Q3 2024 Outset Medical Inc Earnings Call
Speaker Change: Good day and thank you for standing by welcome characterizes 24 third quarter outset Medical conference call.
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Speaker Change: After the Speakers' presentation there'll be a question answer session.
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Speaker Change: I hand, the conference over to your first speaker today, Joe Mazzoli of Investor Relations. Please go ahead.
Joe Mazzoli: Okay. Thank you and good afternoon, everyone welcome to our third quarter 2024 conference call here with me today are Leslie Trig Chair and Chief Executive Officer and to be Ahmed 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 archived on the investors section of.
Speaker Change: 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 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 event.
Speaker Change: To materially differ from those anticipated or implied.
Speaker Change: <unk> assumes no obligation to update these statements for a list and description of 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 I'll turn the call over to Leslie.
Leslie: Thanks, Jim Good afternoon, everyone and thank you for joining us.
Leslie: I wanted to begin by recognizing health care providers and their patients who are still recovering in the aftermath of hurricane Selena and Milton we work closely with several acute care customers to offer dialysis services of tableau in affected areas and as we saw during the pandemic health care providers Selflessly stepped up to serve the very vulnerable population of <unk>.
Speaker Change: All the patients.
Speaker Change: Our thoughts and support remain with these health care heroes and the dialysis community as the southeastern U S continues its recovery from the storm.
Speaker Change: Moving to our results this quarter demonstrated the strength of our recurring revenue business model our scale in the acute and sub acute setting a return to quarterly sequential growth and strong year over year gross margin expansion.
Speaker Change: Third quarter revenue of $28 $7 million was stronger than our guidance implied driven by new and expansion customers and another record quarter for recurring revenue.
Speaker Change: While console sales were lower than the prior year for the factors, we discussed last quarter treatment revenue grew 14% and service revenue grew 22% both pushing recurring revenue to an all time high.
Speaker Change: Year to date recurring revenue increased 23% over the same period of 2023.
Speaker Change: We also saw average selling prices for our consoles improved by 18% and non-GAAP gross margin expand by nearly 11 percentage points from Q3 of last year.
Speaker Change: The third quarter also marks good progress on our commercial transformation as I highlighted last quarter, we learned that success with mainstream enterprise adopters in the acute setting requires a change in how we sell who we sell to and the process. We used to get there we identified the need to sell more broadly within the C suite and.
Speaker Change: Wish commitment across a larger base of stakeholders deeper within the system to gain by them.
Speaker Change: This transformation has involved three shifts in our commercial approach first we've retooled our commercial team by infusing our capital sales team with individuals who have an enterprise sales profile and skill set.
Speaker Change: Second we implemented a new capital sales process with high specificity accountability and discipline.
Speaker Change: And third we objected rigorous sales management inspection at every step along the way to improve capital sales forecasting and the timing of close.
Speaker Change: We entered the fourth quarter with all three elements of this transformation largely complete the key changes to our capital sales and leadership teams have been made and our new sales process and forecast inspection rigor has been implemented.
Speaker Change: We expect the full the dividends of the sales transformation to manifest in the first part of 2025, we saw early signs of positive impact in Q3.
Speaker Change: Turning to our end markets during the quarter, we continue to have success with acute care providers eager to in source. Their dialysis service line, we made progress with ongoing rollouts at several large health systems and worked with new regional providers to standup in sourcing program.
Speaker Change: Overall, the number of acute and sub acute sites using tableau grew 15% from the prior year period, and we continue to see impressive results following implementation of these programs.
Speaker Change: For example.
Speaker Change: Our team supported the rapid in sourcing of a dialysis service line at a 300 bed hospital in the South Central U S where their provider experienced a 300% increase in treatment growth following implementation and a 25% increase in successful treatments. These.
Speaker Change: These results help improve the quality of dialysis care, while reducing waste and cost.
Speaker Change: We also helped the smaller hospital in a rural community stand up a new dialysis program, which resulted in a 30% increase in revenue from other services as patients no longer needed to be transferred to another facility for treatment.
Speaker Change: In the sub acute setting which represents one of the fastest growing segments of our installed base one of the nation's largest inpatient rehabilitation providers continued at system wide rollout of in sourcing with tableau and now uses tableau and more than 100 facilities performing 14000 dialysis treatments per year.
Speaker Change: Sub acute providers now comprise a roughly mid teens percent of the tableau installed base.
Speaker Change: In the home and market, we again saw industry, leading retention rates as we ramped tableau use with new and existing providers are 90 day retention rate remained above 90% versus the 65% average reported with the incumbent home hemodialysis device are cumulative.
Speaker Change: Opt off rate at one year remains at approximately 10%.
Speaker Change: The average tenure for patient's Dialyze at home with Tableau is now more than one year and our longest tenured patient had been dialogues at home at tableau for more than three years.
Speaker Change: We also see strong patient satisfaction and affinity for tableau in our home registry data two weeks ago at the American Society of Nephrology annual kidney week meeting, we published new data from this home study showing the vast majority of tableau home patients are extremely likely to recommend.
Speaker Change: Home hemodialysis with tableau to other end stage kidney disease patients on a scale from one indicating not likely to turn indicating extremely likely to recommend tableau. The study showed a mean net promoter score of 9.2 at six months and $9 three at 12 months.
Speaker Change: We're most proud of this type of data real world evidence from patients who report they feel better or better able to manage daily activities and more quality time with family and in some cases go back to work.
Speaker Change: Tableau, not only helps providers improve care and save money.
Speaker Change: It also has a very real and measurable impact on the lives of patients.
Speaker Change: Hi, patient and caregiver net promoter scores are not only driving tableau patient expansion, but also expansion in the number and depth of home program locations offering tableau.
Speaker Change: A number of tableau home program locations has increased 40% during the last 18 months and the average size of these programs has continued to grow in fact, one such home program recently reached a record 27 patients home on tableau and Theyre not done.
Speaker Change: As we reflect back on what's been a tough period for outset and shareholders. We are mindful of the challenges and disappointments in the last year and while one quarter's performance is one quarter's performance.
Speaker Change: We look towards Q4 and 2025 with confidence.
Speaker Change: Our installed base is approaching 6000 consoles hundreds of facilities are using tableau nationwide tens of thousands of nurses and thousands of physicians have been trained.
Speaker Change: Our evidence base has grown to more than 70 publications and abstracts, and we're run rating to nearly a million treatments per year, which speaks to the compelling clinical operational and financial results tableau is delivering which in turn fuels the strength of our recurring revenue business model.
Speaker Change: And we look ahead with confidence on the bottom line as well gross margin continues to expand and the decisive steps we've taken to reduce our operating expenses are paying off in the form of lower cash usage and meaningful progress toward breakeven I want to thank our entire team for their commitment to drive growth lower expenses and reach our <unk>.
