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spk09: Ladies and gentlemen, thank you for standing by and welcome to the Outset Medical First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. And to ask a question during this session, you will need to press star 1 on your telephone. And if you require any further assistance, you may press star 0. I would now like to hand the conference over to your speaker today, Ms. Lynn Lewis.
spk01: Good afternoon, everyone, and welcome to our first quarter 2021 earnings call. Participating from the company today will be Leslie Trigg, President and Chief Executive Officer, and Rebecca Chambers, Chief Financial Officer. During the call, we will offer commentary on our commercial activity and review our first quarter financial results released after the close of market today, after which we will host a question and answer session. The press release can be found in the investor relations section of our website at outsetmedical.com. This call is being recorded and will be archived in the investor section of our website. Before I begin, I'd like to remind you that 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. Any statements that relate to expectations or predictions of future events, market trends, results, or performance are forward-looking statements. All forward-looking statements are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties, would cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. All forward-looking statements are based upon current available information, and Outset assumes no obligation to update these statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of Report 24B4, Prospectus Filed with the Securities and Exchange Commission on April 12th, 2021 in connection with the company's primary and secondary public offering. With that, I'll now turn the call over to Leslie.
spk06: Thanks, Lynn. Good afternoon, everybody, and thank you for joining us to review our first quarter 2021 results. Since our last update in March, the outset team has continued to execute exceptionally well across all of our key strategic initiatives. We outperformed on revenue, secured new console orders across care settings, and made substantial progress operationally. For the first quarter, we reported $22.9 million in total revenue, representing 219% growth year-over-year and 33% growth sequentially. This outperformance relative to our expectations was driven primarily by increased product volume as well as higher ASPs. While new customer acquisition is important, A leading indicator we watch just as closely is whether our existing customers expand their use of Tableau to other facilities within their network. This metric provides tangible validation of Tableau's value in lowering costs and increasing operating efficiencies. In the first quarter, more than 75% of the consoles ordered were for shipment to new sites within existing customer networks. customers continue to cite positive experiences as well as an appreciation for Tableau's economic value and ease of use as factors that are driving their decision to purchase additional consoles and expand to new locations. In terms of new customers, we added several health systems during the quarter and are currently projecting that we will have signed agreements with seven of the top eight national health systems as well as a third of the top 100 regional health systems by the end of this year. Achieving these goals will be a testament to the strength of our entire commercial organization, market receptivity to Tableau, and importantly, our future growth prospects. As more prominent health systems adopt and expand with Tableau, we're starting to see a greater number of independent publications and abstracts. For example, Q1 saw clinical abstracts written and submitted to scientific conferences from UPMC, the University of New Mexico, and HCA. These abstracts reported on Tableau's success treating high-acuity patients and cost reduction. The St. Mark's HCA abstract, for example, reported a $550 per treatment cost savings with Tableau. As we've outlined in the past, we include both acute and subacute facilities in our definition of the acute market. Within the sub-acute market, we're focused on penetrating both long-term acute care facilities known as LTACs, as well as skilled nursing facilities. For these customers, the Tableau value proposition is similar, supplies and labor cost reduction, along with operating efficiency and clinical versatility. Our sales team has successfully communicated these advantages to LTACs across the country, And in fact, Tableau is now used by three of the four largest LTAC providers. While we still have considerable runway, both in terms of expansion across our LTAC customers and new customer acquisition, we're pleased by the adoption uptake so far. With our install base growing in the acute and sub-acute markets, we are increasingly confident that our value proposition is resonating quickly following console deployment. We view this early momentum as critical and expect it to continue to build as key stakeholders experience the unparalleled benefits of Tableau's clinical versatility, point-of-care mobility, data-rich simplicity, and economic advantages. As we move to expand our footprint, we have also continued to grow our home population. In the first quarter, we signed master contracts with four new home customers, which in part led to a 50% sequential increase in home consult orders. This early traction helps fuel our anticipated home growth trajectory, and puts us in a good position to meet our 2021 home goals. The majority of our new home contracts are with progressive, innovative customers spanning both health systems and dialysis care providers. One of our notable new customers, for example, is focused on enabling health systems to identify chronic kidney disease earlier and manage patients all the way to the home. In this model, Tableau is their preferred home dialysis technology, while the services provider supports the patient journey from the hospital to the home for the health system. In other cases, the health system itself is standing up and managing its own home dialysis program. In fact, currently a third of the health systems in our pipeline are interested in beginning home programs. In both models, Tableau is an important enabling technology. From a provider's perspective, we believe that as we collect and present real-world evidence, Tableau's value proposition at home will become increasingly tangible. To date, patient data from those at home remains