Q1 2024 Outset Medical Inc Earnings Call
Good day, and thank you for standing by.
Welcome to the outside medical Q1.
2024 earnings conference call.
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I would like to turn the conference over to your Speaker today, Jim Fowler head of Investor Relations. Please go ahead.
Jim Fowler: Okay. Thank you and good afternoon, everyone welcome to our first quarter 2024 earnings call here with me today are Leslie Trig Chair and Chief Executive Officer, and Tabular Med Chief Financial Officer, We issued a news release after the close of market today, which can be found on the investor pages about set medical Dot Com. This call is being recorded and will be arc.
I've done the investors section of our website.
Jim Fowler: It is our intent that all forward looking statements made during today's call will be protected under the private Securities Litigation Reform Act of 1995. 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 to materially.
Jim Fowler: 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 SEC, including our latest annual and quarterly reports.
Speaker Change: One quick note before we get started an appeal is feeling a bit under the weather today, so I'm going to cover the financial section in our prepared remarks.
Speaker Change: Here with us and will handle Q&A as normal so with that let me turn the call over to Leslie Thanks, Jim Good afternoon, everyone and thank you for joining us.
Leslie: With our most challenging recent headwind now behind us with the FDA clearance of tableau cart demand for tableau that has never been higher 12 consecutive quarters of gross margin expansion. Our strong recurring revenue model that represents more than 50% of our total revenue.
Leslie L. Trigg: Tipping point adoption any acute strong home growth with an industry, leading patient retention rate and significant decisive steps now taken toward reaching cash flow breakeven without needing additional capital help that outlook and conviction in the future has never been stronger.
Leslie: Earlier this week, we announced the receipt of FDA clearance for tableau cart with pre filtration ahead of our guidance for clearance during the second half of the year.
I want to thank the incredible cross functional team here at outset that accomplish this milestone.
Leslie: Tableau Curt provides another unique differentiator to tableau is ecosystem and we look forward to the impact we expect it will have during the remainder of the year.
Leslie: With the clearance of tableau apart. This factor is now behind us.
Leslie: Additionally, several customers experienced disruption from the change healthcare, a cyber attack, which slowed reimbursement payments and resulted in several of our customers deferring those treatment and console purchases until their cash flow normalized. We believe this factor is now behind us as well as evidenced by a treatment ordering it.
Leslie: April rebounding to your expected level.
Taking a step back over the past quarter, we reflected on the complete alignment between our desire and that our shareholders to reach cash flow breakeven more quickly and with the cash already on hand, and as a result, we took action we undertook a meaningful restructuring of the debt which.
Leslie: Which we anticipate will reduce our cash use through 2027 like over $100 million and reduced our 2024, non-GAAP opex by roughly $20 million.
Leslie: As a result, we expect to reach our profitability goals sooner than previously projected and without the need to access the capital markets to get there.
Leslie: Importantly, our cost reductions were a carefully planned to protect two key goals, one continuing to meet or exceed the expectations of patients and customers.
Leslie: And to achieving our long term revenue and gross margin expansion guidance too.
Leslie: To be very clear, we do not anticipate the restructuring to have an impact on our near term or long term ability to grow revenue and expand gross margin. In fact, we believe our ability to exceed our gross margin goals. As we have today will continue to play an important role in our path to profitability.
Leslie: Head count reductions Capex and associated program spending in R&D comprised the largest portion of the savings.
Leslie: Prior to making this decision we were investing heavily in hardware and software engineering projects with long development time Horizons.
Leslie: And tableau is already deep and wide proprietary technology moat, we are refocusing our dollars in energy on penetrating our 11 billion dollar U S market opportunity with the tableau, we enjoy today.
Leslie: We are not sacrificing projects required for longer term growth, but rather pacing those programs to more closely match the longer timeline in which we believe they will be important to our product and technology lead.
Leslie: Additionally, we examine ways to reduce management spans and layers, where it did not affect the customer experience and revisit it plan to expand over time internationally.
Leslie: Meaning that our focus over the long range plan period should remain in the largest dialysis market in the world the United States.
Leslie: As a result of our restructuring we expect to reach cash flow breakeven several quarters ahead of our prior estimate without the need to access the capital market prior to reaching breakeven.
Leslie: At a high level, we continue to see patients and providers benefiting from the differentiated clinical operational and financial advantages tableau and deliver our moats is wide Andy with proprietary insourcing Knowhow, a differentiated technology platform actionable data EMR interoperability.
Leslie: <unk> service excellence and regulatory experience through our successful clearance of nine five 10-K during the past nine years.
Leslie: As a result, the universe that providers and patients experiencing the advantages tableau can provide continues to grow.
Leslie: We also generated additional momentum with skilled nursing and sub acute providers and ruined already record pipeline of opportunity in the acute care setting.
Leslie: We believe this momentum sets us up well for a strong year and supports the confidence we have in our financial guidance for 2024.
Leslie: On the operational front, our efforts to replace the silicon tubing and tableau puzzle with P. C. D. A free material is substantially complete.
Leslie: Looking ahead, we are in the process of completing one additional field option near term to upgrade capital carts Powerpoint.