Speaker Change: Share goal of profitability and.
Speaker Change: And with that I will turn it over to bill.
Bill: Thanks, Leslie Hello, everyone revenue for the third quarter of $28 $7 million grew 5% sequentially driven primarily by recruiting treatment and service revenue from continued strong tableau utilization.
Speaker Change: On a year over year basis revenue declined 6% due to lower console sales for the reasons. We previously discussed partially offset by recruiting treatment and service revenue.
Speaker Change: <unk> revenue was $23 million grew 6% from $19 2 million in the second quarter and declined 14% from $23 $5 million in the prior year.
Speaker Change: Service and other revenue of $8 $4 million increased 3% sequentially and 22% year over year.
Speaker Change: Recurring revenue from the sale of tableau cartridges and service reached $21 million, an increase of 4% sequentially and 17% from the prior year period.
Speaker Change: We continue to see strong ESP across all end markets as a result of our disciplined pricing.
Speaker Change: Strong uptake with acute customers of our tableau proved plus offering and the availability of tableau cart with pre filtration also with acute customers as Leslie mentioned Concho ASP increased 18% from the third quarter of 2023.
Speaker Change: Now moving to our gross margin and operating expenses, which as a reminder reflects our non-GAAP results. Please refer to the reconciliation of GAAP to non-GAAP measures found in today's earnings release.
Speaker Change: Gross margin of 36, 4% increased by nearly 11 percentage points from last year with strong underlying dynamics in both product gross margin, which was 44, 9%.
Speaker Change: Service and other gross margin of 15, 8%.
Speaker Change: Compared to the second quarter of 2024 gross margin was down by one percentage point.
Speaker Change: As I mentioned last quarter gross margin may fluctuate a bit on a quarter to quarter basis in the short term.
Speaker Change: Similarly, due to lower absorption of manufacturing overhead as a result of our reduced console build plan and efforts to reduce inventory levels, which we expect will allow us to consider the significant amount of cash as we move into next year.
Speaker Change: Absent the lower absorption of manufacturing overhead gross margin would have expanded sequentially by two to three percentage points.
Speaker Change: I'd like to take a moment to remind investors of the unit economics of our treatment sales under a service contract renewals both of which combine into a recurring revenues.
Speaker Change: Our gross margin on treatments is currently north of 50% and given that our cost of service consists of a largely fixed cost which is people the incremental gross margin from each service contract renewal approaches 100%.
Speaker Change: Said differently as our installed base grows and as we drive further operating leverage from our service team our gross margin benefits materially.
Speaker Change: This high incremental gross margin recurring revenue foundation is the cornerstone of our path to 50% gross margin.
Speaker Change: Operating expenses of 26, and a half million dollars came in better than our expectations declining by 15% as compared with the second quarter and by 37% from the prior year period, driven by our ongoing focus on expense management and the restructuring actions we've taken.
Speaker Change: non-GAAP net loss was $22 million or <unk> 39 per share and continues to be materially lower on a sequential and year over year basis net loss was 18% lower sequentially from the second quarter and 43% lower than the third quarter of 2023, reflecting the positive results of our drive to profitability.
Speaker Change: Moving to our balance sheet, we ended the third quarter with $179 million in cash cash equivalents for term investments and restricted cash.
Speaker Change: Our entire team is laser focused on achieving profitability and believe that the work we've done to reduce opex and bring down inventory levels will materially contribute to our goal of reducing 2025 cash usage by roughly half relative to our expected 2020 for cash usage.
Speaker Change: Turning to our full year outlook for 2024, we now expect revenue of approximately $112 million up from our prior guidance of approximately $110 million as a reminder, our base assumption is that console revenue in the second half is similar to what we recorded for the first half.
Speaker Change: With strong utilization, we would expect recurring revenue to continue to perform well as it has consistently done.
Speaker Change: Turning to gross margin, we now expect non-GAAP gross margin to.
Speaker Change: To be in the mid 30% range over our prior guidance of low to mid 30% range again gross margin expansion is driven by continued strength in ESP recurring revenue from a larger installed base service leverage and console cost down programs.
Speaker Change: We continue to anticipate that Opex for 2024 will be roughly $120 million, which puts our run rate non-GAAP operating expenses just over $100 million.
Speaker Change: And finally with our strong value proposition across two large end markets wide competitive moat and broad integrated offering of products and services. We remain bullish on our long term revenue growth profile at the same time this quarter again demonstrated our commitment to achieving profitability.
Speaker Change: Currently managing our cash position, reducing operating expenses and becoming even more efficient in our operations.
Speaker Change: With that I think we're ready for Q&A operator, please open the lines.
Speaker Change: 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 wanted to telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Rick Wise of Stifel. Your line is now open.
Rick Wise: Hi, good afternoon everybody.
Speaker Change: Thanks for the question and it's good to see.
Speaker Change: The positive progress this quarter, let me just start off.
Speaker Change: Partners are starting off with the guidance.
Speaker Change: Yes.
Speaker Change: Did make solid progress this quarter.
Speaker Change: Alright.
Speaker Change: Luckily mobile highlighting some of the positive directional.
Speaker Change: Effect.
Speaker Change: The enterprise sales shipped a tableau card costs down et cetera et cetera.
Speaker Change: But the full year revenue guidance now.
Speaker Change: 112.
Speaker Change: Sort of a positive.
Speaker Change: Potentially it's sequentially lower fourth quarter than third quarter can you help us just understand is this conservatism or are there other things going on that we need to understand just give us a little more color there. Thank you.
Speaker Change: Yes, Hi, Rick so.
Speaker Change: So first we were pleased with our Q3 performance.
Speaker Change: Our intent was really to pass through our over performance in Q3 relative to expectations.
Speaker Change: We wanted to be thoughtful as we thought about the full year in the fourth quarter.
Speaker Change: Thoughtful translated to bill.
Speaker Change: So you want to err on the side of conservatism or there are other factors that we should be.
Speaker Change: Thinking about as we think about the fourth quarter.
Speaker Change: Yeah, Hey, Rick its Lesley maybe I'll jump in I would say.
Speaker Change: I think the intent is to remain a bit conservative in our outlook until we have more than one quarter of evidence that we're making the turn I think Q3 will look back as an important turning point and kind of the beginning of a new chapter for out that and we were we too where we're really pleased to see the progress.
Speaker Change: But we need a little bit more run time on the changes to the commercial organization and just to make sure that we're seeing success replicated equivalently across the country.
Speaker Change: For more than for more than one quarter. So our thought here Wednesday, let's kind of stay conservative in our outlook until we have more than this one quarter of evidence.
Speaker Change: To determine that that we really are making the turn that sad.