exceptional. We continue to see highly differentiated patient training times on Tableau, consistently two weeks or less, compared to the four to six weeks it typically takes patients to learn the incumbent device. Additionally, we have seen much lower patient attrition. For example, published data on the incumbent device documents a training dropout rate that is 60% higher than seen on Tableau to date. Moreover, while still very early and on a small number of patients, we have not had a patient choose to come off Tableau once they started at home. As our patient population grows, we certainly expect the dropout rate to increase, but it's a good start and one that we are very proud of attaining. We continue to believe that these two metrics training time, and dropout rate are the most vital because they represent the biggest historical problems that have prevented HHD growth in the past, onerous training and high attrition. On a qualitative level, we get to see the impact Tableau is having on patients' lives every day. We recently had a patient go back to work, and another report that he's now able to cycle 10 to 15 miles per day, even on the days he dialysis. These are the stories that really motivate us the most and represent the impact we intend to have on the lives of patients. We look forward to continuing to deliver on our vision to transform dialysis for patients into a tech-enabled journey with seamless activation, training, and retention, all driven by digital marketing and support features. As orders for Tableau build, our supply chain and manufacturing team have continued to lift production capacity while maintaining an exceptional level of quality and focus on our cost reduction activities, both of which are vital to our long-term success. Our new facility in Tijuana, Mexico, which incorporates a state-of-the-art cloud-based manufacturing and documentation system, produced 165 consoles in Q1 ahead of plan. This outperformance was the primary driver of slightly better-than-forecasted gross profit, leading to our second quarter of positive gross margins. The factory continues to ramp, and in April alone, the team manufactured over 100 consoles. With production increasing, we remain well-positioned to satisfy our forecasted ship schedule fully from the new manufacturing facility in the second half of this year. Additionally, we submitted our 510K application to FDA, as expected in March, to enable our new contract manufacturing partner to produce Tableau cartridges. The submission puts us on track to shift the majority of production from Asia to Mexico later this year and to see the anticipated benefits from the related cost reduction in the second half of 21, assuming FDA clearance within the expected timeframe. Looking ahead, we remain focused on achieving three critical objectives through 2021. First, driving growth in the acute market by expanding more deeply within our current customer base and signing new agreements with regional and national health systems. Second, accelerating home patient adoption to capture incremental user data, bolster customer relationships, and provide a foundation for significant growth in 2022 while working to ensure an exceptional Tableau home experience for patients and their families. And third, continuing to focus on increasing manufacturing output and cost reduction activities to drive gross margin expansions. With the benefit of our recent follow-on offering, we are more confident than ever in our ability to drive the adoption of Tableau across multiple care settings. The proceeds will help us fund revenue growth, which is tracking above our internal estimates from less than a year ago. Additionally, we are moving forward with various home, R&D, international and data analytics initiatives designed to drive durable long-term growth and profitability. In summary, our first quarter was marked by strong revenue performance continued operational execution, and substantial progress across our strategic initiatives. We see demand for Tableau accelerating across the acute and subacute care settings with a growing number of providers uptaking Tableau for home as well. At the same time, we remain on track with manufacturing and cost reduction initiatives. With interest in Tableau and clear visibility on the timing of costal placements, we are confident in our positioning for consistent, strong performance in 2021 and beyond. And so with that, I'll now turn the call over to Rebecca to review our financials and provide more granularity on our expectations and key drivers for the remainder of 2021. Thanks, Leslie.
spk07: As Leslie mentioned, first quarter revenue grew 219% year-over-year to $22.9 million, driven predominantly by increased console shipments to acute customers our HHS lease agreements, and continued growth in consumables. Product revenue grew 207% year-over-year to $18.2 million. Console revenue equaled $14.8 million, or 194% year-over-year growth, driven by higher placements to our acute customers, as well as the recognition of XP upgrade revenue. Rising volumes associated with our growing install base, increased utilization, and higher ASPs drove consumable growth of 283% versus the prior year, resulting in quarterly revenue of $3.4 million. Service and other revenue grew by 273% to $4.7 million, compared to $1.3 million in the prior year period. Services for our larger installed base, as well as the impact of HHS lease service revenue, contributed to the growth. Moving to gross margin and operating expenses, I will highlight our non-GAAP results. I encourage you to review the reconciliation of GAAP to non-GAAP measures, which can be found in today's earnings release. Our non-GAAP gross margin was 1.6%, an improvement of 51 percentage points versus the prior year period. This expansion was primarily the result of significantly lower console and treatment costs and higher service margin, as well as the impact of XP-deferred revenue release. Non-GAAP operating expenses in the first quarter were $24.2 million, up $8.1 million versus the prior year, driven primarily by investments in our commercial organization, as well as G&A expenses tied to operating as a public company, including headcount growth. Compared to the prior quarter, non-GAAP op-ex declined $1.6 million, as Q4 saw higher commissions tied to year-end bookings outperformance. As detailed in the gap-to-non-gap reconciliation in our earnings release, first quarter stock-based compensation was $5.9 million, as we recorded expense tied to satisfying the performance vesting condition for certain stock