Leslie: We are proud of our collaboration with FCA across the board and look forward to continuing our partnership with them.
Leslie: As we look at progress in our end markets beginning in the acute care setting our focus on enterprise selling and dialysis in sort of thing that's continued to elevate the financial benefits and strategic importance of tableau to provide our customers.
Leslie: Even with the first quarter being historically lighter for new console placement, we made good progress expanding within health systems, we landed in 2023 and continue to build and advance our pipeline of opportunities nationwide.
Leslie: More than 60% of our acute pipeline consists of deals greater than $1 million, each and more than half of our total acute pipeline represents new potential customers.
Leslie: One of our key new customer wins during the quarter with with a hospital in the southwest associated with a large health system.
Leslie: Many other customers this provider with facing increased costs and inadequate service level from its outsourced dialysis provider and wanted to take charge of their dialysis program in partnership with the hospital, Chief Financial Officer, and Chief Nursing Officer, our team was able to demonstrate the compelling financial clinical and operational advantages of an inch.
Leslie: Source program with tableau, which resulted in an early termination of their contracts with the outsource provider.
Leslie: These councils are equipped with our tableau prep plus software for use in the ICU, which continues to have a strong attach rate across cultural shift in the acute setting and this customer is also taking advantage of our bridge program to assist with their rapid program stands out.
Leslie: The summary here is we continue to feel very good about the opportunity and our momentum with acute care customers. We forecasted a softer first half of the year as we manage through any longer sales cycle and work towards five 10-K clearance of tableau cartilage pre filtration and that's how the quarter played out and with tableau cart now cleared for sale, we continue to anticipate.
Leslie: Going into our guidance range as we move through the year as we have grown adult scale, particularly acute setting our recurring revenue business model continues to distinguish itself anchor our guidance for the future and support our drive to profitability.
Leslie: Turning now to the home and to market our progress in the quarter was highlighted by the multiyear agreement, we completed with U S renal care.
Leslie: We've talked on previous calls about our two tiered home penetration strategy, which entail partnering with progressive mid sized dialysis organizations and working upstream to create greater channel access for patients by expanding the universe of health care provider offering home dialysis.
Leslie: U S. Renal care is the largest of the progressive N V O and committed to accelerating home dialysis with tableau.
Leslie: Our initial home programs with less renal care had been very successful and our early direct to consumer marketing has revealed strong interests in many other areas of the country previously underserved by viable home hemodialysis option.
Leslie: We also see an opportunity to help patients transitioning from peritoneal dialysis.
Leslie: P. D related infections are a major cause of dropout for patients, who initially chose home dialysis, creating a seamless transition from P. D. G. H H D enables patients to maintain the control they enjoy at home, where many report a higher quality of life.
Leslie: Advances, we are making with home providers are driven by the fundamental differences tableau can provide for their patients for example, during the quarter. We continued to see our already strong patient retention rate continue to improve.
Leslie: Patient retention has been the Achilles heel of the incumbent home hemo system handle prior attempt to keep patients dialyze at home <unk>.
Leslie: Our most recent data shows that 90 plus percent of patients who dialyze at home with tableau remain on treatment at 90 days. This is a nearly 40% improvement over the 90 day retention rate for the legacy home Hemo system as cited in the last U S. Rds report.
Leslie: Additionally, we continue to see controllable attrition of patients on tableau remaining in the low single digits, which we believe to be well below historical data.
Leslie: For home dialysis to where patients caregivers providers and payers all need a technology that is easier to set up to maintain and to tradeoffs.
Leslie: And this is exactly what tableau delivers.
Leslie: In terms of our efforts to increase channel access and expand the provider universe, we added a new provider of size in the mid west a strategic regional MTO and the northwest and several new home only providers.
Leslie: Our top of the funnel progress in Q1 also included ongoing expansion within one of the largest and fastest growing sub acute providers serving more than 60 facilities in the U S.
Leslie: This provider partners with skilled nursing facilities to offer onsite dialysis treatment to residents, which deliver substantial benefits to the snip, operator by reducing the risk and expense associated with transportation to an outsourced dialysis clinic.
Leslie: More importantly, this approach can provide a life changing benefit to residents, who often spend eight to 10 hours a day being transported to a clinic waiting to dialyze treating and then finally, returning home as often missing meals medications other therapies and adequate rest as a consequence.
Leslie: After our initial rollout with this provider early last year. The program has grown significantly and now includes more than 200 tableau console with the potential to continue to grow substantially during the next several years.
Leslie: Importantly, this new model for dialysis reflects a broader trend of providers seeking to enhance patient care by offering in health and home dialysis services.
Leslie: Our results across home acute sub acute continue to highlight the strength of our recurring revenue, which increased 24% over the first quarter of 2023, driven by consumable sales to a larger and growing fleet of tableau counseled and a very high renewal rates for tableau service contracts.
Leslie: This recurring revenue stream continues to provide us with visibility into a large portion of our 2024 and longer term financial guidance.
Leslie: As a reminder, tableau is in the home generate roughly $15000 per year through their useful life.