Speaker Change: My confidence the team's confidence at large is very high both for Q4 and for 2025.
Speaker Change: Gotcha.
Speaker Change: Lovely.
Speaker Change: Last quarter you highlighted.
Speaker Change: Highlighted.
Speaker Change: The order pipeline and the progress the quality and touch on where you are today as well.
Speaker Change: Yeah.
Speaker Change: Can you.
Speaker Change: Provide some additional details where does that order pipeline.
Speaker Change: I think you said you had 60% of the order pipeline foods deal size. The familiar more did that metric increased in the third quarter is that something we should be focusing on.
Speaker Change: And just help us.
Speaker Change: You went through your comprehensive.
Speaker Change: Did that change.
Speaker Change: Anything there.
Speaker Change: Well it is one of the points that gives me a lot of confidence and enthusiasm as we think about the setup into 2025.
Speaker Change: We do have a pipeline that's large and continues to get larger I think what we're particularly focused on is when you look at the pipeline. How many of those deals are in the earlier stages of the sales process, our new sales process and how many deals are in the later stages of course the deals that are in the later stages have the higher probability of close we're going to do.
Speaker Change: Find period of time, and so as we sit here today nearly half of the opportunities in our pipeline for 2025 are in the later stages of that sales process and that's not a position that we've actually been in before so I see that as a nice again early but and encouraging leading indicator and I think other thoughts.
Speaker Change: Growth in 'twenty, five and our is to be able to use the word bullishness in 'twenty five.
Speaker Change: Or kind of the following <unk>, we do believe that the challenges of the last couple of quarters are behind US we do have the sales changes implemented.
Speaker Change: And another thing I'll point out about 25 is our capital sales reps that have the new profile will have turned the corner into full tenure that is aligned to the duration of our nine to 12 months sales cycle in the first part of 'twenty five so the sales changes have been implemented the sales process the forecast inspection rigor.
Speaker Change: Has been implemented tableau cards back online and available.
Speaker Change: At this pipeline as I mentioned, a large percentage of that already in the later stages of the sales process and this Barry.
Speaker Change: I think valuable recurring revenue foundation that is now approximately 60% of our total revenue and only continues to strengthen which gives us some not the night visibility going forward into future quarters.
Rick Wise: No that's very helpful perspective.
Speaker Change: Last quick one for me just because you alluded to the hurricane impact.
Speaker Change:
Speaker Change: How you were dealing with it as a company.
Speaker Change: Did the hurricanes either won or together have a powerful impact on the way.
Speaker Change: Sure.
Speaker Change: This quarter did you feel any delay in start in home starts or program implementations that you want to call out. Thank you very much.
Speaker Change: Of course, Rick the short answer is no. In fact, we had one of the strongest quarters, we've seen four new home starts.
Speaker Change: One of the advantages of tableau is that it does not rely on pre made bags of dialysis. It does as you know.
Speaker Change: It makes the dialysate on demand.
Speaker Change: In real time during treatment and so that's.
Speaker Change: That's very helpful and advantageous in circumstances like that so no. The hurricanes did not have any effect on an out that or our patients directly as I alluded to in the prepared remarks, we did have an opportunity to step in and I hope provide some support and help to some of our customer provide herself.
Rick Wise: Thank you Catherine.
Rick Wise: Yeah.
Rick Wise: Thank you <unk> for the next question.
Speaker Change: Our next question comes from the line of <unk> <unk> of RBC capital markets. Your line is now open.
Speaker Change: Hey, good afternoon. This is ASEAN for Sabrina and thanks for taking my question the.
Rick Wise: A follow up on 2025.
Rick Wise: I guess you indicated your pipeline is strong it's continuing to get larger and like you said nearly half of your pipeline.
Rick Wise: Is in the later stages of the sales process.
Rick Wise: Is there any visibility to growth getting back to double digits I understand last quarter or maybe the quarter before you didn't reiterate your LLP is there any color you can provide on.
Rick Wise: Revenue for 2025, or I mean top line figures. Thank you.
Speaker Change: Yeah, Hey, Ravi.
Speaker Change: Look a couple of things one we're not giving guidance at this point, we will give guidance in due course sort of in early Q1 of next year as we always do first of all there is no reason why we would not grow next year and what I wanted to maybe give you a bit more context about how we think about our business from a growth perspective. So if you start with recurring revenues, we expect that.
Speaker Change: To be roughly $80 million in 2024 based on kind of our guidance range.
Rick Wise: Those recurring revenues are expected to grow in 'twenty five as the installed base grows.
Rick Wise: And that means and as we've previously shared this recurring revenue growth means that we can grow total cone total revenue, even if you hold console sales flat to the year over year basis, and so it doesn't it doesn't take you a lot of console unit growth year over year to get total revenue.
Rick Wise: Total revenue moving in a meaningful way so hope that helps.
Speaker Change: I'll, just I'll add to that I I am I think that's a great perspective.
Speaker Change: When I look at kind of where we're already growing avi.
Rick Wise: One quarter is one quarter and I fully acknowledge that however, when we look at where we're already seeing growth what I, what I am seeing that I like is a very healthy mix of existing customers expanding new customers buying tableau to in source for the first time.
Rick Wise: And really good distribution between acute both national players and large regional players.
Rick Wise: Most acute al tax rehab and skilled nursing facilities and home and so as I'm looking at the activity that's already happening in Q3, and the continued benefit that we do expect to see in Q4 from these sales, Oregon process changes that informs our conviction and our ability to return to a full year growth.
Rick Wise: Full year healthy growth in 2025.
Speaker Change: Got it thanks, so much.
Rick Wise: Sure.
Rick Wise: Thank you joining us for our next question.
Rick Wise: And our next question comes from the line of Suraj Kalia of Oppenheimer. Your line is now open.
Rick Wise: Okay.
Suraj Kalia: Hi, Leslie and the Bill can you hear me all right.
Rick Wise: Yes.
Rick Wise: Correct.
Rick Wise: Congrats on the progress.
Rick Wise: Asleep.
Rick Wise: The rough math is sub acute visit about 15% of the overall does let's say home is about 25% of the remaining is acute.
Speaker Change: Could you characterize for us.
Rick Wise: The respective growth rates within these buckets.
Rick Wise: Just directionally versus where the composite growth rate for product ramps.
Rick Wise: The product reps was.
Speaker Change: Yeah, maybe I'll kick it over to be able and then I can add some color yeah, Hey, suraj. So our business, we talked about our home contribution being roughly 20% of our total revenues that's been consistent.
Speaker Change: For the last couple of years and so that's just how we have thought about this year as well and nothing suggests it would be different.
Speaker Change: I'll, maybe chime in a little bit on it give it a little bit more color on just on home.
