states.
This win represents one of the largest expansion orders an outset history.
In concert with console placement and new sales agreements another vital part of our commercial strategy is to drive utilization across the installed base and we were pleased to see consistent utilization during the quarter evidenced that our recurring revenue model continues to work well.
The macro headwinds we discussed on our last call did persist most notably a nationwide shortage of dialysis nurses, which we expect to extend into 2023. In addition, we continue to keep a close eye on capital spending trends.
However, since our August call, we've seen positive indications of stability and similar to our home customers are acute customers continue to demonstrate strong preference and demand for tableau.
Additionally, on our August call, we talked about initiating a novel program aimed at mitigating the impact of dialysis nursing shortages on our sales cycle I am pleased to report that the early results of what we call. The bridge program has been very positive.
The bridge program is expected to be margin accretive and as a temporary solution designed to bridge hospitals on staffing by providing short term dialysis nurses, who delivered tableau treatments both in the ICU and bed side on the floor, while the hospital completes the process of hiring its own permanent staff.
As permanent staff has hired the outset nurses also help with training and Onboarding, while still in an early stage. We are seeing evidence of the program's effectiveness and giving health systems the confidence to move forward on in sourcing initiatives.
Speaking more broadly our footprint continues to proliferate across the country, both with existing health system customers expanding to new hospital sites and new health system adopting tableau to begin their process of in sourcing across their network.
<unk> proposition behind this growth remains cost reduction and operational efficiency as we've outlined before tableau generated cost savings in two ways supply cost reduction and labor cost reduction.
Assessing the significant cost savings related to labor involved the hospital using tableau to change from outsourcing their dialysis to in sourcing and owning inpatient dialysis themselves.
In sourcing dialysis delivers powerful cost reduction benefits.
For example.
One large regional player recently conducted an internal analysis, demonstrating a nearly 40% annual cost savings by converting from its outsourced dialysis model to in sourcing with tableau.
The labor rates and labor shortages continue to rise among third party dialysis service providers, we continue to see a long runway of opportunity with hospitals seeking more strategic ways of improving inpatient dialysis care and reducing their cost at the same time.
Earlier in the quarter. We were also pleased to announce that outset was awarded a VA contract aimed at improving dialysis care for our veterans.
Specifically the contract which was awarded by the strategic acquisition Center of the Department of veteran Affairs enabled tableau to be sold into 106 VA hospitals throughout the United States.
While tableau is already deployed in some of those facilities. This new five year indefinite delivery indefinite quantity contract will enable VA centers to acquire consoles to both send veterans home and expand usage in the acute setting this partnership with the VA will help to further our mission to bring.
Technology enabled patient centered approach to dialysis, both in the acute and home settings, and we look forward to supporting these patients across care settings, as they dialyzed with tableau.
Our recent acute and home wins were validated from a clinical perspective at the American Society of Nephrology kidney week meeting last week at summit tableau advantages where share through eight poster presentation that covered a wide range of outcomes for tablets performance in the ICU to treatment adherence and retention.
Among home patient over half of the abstracts were submitted by tableau customers reporting on their experiences and outcomes for.
For example, a 300 bed hospital, which is part of a large national IV and reported improved nurse staffing efficiency reduce treatment costs and increased patient time off dialysis in the ICU all by switching to tableau.
We also presented data from the largest human factor study ever performed on our home hemodialysis device.
Health care professionals participating in the study were tested on 7365 tasks with an observed use error rate of just 0.5%.
Among patients and their care partners in this landmark study.
We observe user error rate was just 0.9% on over 5400 tasks tested.
These data support tableaus ease of use which clinicians and patients tell us contribute to the higher home adoption and retention rates and stickiness in the hospital setting.
To close on <unk>, we came away from this conference incrementally more positive about the tailwind driving tableau adoption.
Cross three days, our conversations with providers Nephrologists and patients reinforce more than just interest in driving home adoption, but a real call to action.
Dramatic and center staffing shortages patient experiences during the pandemic improves outcomes at home and the comfort patients and providers now have with home health are all factors that replayed in nearly every discussion.
We were also pleased with the recent update CMS issued its calendar year 2023, ESRB prospective payment system final rule, which reinforced the ECC model and helping to keep home dialysis.