Leslie: <unk> is in the acute setting generate roughly $20000 per year and there are more treatments performed on each device in the hospital then with a single patient at home.
Speaker Change: Before I turn the call over to Jim I'd like to reiterate a few key points about the quarter first we understand the importance of execution this year and remain confident in our plan the five.
Jim Fowler: <unk> is in place to grow through the year with a return of tableau apart. The continued expansion we see in our pipeline. The success, we've had with new home providers and the strong adoption of tableau within our large base of acute care customers.
Jim Fowler: Second our entire team is focused on the drive to profitability. We've demonstrated that commitment through 12 quarters of consecutive gross margin expansion to the 31, 1% non-GAAP gross margin. We reported today. In addition to the operating leverage we are demonstrating and the actions. We took this quarter and we believe we.
Jim Fowler: Lead us to reach cash flow breakeven several quarters ahead of schedule and without the need for additional capital.
Jim Fowler: And finally, the business model remains strong and our value proposition compelling we've made the investments in hardware software analytics manufacturing in a nationwide service infrastructure that all scale well as we grow this business.
Jim Fowler: With recurring revenue now consistently exceeding 50% of total revenue and gross margins continuing to expand I am more confident than ever of the value. We can deliver two providers patients and shareholders well into the future with that I'll turn it over to Jim.
Jim Fowler: Thanks Leslie.
Jim Fowler: Hello, everyone revenue for the first quarter was $28 $2 million well below our expectations revenue was aligned with the quarterly build for 2024 that we guided to during the third and fourth quarter 2023 calls the decrease was driven by a decline in product revenue, which was $24 million in the first quarter.
Jim Fowler: A $2 $5 million decrease from the fourth quarter.
Leslie: Service and other revenue increased $7 $7 million up slightly from the $7 6 million, we recorded in the fourth quarter.
Leslie: Council revenue was $9 $2 million in consumable revenue was $11 $2 million.
Leslie: He has already discussed we believe the drivers of this shortfall relative to our expectations the impact of the tableau cart regulatory hold and the change healthcare cyber attack are now behind US we were encouraged to see our council ASP remained strong across all care settings. As a result of our disciplined pricing and strong uptake.
Leslie: Of tableau probe plus offerings.
Leslie: With a few customers.
Leslie: Following the end of the quarter, we saw strong April month for treatment sales and cartridge utilization over time continues to perform in line with our expectations.
Leslie: Before moving to gross margin and operating expenses I want to highlight the initiative, we undertook during the quarter to restructure our 2024 and longer term spending budgets with the goal of reaching cash flow breakeven without the need for additional capital.
Leslie: Included in our GAAP result is a net charge of $2 $5 million that we took in the first quarter associated with the restructuring discharge is comprised of severance and related benefits offset by the reversal of bonus accruals related to impacted individuals we've outlined the impact of this charge across our P&L in the table.
Leslie: Was that accompany our earnings release.
Leslie: Carriage you to review the reconciliation of GAAP to non-GAAP measures, which can be found in today's earnings release.
Leslie: Now moving to our first quarter gross margin and operating expenses, which as a reminder, reflect our non-GAAP results.
Leslie: Our first quarter gross margin outperformed our expectations at 31, 1% or more than four percentage point sequential improvement from the fourth quarter and a more than 10 percentage point increase from the first quarter of 2023.
Leslie: Gross margin expanded for the 12th consecutive quarter driven by a nearly 350 basis point sequential quarter expansion in product gross margin to 39, 8% that was partially offset by service and other gross margin of 8%.
Leslie: As expected service and other gross margin expanded in the first quarter due to investments that we made in the fourth quarter and a previously described.
Leslie: Operating expenses of $35 million declined 4% as compared to the fourth quarter and 16% from the prior year period, driven by the expense reductions we undertook in the fourth quarter.
Leslie: non-GAAP net loss in the first quarter was $29 $3 million were 57 per share slightly lower than last quarter, and $6.1 million or <unk> 15 per share or less than the first quarter of 2023.
Leslie: We ended the quarter with approximately $230 million in cash cash equivalents short term investments and restricted cash, which we expect to fund operations to cash flow breakeven.
Leslie: Turning now to our outlook for the full year of 2024, we are reaffirming our revenue and gross margin guidance today, starting with revenue. We continue to expect a range of 145 million to $153 million.
Leslie: Card comes back online, we do anticipate some ramp time to reengage on customer opportunities revised contracts and schedule installations. As a result, we anticipate Q2 revenue to be in the low $30 million range with the full benefit of tableau cards return and the lapping of the elongated sales cycle.
Leslie: Coming in the third and fourth quarters.
Leslie: Our strong and growing recurring revenue stream provides us a lot of confidence to achieving the second half ramp with.
Leslie: With roughly 50% of second half revenue expected to come from recurring revenue. The remainder of second half revenue would require counsel sales to be roughly in line with quarterly Council revenue just prior to the tableau cart ship hold which we believe is achievable, particularly given the substantial growth in our acute and sub acute pipeline.
Leslie: During Q1.