Speaker Change: On the home front Suraj just to reiterate I think we're seeing really good encouraging growth through two channels. One is the the mid sized dialysis organizations, we've talked about that before but the second newer emerging growth channel for us is through the skilled nursing facilities. We have continued.
Speaker Change: Through 2024 to sign a number of pretty significant contracts within the skilled nursing facility arena and as those implementations have rolled out.
Speaker Change: We would expect to see a lot more activity through snap because the economic value proposition. There is so strong for the snip operator, the clinical benefits are strong for the snip operator and of course, most importantly for the patients. So I do view both of those channels and home paying a lot of dividends for us in 2010.
Speaker Change: Five.
Speaker Change: Thank you our next question.
Speaker Change: Our next question comes from the line of Maria <unk> of <unk>. Your line is now open.
Maria <unk>: Hi, Thanks, so much for taking the questions a nice quarter.
Speaker Change: I wanted to ask a little bit about pricing I think I heard you say console asps increased 18% year over year, so with that in mind I am curious about the uptake of tableau cart, how instrumental that product has been in <unk>.
Speaker Change: Closing any of these large deals that you were able to get closed this quarter.
Speaker Change: Yeah, Hey, Murray with respect to Asps, we were pleased to see the 18% year over year ASP growth.
Speaker Change: There's really a couple of drivers of ASP for US number one we have always maintained pretty disciplined pricing across all our end markets. We don't do a lot of this quarter and discounting and haven't done for a while.
Speaker Change: Number two we continue to see strong tableau pro plus attach rates, that's where software offering that also contributes to gross margin in a meaningful way and then third we do have tableau cart with pre filtration that has come back.
Speaker Change: It is now fully available for sale and we did see some of that we did see some of the deals that we were expecting to sort of move with the recruiting of Tableau Guard, we did see them move in there sort of baked into our over performance here in <unk>.
Speaker Change: Okay. That's wonderful. Thank you reassuring one quick follow up here on the gross margin dynamics, you talked about in the deal.
Speaker Change: Some of that.
Speaker Change: <unk> related to the reduced console build plan is it fair to think that we should see the gross margin dynamic sort of straighten out or.
Speaker Change: Return kind of a normal cadence maybe.
Speaker Change: Partway through 2025 Anniversarying some of those.
Speaker Change: Thanks for taking the questions.
Speaker Change: Already the three Q really was a result of the absorption that I talked about.
Speaker Change: We're not giving guidance for 'twenty five right now what I will say, though is we remain committed and on track to achieving 50% gross margin in a relatively linear fashion here as we move forward over the not too distant future.
Speaker Change: Thank you Bob for next question.
Speaker Change: And our next question comes from the line of Josh Jennings.
Speaker Change: Cowen Your line is now open.
Josh Jennings: Thank you and good evening I was hoping to just.
Speaker Change: Get a better understanding I apologize if I missed this we have an overlapping call but.
Speaker Change: Just where are you with this.
Speaker Change: Transformation of the sales organization and implementation of the new enterprise sales approach it seems like the.
Speaker Change: The trend the transformation is already worked through that very quickly.
Speaker Change: <unk> had a better than expected quarter.
Speaker Change: What inning are we in and is there any impact to Q4, we should be thinking about.
Speaker Change: As youre executing on this strategy.
Speaker Change: Yes, Hi, Josh.
Speaker Change: Let's see so first and foremost I would like to I would like to really complement our team. They have done a really really good job of getting the right talent in the right places at the right time, if you will implementing the sales process and putting a lot of the tools for kind of inspection and rigorous forecast methodology in place.
Speaker Change: In a relatively short period of time to your point.
Speaker Change: At this stage I would say, we just need some more run time.
Speaker Change: Under under the new model and in order to continue to leverage this deeper enterprise sales expertise that we have infused in the organization and just simply making sure that the changes continue to deliver the intended results.
Speaker Change: And that we see this success replicated consistently across the country.
Speaker Change: I had mentioned in the prepared remarks that I think this transition will be fully complete in the first part of 'twenty. Five however, we definitely saw some nice leading indicator results in Q3, and we certainly expect some benefit again in Q4, so I would say.
Speaker Change: So far so good.
Speaker Change: Excellent and then just wanted to follow up on one of the deals previous answers on just tablet part D.
Speaker Change: Thank you.
Speaker Change: <unk> provided a minor benefit or some benefit in Q3 can you just talk about that part of the pipeline specifically have any deals falling out or are these deals are working their way through the pipeline and religion still rubbing drilling opportunities in Q4 and 2025. Thanks so much.
Speaker Change: Sure of course, I'm happy to comment on that.
Speaker Change: So the short answer on the the pipeline of deals moving through it is no. We did not see any deals in Q3.
Speaker Change: The pipeline all of those opportunities remain active our sales cycle also remained stable about nine to 12 months with those bigger deals and in last quarter's call I talked about how the percentage of our pipeline that consists of deals that are 50 to 100 plus consoles is actually.
Speaker Change: Gotten larger and larger over time these are bigger deals.
Speaker Change: Do require more consensus decision, making across bigger parts of the organization, but of course, it's worth it because you end up with very broad kind of whole house conversions of tableau across a fairly significant network of of hospitals.
Speaker Change: And so the the I would say the sales cycle for those large deals is on the outer edge of 12 months, but that hasnt changed on the other hand, some of our smaller deals do close earlier than nine months.
Speaker Change: With regard to tableau cart, yes. It has certainly been helpful to have tableau card back.
Speaker Change: As the demand and the customer interest in that accessory remains high and as I look at the pipeline going forward in 2025, I think tableau will be continue to be an important part of the next year.
Speaker Change: But so too will tableau is core value proposition the number one reason why.
Speaker Change: New customers adopt tableau in existing customers expand with tableau is because it delivers on its promises that the essential value proposition here remains unchanged.
Speaker Change: Is economic cost reduction it is improved clinical care and it is improved operational efficiencies and as we've grown now to many hundreds of customers and sites I think the good news is we have a larger and larger evidenced base.
Speaker Change: Tableau delivering on its value proposition promises.
Speaker Change: I appreciate all those details shortly.
Speaker Change: Thank you.
Speaker Change: Thank you I'm showing no further questions at this time I'll now.
Speaker Change: I'll turn it back to the speaker for closing remarks.
Speaker Change: Great. Thank you and thanks to all of you for joining today I would like to close by thanking our entire team for the very meaningful difference that they're making everyday annualize of dialysis patients. We look forward to seeing many of you at the upcoming investor conferences here in November and have a great evening. Thanks again.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: [music].
Speaker Change: Good day and thank you for standing by welcome to 2024 third quarter outset Medical conference call.
Speaker Change: At this time, all participants and then only mode.
Speaker Change: After the Speakers' presentation there'll be a question answer session.