<unk> with acute and home providers.
Before turning the call over to Bill I'd also like to briefly highlight a new product updates as we have reiterated many times in the past, we're an innovation company at heart, we will never stop listening and acting upon the ideas and needs of our patients and providers, nor will we stop inventing new ways to surprise and delight them.
To that end, we're pleased to introduce tableau cart, which is a new accessory for tableau tableau part provides additional maneuverability around the hospital and incremental pre filtration capability precise that suffer from water quality that it's far worse than the national drinking water standards.
Tableau cart will be sold separately and unexpected margin accretive asps.
We closed Q3 exceeding our internal projections for tableau part orders, indicating strong early demand for this innovative accessories.
In summary, our strong Q3 was driven by significant expansion in the acute setting at a home pipeline that is rebuilding ahead of expectation it.
It is clear to us that tableau remains a highly differentiated solution and one of the largest most expensive recession proof areas of health care.
Our performance reflects the truly incredible outset team so I would like to thank for their courage commitment and conviction and all they do every day to advance our mission.
With that I'll now turn the call to Bill to review, our financials and provide more granularity on our updated outlook for the fourth quarter and the remainder of 2022.
Thanks, Leslie Hello, everyone, our third quarter revenue increased approximately 11% sequentially and 6% year over year to 27 $8 million with the year over year change driven primarily by higher service and other revenue and iron consumables revenue from our expanding installed base.
Product revenue was up 11% from the prior quarter and roughly flat year over year to $21 7 million console revenue grew 13% from the second quarter and decreased 3% year over year to $15 million as we regain some momentum from the home tripled and work through the macro headwinds we pre.
Obviously described we.
We saw control the ASP increase again year over year, driven primarily by the demand for tableau, XP, which continues to exceed our initial projections.
Suitable revenue was $6 8 million.
Up 6% from the prior quarter and an increase of 6% versus the prior year as our installed base grows.
For Q3 cartridge utilization continues to be in line with our expectations.
Service and other revenue of $6 million was up 11% from the prior quarter and higher by 34% compared to the prior year.
Core service and other revenue almost doubled year over year with the growth of our installed base, but was offset by the planned X three abuse future agreements as a reminder, the third quarter. So the expiry of the final components of our HHS agreements, which were just under $2 million.
Total revenue in the quarter.
Moving to gross margins and operating expenses I will highlight our non-GAAP results.
Encourage you to review the reconciliation of GAAP to non-GAAP measures, which can be found in today's earnings release.
Our third quarter gross margin was 16, 4%.
Ahead of our initial projections, but sequential improvement of 50 basis points.
And an improvement of approximately five percentage points versus the prior year period.
With steady and substantial improvement we made over the past year reflects our entire team's commitment to margin expansion there.
The primary drivers of which have been the ongoing console close to own program aided by higher margin revenue mix.
Operating expenses in the third quarter were $38 1 million up $7 8 million versus the prior year period.
The increase was driven primarily by head count growth, resulting from investments in our commercial organization and investments in R&D as well as G&A expenses tied to operating as a public company.
Can.
We reported third quarter GAAP net loss of $40 8 million.
Resulting in a net loss of <unk> 85 per share compared to a net loss of $30 5 million or 65 cents per share for the prior year period.
non-GAAP net loss was $33 4 million or <unk> 70 per share compared to a non-GAAP net loss of $27 6 million or <unk> <unk> per share for the same period in 2021, we ended the quarter with approximately $261 million of cash.
Cash cash equivalents restricted cash and investments.
Last week, we announced a pair of new five year loan arrangements with solar capital partners to reach up to $300 million.
The financing favorably strengthens our financial position and when combined with the cash on our balance sheet gives us access to around $1 billion of liquidity in support of our mission.
We believe we have access to the capital we need to get us to cash flow breakeven.
We drew $100 million in funding at closing and in conjunction with securing this debt facility. We also retired our existing cash secured debt.
We are excited to partner with solar capital partners on this milestone financing.
Moving to our third quarter and full year 2022 outlook starting with revenue.