Leslie: Turning to gross margin with our continued gross margin outperformance, we have increased conviction in our guidance for 2024 non-GAAP gross margin for the full year, we expect gross margin to be in the low 30% range exiting the year in the mid 30% range for the fourth quarter of 2024 again gross margin expansion is driven by <unk>.
Leslie: <unk> cost down programs recurring revenue from a larger installed base and service leverage.
Leslie: Turning to Opex for 2024 as a result of the actions we've announced today, we now anticipate the Opex for 2024 will be $125 million to $130 million.
Leslie: And finally, our long term guidance with our strong value proposition across two large end markets are wide competitive moat and our broad integrated offering of products and service. We expect annual revenue in the high teens between 2025 and 2027.
Leslie: We continue to expect that our ability to expand gross margin on an annual basis will be linear from our 2024 exit goal of mid 30% to our 2027 exit goal of 50%.
Leslie: We plan to invest in our cost down programs for both the council and cartridge and we continue to see recurring revenue growth and service leverage.
Leslie: We also expect that the spending cuts we are making in 2024 will add roughly another $10 million in savings in 2025 across Cogs Opex and Capex as a reminder, our business does not require large amounts of capex, which we expect to be in the low single digit million dollar range Andy.
Leslie: Really through 2027.
Leslie: We have further opportunities for even greater savings if gross margin continues to perform better than expected.
Leslie: As a result of our work to realign our spending and with their anticipated levels of revenue growth and gross margin expansion, we anticipate reaching cash flow breakeven several quarters earlier than previously expected without the need to raise additional capital.
Leslie: The steps we've taken to further adjust our spending are logical and well prioritize allowing us to continue to deliver an unmatched customer experience as we accelerate our drive to profitability. We remain bullish on the tier ones in the business and the wide and deep moat, we have established with tableau all of which gives us confidence in our outlook for 2020.
Leslie: For and the longer term.
Speaker Change: With that I think we're ready for Q&A operator, please open the lines.
Speaker Change: Thank you as a reminder, if you would like to ask a question. Please press star one one on your telephone.
Leslie: We also ask that you ask one question.
Speaker Change: And one follow up.
Speaker Change: Please.
Speaker Change: Well wait for your name and company to be announced before you proceed with your question one moment, while we compile the Q&A roster.
Speaker Change: Yeah.
Speaker Change: The first question that we have today will be coming from Rick Wise of Stifel. Your line is open.
Speaker Change: Okay.
Frederick Allen Wise: Good afternoon everybody.
Speaker Change: Yeah.
Speaker Change: Okay.
Frederick Allen Wise: Mi start with tableau.
Speaker Change: I'm, sorry, with tableau cart.
Speaker Change: And I'm going to ask just a.
Speaker Change: Multipart aspects of you've touched on it a little bit.
Speaker Change: Sure.
Speaker Change: Specifically the.
Speaker Change: As Jim or Jimmy <unk>.
Speaker Change: His name now.
Speaker Change: Said.
Speaker Change: Said.
Speaker Change: Sure.
Speaker Change: It's going to take some time to re engage and there's work to be done to install but let's say, maybe you could talk to us about.
Speaker Change: Are there orders in hand are you ready to manufacture and ship.
Speaker Change: To meet those orders.
Speaker Change: And.
Speaker Change: In the second half.
Speaker Change: Can you quantify at all.
Speaker Change: I mean.
Speaker Change: Quote the upside from having tableau carton hand.
Speaker Change: Tableau cart sales, specifically or no it frees conversations and it's going to put with it tableau card as well.
Speaker Change: Tableau as well if you follow what I'm getting at sorry for the multipart question.
Speaker Change: No no worries yes.
Speaker Change: Yes, I will I'm happy to answer all of those and let me know if I overlook any section of your question.
Speaker Change: Well, let me I think the first part was our orders in hand, taking a quick step back when we decided to effectuate the ship hold we had to pause.
Speaker Change: All sales all marketing all contracting and any of that sort of back office order, taking our support activities.
Speaker Change: It's exactly what we did so all of that needs to be reestablished what or to give you at the next level of resolution on that what does that look like those are activities like generating new quotes.
Speaker Change: Are you doing existing sales agreements in some cases getting new pose generated and of course, there is a time factor for that but none of this is difficult by the way that's the good news, but it does take a bit of time.
Speaker Change: Other factor too is just customer budgeting in some cases, we expect customers will have to re budget for it yeah. They might have had the funds allocated unapproved several quarters ago and need to go back into their internal organizations and get those funds.
Speaker Change: We redeployed and approved and again, that's not a difficult either but but will take a little bit of time.
Speaker Change: I am very confident we will have all of these steps are well well underway I do expect that too to take us through the remainder of Q2, but again the good news is hey, we're ready for the back half right and we had originally expected tableau cart approval right around the midpoint of the year and I think that the main benefit here.
Speaker Change: The early approval is it just gives us time to get prepared earlier than we expected to get all the pieces ready in this ramp up period.
Speaker Change: And be prepared to really take advantage of this from a sales perspective in the second half, which is a lot of what's feeding our confidence in the second half growth trajectory.