Speaker Change: You asked a question during this session you will need to press star one one on the telephone.
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Speaker Change: Be advised that today's conference is being recorded I would like to hand, the conference over to your first big today, Jim Mazzola of Investor Relations. Please go ahead.
Jim Mazzola: Okay. Thank you and good afternoon, everyone welcome to our third quarter 2024 conference call here with me today are Leslie Trig Chair and Chief Executive Officer, and tubular merge financial Officer, we issued a news release after the close of market today, which can be found on the investor pages about that medical Dot Com. This call is being recorded and will be archived on the investors section of.
Jim Mazzola: 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 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.
Jim Mazzola: To materially differ from those anticipated or implied outset assumes no obligation to update these statements for a list and description of 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 I'll turn the call.
Jim Mazzola: Leslie.
Speaker Change: Jim Good afternoon, everyone and thank you for joining us.
Speaker Change: Let me begin by recognizing health care providers and their patients who are still recovering in the aftermath of hurricane Salina El pen.
Speaker Change: Worked closely with several acute care customers to offer dialysis services of tableau in affected areas.
Speaker Change: And as we saw during the pandemic health care providers Selflessly stepped up to serve the very vulnerable population of dialysis patients.
Speaker Change: Our thoughts and support remain with these health care heroes and the dialysis community as the southeastern U S continues its recovery from the storm.
Speaker Change: Hum.
Speaker Change: Moving to our results this quarter demonstrated the strength of our recurring revenue business model our scale in the acute and sub acute setting a return to quarterly sequential growth and strong year over year gross margin expansion.
Speaker Change: Third quarter revenue of $28 $7 million was stronger than our guidance implied driven by new and expansion customers at another record quarter for recurring revenue.
Speaker Change: <unk> sales were lower than the prior year for the factors, we discussed last quarter treatment revenue grew 14% and service revenue grew 22% both pushing recurring revenue to an all time high.
Speaker Change: Year to date recurring revenue increased to 23% over the same period of 2023.
Speaker Change: We also saw average selling prices for our commvault improved by 18% and non-GAAP gross margin expand by nearly 11 percentage points from Q3 of last year.
Speaker Change: The third quarter also marks good progress on our commercial transformation as I highlighted last quarter, we learned that success with mainstream enterprise adopters in the acute setting requires a change in how we sell who we sell to and the process. We used to get there we identified the need to sell more broadly within the C suite and.
Speaker Change: Wish commitment across a larger base of stakeholders deeper within the system to gain by it.
Speaker Change: This transformation has involved three shifts in our commercial approach first we've retooled our commercial team by using our capital sales team with individuals who have an enterprise sales profile and skill set.
Speaker Change: Second we implemented a new capital sales process with high specificity accountability and discipline.
Speaker Change: And third we objected rigorous sales management inspection at every step along the way to improve capital sales forecasting and the timing of close.
Speaker Change: We entered the fourth quarter with all three elements of this transformation largely complete the key changes to our capital sales and leadership team have been made and our new sales process and forecast inspection rigor has been implemented.
Jim Mazzola: We expect the full the dividends of the sales transformation to manifest in the first part of 2025, we saw early signs of positive impact in Q3.
Speaker Change: Turning to our end markets during the quarter, we continue to have success with acute care providers eager to in source. Their dialysis service line, we made progress with ongoing rollout that several large health system and worked with new regional providers to standup in sourcing program.
Speaker Change: Overall, the number of acute and sub acute sites using tableau grew 15% from the prior year period, and we continue to see impressive results following implementation of these programs.
Speaker Change: For example, our team supported the rapid in sourcing of a dialysis service line at a 300 bed hospital in the South Central U S, where the provider experienced a 300% increase in treatment growth following implementation and a 25% increase in successful treatment.
Speaker Change: These results help improve the quality of dialysis care, while reducing waste and cost.
Speaker Change: We also helped the smaller hospital in a rural community stand up a new dialysis program, which resulted in a 30% increase in revenue from other services as patients no longer needed to be transferred to another facility for treatment.
Jim Mazzola: And the sub acute setting which represents one of the fastest growing segments of our installed base one of the nation's largest inpatient rehabilitation providers continued at system wide rollout of in sourcing with tableau and now uses tableau and more than 100 facilities performing 14000 dialysis treatments per year.
Jim Mazzola: Sub acute providers now comprise a roughly mid teens percent of the tableau installed base.
Jim Mazzola: In the home and market, we again saw industry, leading retention rates as we ramped tableau use with new and exact and existing providers.
Jim Mazzola: Our 90 day retention rate remained above 90% versus the 65% average reported with the incumbent home hemodialysis device, our cumulative opt off rate at one year remains at approximately 10%.
Speaker Change: The average tenure for patient's Dialyze at home with Tableau is now more than one year and our longest tenured patient had been dialogue at home at tableau for more than three years.
Speaker Change: We also see strong patient satisfaction and affinity for tableau in our home registry data two weeks ago at the American Society of Nephrology annual kidney week meeting, we published new data from this study showing the vast majority of tableau home patients are extremely likely to recommend.
Speaker Change: Home hemodialysis with tableau to other end stage kidney disease patients on a scale from one indicating not likely to turn indicating extremely likely to recommend tableau. The study showed a mean net promoter score of 9.2 at six months and nine three at 12 months.
Speaker Change: We're most proud of this type of data real world evidence from patients, who report they feel better or better able to manage daily activities.
Speaker Change: More quality time with family and in some cases go back to work.
Speaker Change: Tableau, not only helps providers improve care and save money. It also has a very real and measurable impact on the lives of patients high.
Speaker Change: Hi, patient and caregiver net promoter scores are not only driving tableau patient expansion, but also expansion in the number and depth of home program locations offering catalog.
Speaker Change: The number of Tableau home program locations has increased 40% during the last 18 months and the average size of these programs has continued to grow in fact, one Sichuan program recently reached a record 27 patients home on tableau and they're not done.
Speaker Change: As we reflect back on what has been a tough period for outset and shareholders. We are mindful of the challenges and disappointments in the last year and while one quarter's performance is one quarter's performance we.
Speaker Change: We look towards Q4, and 2025 with confidence our installed base is approaching 6000 uncle hundreds of facilities are using tableau nationwide tens of thousands of nurses and thousands of physicians have been trained our evident base has grown to more than 70 publications and abstracts and we are.
Speaker Change: Run rating to nearly a million treatments per year, which speaks to the compelling clinical operational and financial result, tableau is delivering which in turn fuels the strength of our recurring revenue business model.
Speaker Change: And we look ahead with confidence on the bottom line as well gross margin continues to expand and the decisive steps we've taken to reduce our operating expenses are paying off in the form of lower cash usage and meaningful progress toward breakeven I want to thank our entire team for their commitment to drive growth lower expenses and reach our share.