options upon the closing of the IPO, as well as the quarterly expense tied to time-based grants. We reported first quarter GAAP net loss of $30 million, resulting in a net loss of 70 cents per share, compared to net income of 4.2 million, or 74 cents per share, for the prior year period. This included the net benefit of certain adjustments related to our private company financing. Non-GAAP net loss was 24.2 million, or 56 cents per share, compared to non-GAAP net income of $4.7 million, or $0.84 per share, for the same period in 2020. We ended the quarter with approximately $311 million of cash, cash equivalents, restricted cash, and short-term investments. This does not include the approximately $150 million of net proceeds from our recent fall loan offering in April. With this raise, we are now more confident than ever in our ability to fund growth. Moving now to our 2021 outlook. We project revenue for full year 2021 to range from $92 million to $97 million, which represents approximately 84% to 94% growth over fiscal year 2020 revenue. This compares to prior revenue guidance of $89 million to $94 million and contemplates our modestly updated expectation for console placements. Moving to gross margin, we are projecting a lower console cost given our cost on activities and improved manufacturing productivity, as well as the benefit of shifting towards our lower cost cartridge manufacturer, assuming FDA clearance. These factors are expected to drive further gross margin expansion with sequential improvements throughout the rest of the year. Additionally, we are forecasting a meaningful increase sequentially in operating expense given investments to continue to drive revenue growth. In all, we remain confident in our position, both financially and operationally, and in our ability to continue to execute according to plan as we build on our success through 2021 and beyond. Thank you for your time. We look forward to providing an update on our Q2 progress during our next earnings call. We will now move to the Q&A session. Operator, please open the lines. Operator?
spk06: Hello?
spk07: Operator, are you there? Okay, we will hold on the line until the operator reconnects. For those on the line, we're doing our best to get in touch with the operator and we'll do Q&A as soon as we can successfully do so. So please hold on the line.
spk04: Our first question comes from Amit Hazan from Goldman Sachs.
spk07: Thank you. Good afternoon.
spk10: It's actually Jamie from the Goldman team. Thanks for taking the question. Leslie, you mentioned the three strategic priorities, so I've got one question on each. First, you mentioned the existing customers. It sounds like that was really, really strong this quarter. You know, what are you seeing from these customers in terms of triggers to expand their use of Tableau across other hospitals? And as part of that, I mean, you've given color in the past on the opportunities for Tableau in different size hospitals and things like that. I was wondering if you could tease out sort of the TAM, if you will, with existing customers, just the opportunity to continue penetrating existing customers.
spk06: Sure. Well, let me start with your first question, then Rebecca may want to chime in on the second part. The first part of your question was, what's really motivating these customers to expand? And the triggering event is really the quantification of the cost reduction, first and foremost. Most of our hospitals and health systems that adopt Tableau understandably will seek to quantify how much they're saving on a per-treatment basis. And we assist them in doing that. We'll often do what we'll call sort of quantify the impact meetings as early as 30 days after their start with Tableau. And on the basis of really seeing the results firsthand, that's the real number one motivator for health systems to have a desire to expand that to other hospitals in their network is really seeing the results and And also not only on cost reduction, but on patient quality. You know, that Tableau really gives these hospitals an opportunity to better control patient care. Putting that back in their own hands and looking at things like reducing length of stay, reducing patient wait times for dialysis are often other reasons why hospitals choose to expand their utilization of Tableau to other facilities.
spk07: Yeah, thanks, Jamie, for the question. With regard to the TAM of existing customers, you know, if you think about where we are today, we have six of the eight top national health systems. We have several of the top 100 health systems and three of the four top LTACs. And so, you know, that is a significant portion, not ready to quantify today, but I would say more than the majority of the $2.2 billion acute TAM that we have, you know, contracts for and have the ability to go further penetrate. And so I think when it comes down to it, we're very well positioned to continue to penetrate and grow the acute revenue base. And I think the success we've seen today speaks to that end.
spk10: Okay. Thanks for that. And then just turning to the home opportunity for a second, two of the largest dialysis providers in the country, DaVita and Fresenius, had an agreement announced in the quarter related to one of the competitor technologies Just wondering how that impacts you from a competitive positioning standpoint, and are you going to, you know, have access to DaVita and Fresenius customers, or should we think about your path to penetrating the home opportunity as through other channels?
spk06: Well, I think the most important thing to continue to keep in mind is just the the enormity of the market. I was going to say ginormity, but I don't think that's a word. So I'll go with the enormity of the market and the opportunity. There is scarcely a bigger piece of the healthcare market available today. And again, for the last kind of 15, 20 years, there's really only been one device available to serve it. And so first and foremost, we view this to be kind of a wide open driving range as the second product to market. I can't speak specifically to the DeVita and Fresenius agreement other than what I read about it just as you did. What I can say is that there are a growing number of providers that I talked about a few minutes ago being health systems and some of these kind of newer entrants into the market that are specifically focused on sending patients home. So we don't view this as an either-or proposition. We really view it as an and proposition where you'll just see the universe of home dialysis providers expanding.