Speaker Change: The steps or is it gonna be a bit of a monologue, but it wasn't long question. It might've been.
Speaker Change: The second part you asked about was manufacturing in high Res ship that answer is definitively, yes, because we already had tableau cards in inventory at the time of the ship hold so I don't expect any delays related to supply chain.
Speaker Change: Our manufacturing and then I think the last section of your question was Hey is the where is sort of the growth and is there a little bit of upside in the second half, perhaps if so where is that where could that come from and Rick you. You know that there is it's both so we do expect that tableau tableau cart will be.
Rick: It kind of finally, putting wind in the sales of tableau again, tableau consoles, where those tableau consoles were repeatedly deferred out of quarters out of Q3 out of Q4 out of Q1 again.
Frederick Allen Wise: We absolutely believe that tableau carb will put the wind back in those sales.
Frederick Allen Wise: And also yes, we do expect orders for stand alone card purchases.
Frederick Allen Wise: To our existing customer base, and our existing installed base, where customers already have been using tableau or maybe they have the tableau cards with the storage store and they want to upgrade that story to shore to the pre filtration version. So we do expect.
Frederick Allen Wise: Revenue being generated through both of those Chan.
Frederick Allen Wise: Channels, if you will.
Speaker Change: Got you no I appreciate all that.
Speaker Change: Laughter, unpacked and just as a.
Speaker Change: Follow up.
Speaker Change: It would be helpful to hear.
Rick: A little more about the lighter than expected first quarter.
Rick: Just based on your commentary.
Rick: <unk>.
Rick: All of the surrounding comments.
Rick: In a sense, it's it sounded like it was actually a better period than maybe the optics. The initial upticks might suggest.
Speaker Change: Help us better understand.
Speaker Change: You mentioned I think you said tableau.
Speaker Change: A delayed or delayed orders.
Speaker Change: And the cyber attack impacts yeah, now resolved, but how do I think wood, so with first quarter sales have been a million higher 5 million higher I mean can you help us understand the pieces and like weather that delayed order will come back in the second quarter et cetera.
Speaker Change: Yeah, Hey, Rick its appeal.
Frederick Allen Wise: The first quarter really played largely as we had guided we had expected.
Frederick Allen Wise: Soft first quarter, and then recovery in Q2 and really ramping in the back half of the year, that's kind of the guidance commentary, we gave and touring entering this year in back in Q1. So.
Speaker Change: We'd always said the first half of this year will look more like the back half of last year, because again in both periods, we didn't have carte having.
Speaker Change: Having said so Q1 performed largely as we expected having said that in Q1, specifically, we did see the continued deferral of console sales and card sales, which now is behind us with the cards approval and we did also experience a little bit.
Speaker Change: From this change healthcare slowdown, which again, we believe is also behind us so.
Speaker Change: Q1, really played largely as we expected a little bit softer, but again.
Speaker Change: We believe we haven't lost any deals and we believe again that we're now going to ramp Q2 for a strong second half of the year again as we had originally guided let me I'll just add one.
Speaker Change: More thing just to reiterate.
Speaker Change: Two things that that I think are important to mentioned one is the treatment revenue and the treatment orders in April have have really come back in and they were they were very strong and we're we're very again, we're very bullish about the direction for Q2 and the remainder of the year there and then you <unk>.
Speaker Change: Embedded in your question Rick had something about have any of these orders come come through on the console side and the answer that is yes actually one of the one of the orders it was deferred.
Speaker Change: Right out of Q towards the end of Q1 because of the change healthcare.
Speaker Change: Situation actually wasn't order that was placed in April for the record there.
Speaker Change: I appreciate it thank you.
Speaker Change: Yeah.
Speaker Change: Thank you for your question.
Speaker Change: One of them to the next question.
Speaker Change: And our next question will be coming from shaken Tsang of RBC capital markets. Your line is open.
Shaken Tsang: Oh, great. Thank you. So much quick follow ups here I was just wondering if there's a way to quantify the backlog.
Shaken Tsang: You know what was outstanding this waiting for tableau card to get approval on restructuring is there any way you can provide the cadence for that 20 million savings in 'twenty four and.
Shaken Tsang: And just what are you, saying on the profitability timeline I know you said a few quarters ahead, but anything more specific and then I guess a big picture question for you Leslie can you just spend some time elaborating on your commercial organization like just trying to understand if you have the leadership in place.
Speaker Change: The feet on the Street. If you will how are you really looking do you know.
Speaker Change: Reengage. These customers. Thank you for taking the question.
Leslie L. Trigg: Sure, maybe and Bill you want to start off and I'll take over in a minute for sure. So maybe let me let me sort of lay out how we are thinking about the second half of the year the full year really.
Speaker Change: On a guidance perspective right.
Bill: So let me go back to sort of you know we expect the first half of this year.
Bill: So look largely like the back half of last year again, because we haven't had carts in any of those periods. So our guidance for Q2 is for revenue in the low $30 million zone as Leslie pointed out we ramped back on card good people crazy.
Bill: Now chicken as we think of the second half of the year, there's really two components that we need to.