Speaker Change: Our goal of profitability.
Speaker Change: And with that I will turn it over to mobile.
Speaker Change: Thanks, Leslie Hello, everyone revenue for the third quarter of $28 $7 million grew 5% sequentially driven primarily by recruiting treatment and service revenue from continued strong tableau utilization.
Speaker Change: On a year over year basis revenue declined 6% due to lower console sales for the reasons. We previously discussed partially offset by recruiting treatment and service revenue.
Speaker Change: Product revenue was $23 million grew 6% from $19 2 million in the second quarter and declined 14% from $23 5 million in the prior year.
Speaker Change: Service and other revenue of $8 $4 million increased 3% sequentially and 22% year over year.
Speaker Change: Recurring revenue from the sale of tableau cartridges and service reached $21 million, an increase of 4% sequentially and 17% from the prior year period.
Speaker Change: We continue to see strong ASP across all end markets as a result of our disciplined pricing strong uptake with acute customers of our tableau crude plus offering and the availability of tableau cart with pre filtration also with acute customers as Leslie mentioned console ASP increased 18% from the third quarter of.
Speaker Change: <unk> 2023.
Speaker Change: Now moving to our gross margin and operating expenses, which as a reminder, reflect our non-GAAP results. Please refer to the reconciliation of GAAP to non-GAAP measures found in today's earnings release.
Speaker Change: Gross margin of 36, 4% increased by nearly 11 percentage points from last year with strong underlying dynamics in both product gross margin, which was 44, 9% and service and other gross margin of 15, 8% comp.
Speaker Change: Compared to the second quarter of 2024 gross margin was down by one percentage point.
Speaker Change: As I mentioned last quarter gross margin may fluctuate a bit on a quarter to quarter basis in the short term primarily due to lower absorption of manufacturing overhead as a result of our reduced console build plan and efforts to reduce inventory levels, which we expect will allow us to consume a significant amount of.
Speaker Change: Cash as we move into next year.
Speaker Change: Absent the lower absorption of manufacturing overhead gross margin would have expanded sequentially by two to three percentage points.
Speaker Change: I'd like to take a moment to remind investors of the unit economics of our treatment sales and our service contract renewals both of which combine into a recurring revenues.
Speaker Change: Our gross margin on treatments is currently north of 50% and given that our cost of service consists of a largely fixed cost which is people the incremental gross margin from each service contract renewal approaches 100%.
Speaker Change: Said differently as our installed base grows and as we drive further operating leverage from our service team our gross margin benefits materially.
Speaker Change: This high incremental gross margin recurring revenue foundation is the cornerstone of our path to 50% gross margin.
Speaker Change: Operating expenses of $26 $5 million came in better than our expectations declining by 15% as compared with the second quarter and by 37% from the prior year period, driven by our ongoing focus on expense management and the restructuring actions we've taken.
Speaker Change: non-GAAP net loss was $20 2 million or <unk> 39 per share and continues to be materially lower on a sequential and year over year basis net loss was 18% lower sequentially from the second quarter and 43% lower than the third quarter of 2023, reflecting the positive results of our drive to profitability.
Speaker Change: Moving to our balance sheet, we ended the third quarter with $179 million in cash cash equivalents short term investments and restricted cash.
Speaker Change: Our entire team is laser focused on achieving profitability and believe that the work we've done to reduce opex and bring down inventory levels will materially contribute to our goal of reducing 2025 cash usage by roughly half relative to our expected 2020 for cash usage.
Speaker Change: Turning to our full year outlook for 2024, we now expect revenue of approximately $112 million up from our prior guidance of approximately $110 million as a reminder, our base assumption is that console revenue in the second half is similar to what we recorded for the first half.
Speaker Change: With strong utilization, we would expect recurring revenue to continue to perform well as it has consistently done.
Speaker Change: Turning to gross margin, we now expect non-GAAP gross margin.
Speaker Change: In the mid 30% range over our prior guidance of low to mid 30% range again gross margin expansion is driven by continued strength in ESP recurring revenue from a larger installed base service leverage and console cost down programs.
Speaker Change: We continue to anticipate that Opex for 2024 will be roughly a $120 million.
Speaker Change: Which puts our run rate non-GAAP operating expenses just over $100 million.
Speaker Change: And finally with our strong value proposition across two large end markets wide competitive moat and broad integrated offering of products and service. We remain bullish on our long term revenue growth profile at the same time this quarter again demonstrated our commitment to achieving profitability.
Speaker Change: Prudently managing our cash position, reducing operating expenses and becoming even more efficient in our operations.
Speaker Change: With that I think we're ready for Q&A operator, please open the lines.
Speaker Change: Great. Thank you at this time, we will conduct a question answer session. As a reminder to ask a question you will need to press star one wanted to telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Rick Wise of Stifel. Your line is now open.
Rick Wise: Hi, good afternoon everybody.
Rick Wise: Thanks for the question and it's good to see.
Speaker Change: The positive progress this quarter.
Speaker Change: Let me just start off.
Speaker Change: Parker is starting off with the guidance.
Speaker Change: You did make solid progress this quarter.
Speaker Change: Both.
Speaker Change: And maybe I'll highlighting some of the positive direction at all.
Speaker Change: Our.
Speaker Change: Perfect.
Speaker Change: The enterprise sales shift tableau card costs down et cetera et cetera.
Speaker Change: But the full year revenue guidance now.
Speaker Change: Okay.
Speaker Change: 12.
Speaker Change: Sort of a positive.
Speaker Change: Potentially sequentially lower fourth quarter than third quarter can you help us just understand.
Speaker Change: This conservatism or are there other things going on that we need to understand just give us a little more color there. Thank you.
Speaker Change: Yes, Hi, Rick.
Speaker Change: So Chris we were pleased with our Q3 performance.
Speaker Change: Our intent was really to pass through our over performance in Q3 relative to expectations.
Speaker Change: And we wanted to be thoughtful as we thought about the full year in the fourth quarter.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Good thoughtful translated mobile.
Speaker Change: You want to err on the side of conservatism or there are other factors that we should be thinking about as we think about the fourth quarter.
Speaker Change: Yeah, Hey, Rick its likely maybe I'll jump in I would say.
Speaker Change: I think the intent is to remain a bit conservative in our outlook until we have more than one quarter of evidence that we're making a turn I think Q3 will look back as an important turning point and kind of the beginning of a new chapter for out that and we were we too were really pleased to see the progress.
Speaker Change: But we need a little bit more run time on the changes to the commercial organization and just to make sure that we're seeing success replicated equivalently across the country.
Speaker Change: More than for more than one quarter. So our thought here Wednesday, let's kind of stay conservative in our outlook until we have more than one quarter of evidence.