Given our strong performance in the third quarter and the visibility afforded by our backlog and pipeline. We are increasing our 2022 revenue guidance. We now project revenue for the full year 2022 to range from $111 million to $132 million before in a half million dollars increase at the midpoint.
Following our previous guidance of $105 million to $110 million.
This new range represents approximately 8% to 10% growth over fiscal year 2021 revenue.
Looking further ahead into next year.
Do expect much stronger growth relative to our expected growth in 2022 at the same time, we remain mindful about the headwinds from the ongoing macro factors such as nursing shortages, which we expect will persist into next year, we look forward to providing 2023 guidance early next year.
As we get greater visibility into the year.
Now with respect to gross margin guidance between 'twenty. Two we've had three quarters. This year sequentially expanding gross margins. We expect to end 2022 with gross margins in approximately the mid teens as a percent of revenue with Q4 roughly in line with our Q3 gross margin.
In summary, we had a strong Q3 that demonstrated tableau value proposition in our large acute and home markets and we have a high degree of confidence in our team's ability to execute as we round out 2022 and <unk>.
Set ourselves up for 2023 to continue to deliver on our promise to dialysis patients and providers with that I think we're ready for Q&A operator, please open the lines.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced please.
Please standby, while we compile the Q&A roster.
Okay.
Our first question comes from Travis Steed with Bofa Securities. Your line is now open.
Hey, everybody congrats on a really nice quarter.
I guess I wanted to touch on some of the comments you made luckily positive indications of stability.
Setting record number of patients in the home in the last 30 days of the quarter and a healthy backlog.
Would love for you to expand upon that a bit more and then also how much you have baked into the Q4 guide because I'm looking at the mid point of the 2022 guidance implies about $1 million step up in the Q4, and so I would think you could see a little bit better.
Step up in Q4.
Actually happening in the macro.
Yes sure. Thank you Travis I'll start maybe with some of the color and then turn it over to an appeal on the guidance part of the question. So I think the dynamics in the home in Q3, I think the big unknown as we sat there and on the August call was how many if any of the patients to home patients.
We are in the pipeline in early June would end up waiting for tableau and that was a card that we just hadn't turned over in August .
What we found out is they just in the scripted remarks is that actually the majority of the patients did end up waiting which was really quite remarkable and so.
The Q3 home growth was fueled by two drivers one was working through this sort of pent up pipeline. If you will number one and.
And number two sort of de novo patients that materialized through Q3, making that choice to go home on tableau, a new as.
As we look at Q4, we already have worked through the pent up part of the pipeline and so as we thought about the Q4 guidance and again I'll turn it over to bill for the quantitative color, but as we thought about the Q4 expectations for home growth and we really thought about it in the context, that's more sort of normalize.
Home growth focus just on part to those new patients in the quarter that would be that would be choosing home for the first time.
So that's how we thought a little bit about home growth and again, we were really pleased I mean, one quarter does not a recovery make I think we're very aware and very.
Ah humbled by that fact, but I would say, it's so far so good story and I'm really happy with where we landed the quarter and and how Q4 is shaping up on the home front on the acute front.
I would say as we sit here today staffing remains a headwind certainly is top of mind for all of the health system executives that we talk to you about in sourcing with tableau. However, as I mentioned, a few minutes ago, we do see indicators that it has stabilized number one and number two we've gotten better as a team.
We are we've gotten better at showing hospitals, how to overcome sort of the fear factor around finding and hiring dialysis nurses for their in sourcing programs part one and part two we have a new offering in this bridge program solution, which I think more than anything is hospital.
<unk> the confidence to move forward with in sourcing knowing that they have a staffing safety net available throughout that if needed, but with that maybe I'll turn it over to bill, yes, Thanks, Leslie Hey, Travis.
As we thought about the lower end of our guidance range, we're essentially.
That guidance range by the way implies a flat Q4 relative to Q3, we're essentially assuming on the home side as Leslie pointed out that the Q4.
Population is more normalized if you will and on the acute side, we're assuming that our acute patients navigate through these headwinds that we've talked about and a very similar way to the way. They navigated in Q3 as you move through the guidance range to the chalk that assumes that home is a little stronger than it was in Q3.
And it assumes that our acute customers are better able to navigate through these headwinds either using our bridge program or through their own mechanisms.