Bill: First of all we will have the recurring revenues on our larger installed base as the consumables and service revenues.
Bill: Each will be roughly half of kind of.
Bill: Of our implied <unk> revenue if you will if you take that and then sort of the remainder.
Bill: <unk> console revenue after you sort of take the second half roughly half is recurring the remaining console revenue is roughly in line with what we did in the first half of 2023, when we had card to be able to sell.
Bill: So that's how we kind of thought about the back half of the year.
Bill:
Speaker Change: Moving on shaking your second question with respect to the savings.
Speaker Change: A little over half of these savings were from R&D in the ops groups kind of R&D more broadly speaking and again Leslie talks about the projects that were sort of again differing or that we took a second look at the rest. So half is R&D and all the other half is just across the piano and again it seems like.
Bill: Spans of control layers of management programs and projects that didn't have.
Bill: Back within our L. RP horizon, So that's number two.
Bill: Number three years from a profitability timeline perspective, let me first maybe talk a little bit more about the savings we've generated.
Bill: So in total we are savings through the actions, we have undertaken over $100 million over our MRP period.
Bill: Roughly $20 million comes out of 'twenty four as we talked about that annualize to about $30 million in 'twenty, five and a little bit more than $30 million in 2006 and 2007. So if you propel that math through the model you know our initial expectation was that we'd get to breakeven exiting.
Bill: 2007, you can see how again, if you take kind of a $30 million little bit over 30 million out of the out years, you can see how that will pull profitability forward by a few quarters.
Bill: Maybe I'll pick up on the commercial Org I think was your last question.
Speaker Change: And do we have adequate coverage out there to rapidly educate customers about tableau or another and the short answer is yes.
Bill: We are a.
Bill: Covered actually in all 50 states just as a quick reminder, we have a capital sales team we have a political sales team and we have a national accounts team all three of those teams cover both.
Bill: And sub acute of course, and also home and so we continue to get a lot of operating leverage out of this team and I think we've talked about that in past calls that continues to be true, but we do have sales coverage in all 50 states and I am not worried at all about the speed with which our sales team will be.
Bill: Sharing the news with both current customers and our potential new customers.
Speaker Change: Thank you.
Speaker Change: Thank you one moment for the next questions.
Speaker Change: And our next question is coming from Murray.
Murray: But <unk> your line is open.
Murray: Hi, good evening, thanks for taking the questions I wanted to start here with a pretty high level, one I know that one headwind you've talked about in the past of.
Murray: A longer selling cycle, and the capex environment being a little bit tougher.
Speaker Change: Wanted to hear how that's changed since you last spoke with US publicly has that gotten worse has it gotten better has it stayed the same any detailed commentary you can give on that would be helpful.
Speaker Change: Yeah sure I would say on the capital spending environment, it's been really stable.
Speaker Change: She has been which has been good it's a good thing. So we have not seen any material changes in the capital spending environment. We are also advantaged because tableau and in sourcing does have a very rapid payback period typically inside of a year for a hospital that makes the conversion and that certainly helps ensure that tableau rises.
Speaker Change: The top of those capital budgeting prioritization list, but setting.
Speaker Change: Setting that aside in general we saw a lot of stability in the capital spending environment no changes to speak of.
Speaker Change: Okay, that's great to hear and then my follow up here on gross margins you just continue to exceed expectations there nice to see another increase.
Speaker Change: Oh no.
Speaker Change: Maintaining the guidance there I mean, you are already starting the year in the low thirties, and we're expecting to have low 30 for the full year exit midyear mid thirty's to exit the year.
Speaker Change: Should we just expect smaller incremental improvements was this kind of a onetime leap and we should expect a little tick down how should we think about the cadence for the rest of the year.
Speaker Change: Yeah, Hey, Marie it's bill.
Bill: So we are really pleased with our team's ability to deliver our 12th consecutive quarter of gross margin expansion and look we think it is going to be linear from here to that mid 30% exiting the year on our way to 50%. So really good performance and again, we just expect to continue.
Bill: Add to that.
Speaker Change: Alright, and encouraging to hear good luck with it thank you.
Speaker Change: Thank you. Thank you. Thank you one moment for the next question.
Speaker Change: Our next question is coming from Kristen Stewart of C. L. King Your line is open.
Kristen Marie Stewart: Hi, Thanks for taking the question I was wondering if you could just expand a little bit more on the U S renal care announcement.
Kristen Marie Stewart: And just in terms of when we could start to see an impact from that I'm really materializing.
Kristen Marie Stewart: Yeah sure Hi.
Kristen Marie Stewart: Well U S renal care has been a good partner to us how.
Kristen Marie Stewart: Continue to be a good partner to us and our initial home programs with them, we're very successful and as I mentioned, it's one of the largest of these mid sized dialysis organizations are they manage roughly 36000 patients across the United States and <unk>.
Kristen Marie Stewart: And increasing their home population and growing home is is really central to their mission.
Kristen Marie Stewart: I think what.
Kristen Marie Stewart: What they were able to confirm for themselves is a much faster training time with tableau, which made it easier to convince patients to adopt home.