Speaker Change: To determine that we really are making the turn that said.
Speaker Change: My confidence the team's confidence at large is very high both for Q4 and for 2025.
Speaker Change: Gotcha.
Speaker Change: Last quarter you highlighted.
Speaker Change: The order pipeline and the progress the quality touched on it.
Speaker Change: Today as well.
Speaker Change: Yes.
Speaker Change: Can you.
Speaker Change: Provides some additional detail where does that order pipeline.
Speaker Change: I think you said you had 60% of the order pipeline deal size.
Speaker Change: And did that metric increased in the third quarter is that something we should be focusing on.
Speaker Change: And just help us.
Speaker Change: As you went through your comprehensive review.
Speaker Change: <unk> change anything.
Speaker Change: Anything there.
Speaker Change: Well it is one of the points that gives me a lot of confidence and enthusiasm as we think about the setup into 2025.
Speaker Change: We do have a pipeline that is large and continues to get larger I think what.
Speaker Change: What we're particularly focused on is when you look at the pipeline how many of those deals are in the earlier stages of the sales process, our new sales process and how many deals are in the later stages of course the deals that are in the later stages have the higher probability of close within a defined period of time and so as we sit here today nearly half of the <unk>.
Speaker Change: Opportunities in our pipeline for 2025 are in the later stages of that sales process and that's not a position that we've actually been in before so I see that as a nice again early but and encouraging leading indicator and I think other thoughts about growth in 'twenty five and our is to be able to use the word bullishness in 'twenty five.
Speaker Change: Or kind of the following.
Speaker Change: Do believe that the challenges of the last couple of quarters are behind US we do have the sales changes implemented.
Speaker Change: One thing I'll point out about 25% is.
Speaker Change: Our capital sales reps that have the new profile will have turned the corner into full tenure that is aligned to the duration of our nine to 12 month sales cycle in the first part of 'twenty five so the sales changes have been implemented the sales process. The forecast inspection rigor has been implemented tableau cards back online and available.
Speaker Change: We look at this pipeline as I mentioned, a large percentage of that already in the later stages of the sales process and this Barry.
Speaker Change: I think valuable recurring revenue foundation that is now approximately 60% of our total revenue and only continues to strengthen which gives us some not the night visibility going forward into future quarters.
Speaker Change: No. That's very helpful perspective, and then just a last quick one from me just a quick thank you.
Speaker Change: Alluded to the hurricane impact.
Speaker Change: Hi.
Speaker Change: How you were dealing with it as a company.
Speaker Change: Did the hurricanes either won or together.
Speaker Change: Hurtful impact on the way.
Speaker Change: On this quarter or did you feel any delay in garden home starts or program implementation that you want to call out. Thank you very much.
Speaker Change: Of course, Rick the short answer is no. It back we had one of the strongest quarters, we've seen four new home starts.
Speaker Change: One of the advantages of tableau is that it does not rely on pre made bags of dialysate. It does.
Speaker Change: It makes the dialysate on demand.
Speaker Change: In real time during treatment and so that.
Speaker Change: That's very helpful and advantageous.
Speaker Change: In circumstances like this so no the hurricanes did not have any effect on an out that or our patients directly as I alluded to in the prepared remarks, we did have an opportunity to step in and I hope provide some support and help to some of our customer provide ourselves.
Speaker Change: Thank you Catherine.
Speaker Change: Hi.
Speaker Change: Thank you Ron for the next question.
Speaker Change: And our next question comes from the line of <unk> <unk> of RBC capital markets. Your line is now open.
Avi: Hey, good afternoon. This is avi on for Simeon Thanks for taking the question.
Avi: To follow up on 2025.
Avi: I guess you indicated your pipeline is strong it's continuing to get larger and like you said nearly half of your pipeline.
Speaker Change: Is in the later stages of the sales process.
Speaker Change: Is there any visibility to growth getting back to double digits I understand last quarter or maybe the quarter before you didn't reiterate your LLP is there any color you can provide on.
Speaker Change: Revenue for 2025 or any topline.
Speaker Change: Thank you.
Speaker Change: Yeah, Hey, Ravi.
Speaker Change: <unk>.
Speaker Change: So look a couple of things one we're not giving guidance at this point, we will give guidance in due course sort of in early Q1 of next year as we always do first of all there is no reason why we would not grow next year and what I wanted to maybe give you a bit more context about how we think about our business from a growth perspective. So if you start with recurring revenues, we expect that.
Speaker Change: To be roughly $80 million in 2024 based on kind of our guidance range. Those recurring revenues are expected to grow in 'twenty five as the installed base grows.
Speaker Change: And that means and as we've previously shared this recurring revenue growth means that we can grow total total revenue even if you hold console sales flat on a year over year basis.
Speaker Change: So it doesn't it doesn't take you a lot of console unit growth year over year.
Speaker Change: <unk> total revenue.
Speaker Change: To get total revenue moving in a meaningful way so I hope that helps.
Speaker Change: Yes, I'll, just I'll add to that.
Speaker Change: I think that's a great perspective.
Speaker Change: When I look at kind of where we're already growing avi.
Speaker Change: One quarter is one quarter and I fully acknowledge that however, when we look at where we're already seeing growth what I, what I am seeing that I like is a very healthy mix of existing customers expanding new customers buying tableau to in source for the first time.
Speaker Change: And really good distribution between acute both national players and large regional players.
Speaker Change: Most acute al tax rehab and skilled nursing facilities and home and so as I'm looking at the activity that's already happening in Q3, and the continued benefit that we do expect to see in Q4 from the sale of Oregon process changes that informs our conviction and our ability to return to a full year growth.
Speaker Change: Full year healthy growth in 2025.
Speaker Change: Got it thanks, so much.
Speaker Change: Sure.
Speaker Change: Thank you Raj will move to our next question.
Speaker Change: And our next question comes from the line of Suraj Kalia of Oppenheimer.
Speaker Change: Line is now open.
Speaker Change: Okay.
Speaker Change: Alright, let's lean to Bill can you hear me all right.
Speaker Change: Yes.
Speaker Change: Correct.
Speaker Change: Congrats on the progress so Leslie.
Speaker Change: The rough math is sub acute visible at 15% of the overall business let's.
Speaker Change: Let's say home is about 25% of the remaining is acute.
Speaker Change: Could you characterize for us.
Speaker Change: The respective growth rates within these buckets.
Speaker Change: Directionally versus where the composite growth rate for product revs.
Speaker Change: Product reps was.
Speaker Change: Yes, maybe I'll kick it over to be able then I can add some color yes. Thanks Raj So our business, we talked about our home contribution being roughly 20% of our total revenues thats been consistent.
Speaker Change: For the last couple of years and so that's just how we have thought about this year as well and nothing suggests it would be different.