That's really helpful.
I just wanted to touch a little bit more on your 2023 comment.
The much stronger growth, especially given the 2022 of the press release.
That's kind of a big room of of outcomes or a range of outcomes for 'twenty three one of the ways I was thinking about it was beginning of 2022 before the ship hold you're expecting a $145 million to $150 million for this year, but maybe that's about the right place to be for next year basically the ship hold pushing things out a year I'm just curious if that's a reasonable way to think.
[noise] about it for 2023.
Yeah, So Travis we're obviously not giving.
A formal guidance for 2023 at this point, we will give guidance in due course.
For modeling purposes, as you think about sort of as you can.
You put your models I'd say a couple of things one we absolutely expect to return to much stronger growth in 2023 relative to our expected growth in 2022.
However, we don't want to get ahead of ourselves. What we are also very mindful of is these macro factors in the acute setting around nurse staffing and the fact that we expect these factors to persist into 2023.
Alright, great Thanks, and congrats on the good quarter.
Thank you thanks Robert.
Please standby, while we compile the question.
Okay.
Our next question comes from the line of Joshua Jennings with Cowen Go ahead. Your line is open.
Hi, good evening, thanks for taking the questions.
Sentiment on the Brooklyn, a strong quarter.
And then just maybe try and it may not be able to quantify this wasn't in the deal, but just thinking about both acute and the home channels.
Commentary suggests much recovery assay results.
The two quantifying the recovery and where you think you are relative to prior ship holds this year, 75% back in terms of the momentum in both of those.
Both of those channels.
Josh Thanks for the question, let me I'll give you my two cents I think we're right where we want to be in.
In August we communicated an expectation that we thought the re ramp would take a couple of quarters and that's played out largely according to our plan again, if not a bit ahead of schedule I do think that given the strength of.
Our pipeline when combined patient pipeline when combined with our backlog I think that's what exactly what gave us the confidence to raise our full year 2020 revenue guidance and also too.
Underscore is kind of our commentary about 2023 being a much stronger growth year compared to 22, So I think.
Short story long.
Right, where I was hoping you would be on the home front.
Thank you and just to follow up on the bridge program.
To better understand where youre sourcing.
For the bridge program.
Is there any competitive dynamic with with hospitals or.
Or is there.
Any ability to.
Got it.
Helping hospitals recruit their own.
Step through the bridge program.
Further details will be would be super helpful.
Taking the questions.
Yeah sure. Thanks for the question on the bridge program.
No we.
Over the last many quarters, we already have been adding dialysis nurses to our staff.
We have our clinical sales and training team, what we call <unk> already was populated by a fair number of dialysis nurses, which is part of what made us realize hey, we're actually really pretty good at attracting finding and attracting really really high quality dialysis nurses. There is no one.
Pool that we've drawn from as we've continue to add dialysis nurses to our team. So theres no real trend line there due to comment on.
And the second part of your question are we able to help hospitals recruit their own staff.
I think what we found is must also really don't need our help on that front.
They have taken solace in knowing again that they have a backstop in the outset nursing team if they need it but most hospitals as we've done our first few pilots and again, it's early have been very successful actually in finding and attracting their own teams of dialysis nurses.
It's just held a little bit of uncertainty for some health systems, because they've never done it before but what we found so far as they have been very successful and very confident in adding dialysis nurses to their staff in relatively short periods of time and then this bridge program again is there as a safety net if they need it.
Alright, thank you.
Please standby.
Okay.
Our next question comes from Phil Coover with Goldman Sachs. Your line is open.
Okay. Thanks for taking my question.
Let's say I might've misheard you during the prepared remarks did you say that youre reestablishing the original guidance of doubling revenue this year.
Yes, yes.
Ed is sort of we are expecting home revenue to get to a roughly mid teens as a percent of our total revenue for this year yes.
Okay. So the original comment with mid teens for this year are the original guidance and now it's still mid teens. It just.
A different guidance level, it's not not the original doubling of revenues that we heard at the start of the year.
So it would still imply roughly doubling from 2021 revenue, but you are right in terms of if the math is on the existing base.
And Phil what I, just said just to reiterate in the prepared remarks.