Kristen Marie Stewart: Our training time, our average duration, despite a much wider and wider and wider demographic of patients adopting home is still remained remarkably consistent at under 10 sessions roughly two weeks that were equivalent to PD. So that's been a real selling point and that I think has been recognized by many provider organization.
Kristen Marie Stewart: And really this retention rate has been key.
Kristen Marie Stewart: It is it is so much higher than other alternatives out there and that's really the point you know the point isn't to train as many people who can't go home. The point is to keep as many patients as you can at home that is.
Kristen Marie Stewart: Really where the economics bloom and of course, the clinical outcomes manifest themselves.
Speaker Change: And so we view U S renal care like all of our other partnerships within this mgo.
Speaker Change: Segment, as really critical to our own homegrown and we're privileged to be able to.
Speaker Change: To be a strategic weapon and in their hands as well as they try to grow home.
Speaker Change: Perfect. Thanks for taking the question.
Speaker Change: Of course, thank you one moment for the next question.
Speaker Change: And our next question is coming from Suraj Kalia of Oppenheimer. Your line is open.
Suraj Kalia: Good afternoon Leslie.
Suraj Kalia: Jim can you hear me all right.
Suraj Kalia: Yes.
Suraj Kalia: Perfect.
Suraj Kalia: A lot of commentary provided if you could quickly the 90 day, 90% retention rate if I were to extrapolate those curves at the one year time point do you have visibility into what the retention rates are.
Suraj Kalia: And also specifically on workforce reduction Leslie.
Suraj Kalia: Was there any reduction in the sales and marketing division. Thank you.
Leslie L. Trigg: Sure, Yes, so let me speak to that I'll talk to about that patient retention rate and then I'll go to your second question.
Leslie L. Trigg: Yes, we do have data on the one year and we it is also markedly markedly higher.
Leslie L. Trigg: One year on tableau compared to the legacy home Hemo system.
Leslie L. Trigg: So we've been really pleased at the one year retention as well.
Leslie L. Trigg: And actually I'll make another market has been very very stable. So not only has it been much much higher it's been really stable and then suraj. We've offered in the past that at one year.
Speaker Change: What we call our controllable attrition theres, the uncontrollable attrition, which is out of our hands. Unfortunately, that's death and transplant and then there's what we call the controllable attrition.
Speaker Change: Which is that patients just opting hot they want to go back and center, let's say or something in their life changes, we should be able to affect that we challenge ourselves to affect that and.
Speaker Change: And so we really focus on doing a great job as an organization in the controllable attrition rate and for us that controllable attrition rate at 12 months has remained very stable at about 10%.
Speaker Change: Our our are pretty significant growth in the denominator of patients home on tableau. So those results suraj that differently are holding between 90 days in a year.
Speaker Change: Regarding the <unk>.
Speaker Change: Production of our team.
Speaker Change: The lion's share of the people as well as programs and our Capex and other forms of Opex. We're in as <unk> said, the operations and the R&D area with the remainder of those reduction spread across the organization when we thought about the.
Speaker Change: <unk> here and the philosophy around.
Speaker Change: We're reducing our spend we really had to do.
Speaker Change: Non negotiable theyre sort of sacred cows in mind, our core tenants work number one we have to preserve the patient and the customer experience that is what is driving <unk> adoption growth and two we have to ensure that we continue to deliver on our gross margin expansion initiatives, which continue to pay off so we've very very.
Speaker Change: Very carefully planned our cost reduction to avoid affecting those areas.
Speaker Change: Thank you one moment for our next questions.
Speaker Change: Our next question is coming from Stephanie <unk>.
Stephanie: Of Banc of America Securities. Your line is open.
Stephanie: Hi, Thanks for taking the question I appreciate the color on the guidance, you've given them and how we should think about the first half versus the second half of the year, but just wanted to follow up a little bit I guess with Q1 coming in a little light and not changing the outlook for the second half.
Stephanie: Is there anything getting better maybe in the second half to offset.
Speaker Change: In Q1 versus previous expectations, and maybe any difference in how we should think about the low versus the high end of the guide now thanks.
Speaker Change: Yeah, Hey, Stephanie.
Speaker Change: So with respect to Q1 again it came in largely as we had guided little softer Q2, we'd always expected to be a ramp in quarter for lack of a better word again for all the reasons that Leslie you talked about it in terms of getting customers reactivated with tableau Clark with pre filtration should we do.
Speaker Change: Expect Q2 to step up a little bit in that low $30 million zone as we said.
Speaker Change: Now when we think about the back half a couple of things. So one we will have tableau card with pre filtration for the full half because we expect to be ramped and are working to be ramped in the second quarter. So that we're fully sort of ready in the second half and then let me talk a little bit about the second happened some more specificity.
Speaker Change: And really Stephanie it's two components. So one we do have a recurring revenues consumables and service of a larger installed base as we enter the second half.
Speaker Change: And if you assume kind of it even the low end of guidance that.
Speaker Change: Hum.
Speaker Change: Half of our two H implied revenues come from recurring revenues. The other 50% coming from consoles is the same roughly the same amount of console revenue as we did in one age 23, which was the last half year. When we had tableau cart with pre filtration if that makes sense.