Speaker Change: I'll, maybe chime in a little bit on a give a little bit more color on just on home.
Speaker Change: On the home front Suraj just to reiterate I think we're seeing really good encouraging growth through two channels. One is the the mid sized dialysis organizations, we've talked about that before but the second newer emerging growth channel for us is through the skilled nursing facilities. We have continued.
Speaker Change: Through 2024 to sign a number pretty significant contracts within the skilled nursing facility arena and as those implementations have rolled out.
Speaker Change: We would expect to see a lot more activity through snap because the economic value proposition. There is so strong for the snip operator.
Speaker Change: Clinical benefits are strong for the snip, operator and of course, most importantly for the patients. So I do view both of those channels and home paying a lot of dividends for us in 2025.
Speaker Change: Thank you. Thank you Sir our next question.
Speaker Change: Yes.
Speaker Change: Our next question comes from the line of Maria <unk> of <unk>. Your line is now open.
Maria <unk>: Hi, Thanks, so much for taking the questions nice quarter.
Speaker Change: I wanted to ask a little bit about pricing I think I heard you say console asps increased 18% year over year, so with that in mind I am curious about the uptake of tableau cart, how instrumental that product has been in <unk>.
Speaker Change: Closing any of these large deals that you were able to get closed this quarter.
Speaker Change: Yeah, Hey, Murray with respect to Asps, we were pleased to see the eighth.
Speaker Change: 18% year over year ASP growth.
Speaker Change: There's really a couple of drivers of ASP for US number one we have always maintained pretty disciplined pricing across all our end markets. We don't do a lot of this quarter and discounting and haven't done for a while.
Speaker Change: Number two we continue to see strong tableau pro plus attach rates. That's our software offering that also contributes to gross margin in a meaningful way and then third we do have tableau cart with pre filtration that has come back.
Speaker Change: It is now fully available for sale and we did see some of that we did see some of the deals that we were expecting to sort of move with the return of Tableau Guard, we did see them move in there sort of baked into our over performance here in <unk>.
Speaker Change: Okay. That's wonderful. Thank you reassuring one quick follow up here on the gross margin dynamics, you talked about in the deal.
Speaker Change: Some of that.
Speaker Change: Related to the reduced console build plan is it fair to think that we should see the gross margin dynamic sort of straightened out or.
Speaker Change: Return kind of a normal cadence maybe.
Speaker Change: Partway through 2025, Anniversarying some of those deals.
Speaker Change: Those changes thanks for taking the questions.
Speaker Change: Marie <unk> really was a result of the absorption that I talked about we're not giving guidance for 'twenty five right now what I will say, though is we remain committed and on track to achieving 50% gross margin in a relatively linear fashion here as we move forward over the <unk>.
Speaker Change: Not too distant future.
Speaker Change: Thank you for our next question.
Speaker Change: And our next question comes from the line of Josh Jennings TD Cowen. Your line is now open.
Josh Jennings: Thank you and good evening I was hoping to just.
Josh Jennings: Get a better understanding and I apologize if I missed this we have an overlapping call but.
Speaker Change: Just where are you with this.
Speaker Change: Transformation of the sales organization and implementation of the new enterprise sales approach it seems like the.
Speaker Change: The trend the transformation is already worked through that very quickly.
Speaker Change: I had a better than expected quarter.
Speaker Change: What inning are we in and is there any impact to Q4 as we should be thinking about.
Speaker Change: As youre executing on this strategy.
Speaker Change: Yes, Hi, Josh.
Speaker Change: Let's see so first and foremost I would like to I would like to really complement our team. They have done a really really good job of getting the right talent in the right places at the right time, if you will implementing the sales process and putting a lot of the tools for kind of inspection and rigorous forecast methodology in place.
Speaker Change: In a relatively short period of time to your point.
Speaker Change: At this stage I would say, we just need some more run time.
Speaker Change: Under the new model and in order to continue to leverage this deeper enterprise sales expertise that we have infused in the organization and just simply making sure that the changes continue to deliver the intended results.
Speaker Change: We see the success replicated consistently across the country.
Speaker Change: I had mentioned in the prepared remarks that I think this transition will be fully complete in the first part of 'twenty. Five however, we definitely saw some nice leading indicator results in Q3, and we certainly expect some benefit again in Q4, so I would say so.
Speaker Change: So far so good.
Speaker Change: Excellent and then just wanted to follow up on one of them to Bill's previous answers on just tableau part D.
Speaker Change: Kind of maybe provide a minor benefit or some benefit in Q3 can you just talk about that part of the pipeline specifically have any deals fall out or are these deals are working their way through the pipeline.
Speaker Change: Still revenue generating opportunities in Q4 and 2025, thanks so much.
Speaker Change: Sure of course, yes, I am happy to comment on that.
Speaker Change: So the short answer on the the pipeline of deals I think curious is no. We did not see any deals in Q3 exit the pipeline all of those opportunities remain active our sales cycle also remained stable about nine to 12 months with those bigger deals in last quarter's call I talked about.
Speaker Change: How the percentage of our pipeline that consists of deals that are 50 to 100, plus consoles has actually gotten larger and larger over time. These are bigger deals.
Speaker Change: That do require more consensus decision, making across bigger parts of the organization, but of course, it's worth it because you end up with very broad kind of whole house conversions.
Speaker Change: Tableau across a fairly significant network of hospital.
Speaker Change: And so the I would say the sales cycle for those large deals is on the outer edge of 12 months, but that hasnt changed on the other hand, some of our smaller deals do close earlier than nine months.
Speaker Change: With regard to tableau cart, yes. It has certainly been helpful to have tableau card back.
Speaker Change: As the demand and the customer interest in that accessory remains high and as I look at the pipeline going forward in 2025, I think tableau will be continue to be an important part of the next year.
Speaker Change: But so too will tableau is core value proposition the number one reason why.
Speaker Change: New customers adopt tableau in existing customers expand with tableau is because it delivers on its promises that the essential value proposition here remains unchanged.
Speaker Change: It is economic cost reduction it is improved clinical care and it is improved operational efficiencies and as we've grown now to many hundreds of customers insight I think the good news is we have a larger and larger evidence base.
Speaker Change: Tableau delivering on its value proposition promises.
Speaker Change: I appreciate all those details thanks Leslie.
Leslie Trig: Yes. Thank you.
Speaker Change: Thank you I'm showing no further questions at this time all night.
Speaker Change: Turn it back to Liz may trend for closing remarks.
Speaker Change: Great. Thank you and thanks to all of you for joining today I would like to close by thanking our entire team for the very meaningful difference that they're making everyday analyze the dialysis patients. We look forward to seeing many of you at the upcoming investor conferences here in November and have a great evening. Thanks again.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.