Just commenting on Q3 and the fact that we entered we did enter Q4 with a very healthy backlog and had half Hello home orders that.
Or more than double compared to Q3 2021 exiting the quarter that was where that yes that does.
Okay, great number on the acute side.
<unk> here.
A fair amount of discussion on the last call about.
Sort of the capital environment and constraints at the hospital level around capital purchasing.
Notably not in the remarks today, but what's what's sort of the update on the situation, maybe misguided last quarter and it was more so around nursing and now youre remediated that issue or what are you seeing on the capital front in terms of purchasing cycles.
Yeah sure I'm happy to answer that.
I think the short the sure.
Short answer is that while it certainly remains a consideration for hospitals. It was not a major impediment to our growth last quarter.
We're obviously going to continue to really closely monitor this future forward I think like all medical device companies, but thus far we have continued to see tableau prioritize toward or at the top of capital spending budget listen I think it's probably due to the fact that in sourcing with tableau really does offer a media.
And tangible cost reduction is kind of a day $1 one benefit.
And the fact that it has a very fast payback period. So.
I would say bill it doesn't feel like we're fully out of the woods, yet, but more a function of we don't know we don't know.
Then because it affected us in Q3, so in general we've got a very very close eye on this.
But I would not fight that as I, just said I would not say that as a major impediment for us in Q3.
Okay, great great. Thank you both.
Yes sure absolutely.
Please standby.
Our next caller. Our next question comes from Rick Wise with Stifel. Your line is open.
Yeah.
Good afternoon Bill.
Just really one quick.
One comment from me for now.
Most margin again, it's great to see the progress there congratulations on that.
And I heard your comment about the fourth quarter.
But a couple of things one.
I appreciate the volume higher volume.
Going to drive gross margin, but help us maybe better understand the next step forward and I'm going to say 'twenty three because thats the year ahead, but.
What steps up beyond just volume.
The gross margin what drives the gross margin in 'twenty three.
Cost reduction.
Mix.
The bridge solution onetime I think I've heard you say it was margin accretive to what extent is that going to help.
And just to wrap up this whole gross margin topic.
The 50% gross margin target by 2025.
I think in the last few months given some of the challenges.
So you might imagine that got put out is.
How are you thinking about that target now and what are your progress this quarter. Thank you very much.
Yes, Rick.
So absolutely happy to talk with us so on gross margin a few things number one our next milestone is indeed, this 50% gross margin target and from our progress to date, we expect that March forward to be linear right and then there's really four factors Rick that drive our <unk>.
<unk> expansion all of which we have sort of executed on all of which we have a lot of conviction in our ability to continue to execute on and those are our number one as you alluded to it's just a volume revenue volume growth number to its ongoing console costs down number three.
Consumable pull through as our installed base grows and finally service leverage and Rick It's been basically these four things that have helped to contribute to the 500 basis points margin expansion. We saw in Q3 and it's those same things that will continue to propel us to that 50% gross margin target going forward.
Sure.
Got you. Thank you very much.
Please standby, while we can call the roster.
Yeah.
Our next question comes from Suraj Kalia with Oppenheimer. Your line is open.
Good afternoon, Leslie <unk>, Jim can you have you alright.
Yes, yes.
Perfect.
So let me start off maybe you'll forgive me I got a little confused too one of the prior questions.
Rich the guide of 140 to 150.
<unk> can be right, 15% or so was supposed to be home hemo contribution.
And the comments you just made.
Now that the guide is approximately $112 million.
Is home hemo still 15% of the original number or 15% of the new guide.
Sorry, I got a little confused there.
Yes, sure absolutely. So the 15 to whom we are projected to be 15% roughly mid teens of the new guidance.
Okay fair enough.
And lastly on <unk> when you look at the original guide right at the beginning of the year versus the current guide.
And the and then you layer on your positive commentary in terms of patient retention as some of the big wins and so forth can you help us understand the $30 million Delta still is entirely explained by supply shortages nursing shortages.
Are there any other risk factors that we should consider.
I'll jump in and just qualitatively Suraj short answer no.
No new factors the the nursing shortage on.
On the acute side and we talked about this again into kind of Q2 and through Q3.
It's definitely a factor and it remains a factor I mean, we certainly don't want to overlook that.