Speaker Change: Yes. Thank you.
Speaker Change: And then Stephanie and associated Okay. So thats part one and then as you think about moving through the guidance range.
Speaker Change: We've always had the same performance levers right. So we can place more consoles in both of our large home or acute end markets we have ASP.
Speaker Change: We have tableau pro plus penetration or sales and of course, we have tableau card sales both to our existing installed base and to new customers. So those are kind of how we think about guidance in the back.
Speaker Change: I can add just a few points that came to mind. When you were talking I think in addition to tableau cart, which is the big again, the big propellant heading into the second half, but I will also reiterate we did see a very significant pipeline expansion in Q1, and we have talked before about our sales cycle being in the nine to 12 months out on deals come in.
Speaker Change: Tom earlier than nine months and in other deals go a bit longer than 12 months, but generally speaking it's nine to 12 months. So with the significant pipeline expansion I think I mentioned I want to reiterate it.
Speaker Change: A a higher percentage than ever of our deals in the pipeline are over a million dollars in size each.
Speaker Change: And and over half are from potential new customers.
Speaker Change: So this pipeline is looking a little different to us in a in a very very good way.
Speaker Change: So that's another kind of tailwind for Q excuse me second half and then of course, the third tailwind, which is related is that lapping of the sales cycle from Q3 Q4 of 2023 coming online in that second half of 'twenty four so that's how I think about the three tailwind.
Speaker Change: Kind of propelling us to this growth trajectory through the back half of this year.
Speaker Change: Okay. Thanks, Stephanie next question operator, Thank you and the next question is coming from Joshua Jennings of TD Cowen Your line is open.
Joshua Thomas Jennings: Hi, Thanks for taking the question.
Joshua Thomas Jennings: I was hoping to just.
Joshua Thomas Jennings: Get an update on the.
Joshua Thomas Jennings: Tableau enhancements.
Joshua Thomas Jennings: It has been brought forward over the past 12 to 18 months.
Joshua Thomas Jennings:
Joshua Thomas Jennings: Sounds like the CTO departed as part of the restructuring imagine there is a deep bench, there, but any plans to replace.
Joshua Thomas Jennings: Head of that group and then anything we should be.
Joshua Thomas Jennings: Looking for in terms of technology enhancements on the tablet system as we move through this year.
Speaker Change: Yeah, sure Hi, Josh I'm happy to answer that.
Speaker Change: One of ours, if not our CTO is greatest gifts and legacy to outset is the team that he is put in place here and he's leaving us with we have an absolutely stellar vice president of software.
Josh: Very very deep bench strength on cyber and data analytics and EMR Operability as we noted in the script. We have spent the last number of years, making very significant enhancements and investments in <unk>.
Josh: In all dimensions that software data data transmission cyber and EMR interoperability and now is our moment to harvest those investments.
Josh: And as I said kind of really.
Josh: Maximize the tableau that we have today, we do have an advantage in this market, which is we are light years ahead, we have a very very meaningful technology advantage, both hardware and software and and I know this has been pointed out to us by investors and shareholders that Hey, you guys.
Josh: Have an incredible incredible lead should.
Josh: Could you just be maybe taking a pause and really selling and marketing what you have and I think that there's a lot of merit to that and we reflected on that a lot we will never stop being sort of a <unk>.
Josh: Genitive ambitious people that we are I can't change the personality of the organization. However, we do have an advantage.
Josh: And in the lead that we already have those software and hardware it will be our focus for the over the course of this <unk> period to make the best use of that.
Josh: But no we are not going to stop dreaming and and as I mentioned, we are just going to probably more pace investments in the future.
Josh: Better aligned to the timeline at which they might pay off which is probably you know maybe towards the end of the L. R P period or beyond hopefully that helped.
Speaker Change: Definitely and then just speaking about.
Speaker Change: The evolution of the tableau system.
Speaker Change: Thinking about the MRP.
Speaker Change: What are the pricing assumptions both on the.
Josh: The capital and and on some of the <unk>.
Josh: Rosebel.
Josh: Should we be thinking about price increases year over year or stable pricing the name of the game within that LLP guidance. Thanks a lot.
Speaker Change: Yes, Josh I mean, we've.
Speaker Change: Look we've always talked about tableau about our ability to protect our pricing on the low end and then.
Speaker Change: Offering these value added accessories, including tableau pro plus and now.
Josh: Back with tableau cart with pre filtration. So again, that's how we think about that is how are we thinking about pricing broadly now and over the <unk> period.
Speaker Change: Okay. Thanks, Josh.
Speaker Change: Or any further questions for us at.
Josh: At this time there are no more questions in the queue I'd like to go ahead and turn the call back over to Leslie for closing remarks.
Leslie L. Trigg: Great well I would like to thank everybody again for joining us this afternoon, and we wish everybody a very good evening. Thank you.
Josh: Yes.
Speaker Change: This concludes today's conference call. Thank you for joining you may all disconnect.
Josh: Yeah.
Josh: [music].
Josh: Yeah.
Josh: Yes.
Josh: [music].