I think this past quarter was the beginning of this team going on offense.
And having new ways and mechanisms to do that we're not going to just stand around and wait for things to get better.
This is Doug this past quarter, we stood up and took actions, but in terms of the reasons behind.
Our revisions those of the same reasons that I think you are.
You and other investors are already very familiar with with regard to the nursing shortages on our Q some possible concerns about the capital spending environment and of course, most notably stay home ship holds so no new factors that we're aware of at this time.
Thank you please.
One minute, while we compile our next question.
Okay.
Mhm.
Our next question comes from drew Ranieri with Morgan Stanley . Your line is open.
Hi, Leslie and thanks for taking my questions.
Just two questions coming out of.
If I may.
And I'll ask them both upfront.
I guess, one thing just talking to their apologists last week was just there is really palpable interest of moving patients to the home and that's partially driven from the staffing shortage issue, that's kind of happening across the sector. So one just as you're thinking about 2023 could this be an accelerator.
For potential home adoption and then.
Okay.
Some data that was presented at the conference kind of suggested that PD through through the pandemic kind of remain stable if not increase while home hemo decline. So just as you're thinking about PD burn out rates could that also be maybe another inflection driver and <unk> adoption.
For you or for others as we're thinking about next year. Thank you.
Yeah sure. Thanks for the questions, Andrew maybe I'll take those in reverse order.
We have.
Absolute belief that PD.
Will over time become a funnel for home hemo. It just makes all the sense in the World do you have a population of people who are already very successfully managing their care in the home.
And want to stay in their homes. Unfortunately in the past historically, just only about 3% of patients who come off PD <unk> PD is typically at two or three years sort of transient therapy only about 3% today.
Do you say, it's after stay at home and transition out of home hemo. The vast vast vast majority in the past have gone into in center dialysis, but again.
Today sort of the dawn of a new day.
With all of the incentives and all of the tailwind.
You mentioned, a new one around staffing shortages.
Really encouraging dialysis providers to crush more patients into the home.
We do see a future in which many many more TD patients will be given the <unk> of choice is staying in the home with HFC. So yes, I do see we do.
Do you feel that the PD to HFC transition will be a very important driver.
For a more home inflection in the future.
One <unk>.
Your first question was about staffing and the incentive environment and yes, I think we've all seen and heard the big and even medium sized dialysis care providers talking about their own challenges with staffing shortages in the in center environment.
Home, whether PD or ADHD is clearly a way that you can serve the same or more patients in a particular location without having to increase your staffing census at the same time.
So I don't want to be overly prescriptive or precise about the exact extent to which I don't know yet the exact extent to which staffing shortages in the incentive environment will benefit home dialysis, but generally speaking we had many of the same conversations at ASN in every day from provider.
<unk> two all seem to see home dialysis as an important answer to the problem of in center staffing shortages in the future. So we're bullish on both fronts.
Two is there anything else.
Okay.
My apologies here.
Please standby, while we compile the next question.
Okay.
Okay.
Okay.
Our next question comes from Philip Coover.
Goldman Sachs. Your line is open.
Okay.
Thanks, guys I wanted to follow up on the VA contract. It can be an opportunity to talk more about the scope and scale.
The word indefinite I remember from the press release I think home was used before.
Hospital, and Kim I'm just interested.
Other qualitative or context, you can put around the contract.
Okay.
Yeah sure. So this was as we mentioned it is a five year now why it says indefinite.
As the government.
It's another acronym that does make a whole lot of sense because it is a five year.
But the acronym does.
Has the ice answer indefinite pick up in here, but.
What matters most is what it can mean for out there and the big win here was the fact that the contracted include home.
The VA has had a longstanding interest in making home modalities more available to veterans.
And so we are we're very very excited about the possibility of serving veterans more veterans in the home. So this contract does enable outfits and our team to expand the use of tableau. Both in the acute setting and also to work with various VA facilities around the country to start new <unk>.
Home programs are to support their existing home programs with tableau.
Okay.
Hey, operator any more questions.
There are no more questions at this time I would now like to turn it back to Leslie <unk> for closing remarks.
Thanks, operator, and thank you all for joining today have a great evening.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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