spk10: Okay. All very fair. And then just one last one, just on the path of profitability. Obviously, growth margins have been really strong the last two quarters and above expectations. Can you just update us on what you're thinking in terms of potentially pulling forward some of your timelines to profitability and to longer-term peak gross margins?
spk07: Yeah, happy to take that, Jamie. I think we're becoming more confident in that path. We've always had a significant amount of confidence, but each quarter under our belt obviously provides provides more proof points to that end. Again, we're still only a couple quarters into this, so thinking about 2025, you know, margin structure, it's probably too early to get there, but we remain very confident in the 50% gross margin target as well as the 20% operating margin target for 2025, given, you know, a variety of assumptions around segment mix and other various contributing facts. With regard to the timeline to profitability, if you recall back in last summer, we had expected the fourth quarter of 21 to be the first quarter of profitability at the gross margin line. Obviously, we have pulled that forward now a couple of quarters, and given incremental sequential gains on the gross margin line throughout the rest of the year, assuming we deliver those as we expect, then, you know, I think we can successfully say we're at least a couple quarters ahead of schedule there.
spk10: Okay. Thanks for all that, and congrats on the good quarter.
spk06: Thank you. Thanks.
spk04: Our next question comes from the line of Drew Reneary from Morgan Stanley. Your line is open.
spk00: Hi, Leslie and Rebecca. So my first question kind of piggybacks on some of the comments that you've already made. But just on the relationship and the acute setting and the home, I'd just like to get more of your view. And I understand that the acute setting momentum is building here, and it remains still early days for the home. But could you talk about how the acute channel really lays the potential for home demand going forward? How are you thinking about that funnel evolving and any signs that you're seeing still in these early days of acceleration. I get some sense that you're still being methodical in the acute rollout, but what do you really need to see to step on the gas pedal to take advantage of the ginormity of the opportunity here?
spk06: I appreciate your adoption of this new word and expect that it'll be entered in Webster's shortly. Yeah, so let me maybe I'll start and ask Rebecca to comment additionally. So how we see the acute channel helping to kind of build the funnel for home, and maybe take a quick step back, the way that we designed Tableau and our design goal from a technology standpoint from the beginning really was the notion of an enterprise solution, that health systems would no longer need to buy and maintain two, three, four different types of machines, each of which did only one type of dialysis. And so the design vision was, hey, could we build a single hardware platform that really could perform the functionality of all these machines for all types of acuity patients. And so in delivering on that promise, that design promise, we're able to approach a health system, a given health system, and talk to them about down selecting now to Tableau for use anywhere from the ICU to home. So that's kind of part one and the idea behind the enterprise solution. I think the part two and what's leading health systems to pick up on the concept of managing the home patient is incremental revenue. Home dialysis for a health system is associated with a contribution margin that in, I won't say all cases, but in many cases is a higher contribution margin than the inpatient procedures that they're managing in their current environments. And so we've seen health systems sort of light up at the opportunity, on the one hand, to save money with Tableau, let's say in the ICU, bedside, floor, and then make more money by managing that patient on a chronic basis, both in terms of a higher top-line revenue growth rate as a result and also an incrementally differentiated contribution margin managing that patient in the home. So that's really what seems to be resonating most with health systems.
spk00: Got it. Thank you. And just a second question on new products. You touched a little bit on this at the end of your script, but can you talk about in more detail about some of the R&D development initiatives you highlighted maybe around analytics? And I think I heard the word international in there, so I'd just love to get some more color on those opportunities. Thank you.
spk06: Yeah, sure. Well, maybe I'll start in reverse chronological order with international. And our approach to even contemplating selling Tableau outside the United States will be very, very similar to kind of the measure twice, cut once approach that we first took with Acute and we're now taking with Home. It's worked well for us to be thoughtful and prospective and deliberate. And so we're going to rinse and repeat that pattern on international. And so what we're committed to is discovery. You know, what we're committed to is evaluation. I know it is not lost to you, Drew, or anybody on this call that you don't just sort of leap into, you know, a bunch of different countries willy-nilly. And so we're going to do our homework. We've given ourselves a homework assignment, and we're going to use some investment dollars to go do that homework well. Which countries, why? Of course, the TAM of those opportunities, both acute and home, what problems does Tableau really solve, if any, in which of those markets and why? what the margin profile might look like through various distribution mechanisms, and then the sequencing of these opportunities. I mean, it's no secret. I mean, the U.S. opportunity here is so, so big. We do want to be thoughtful and stay focused at the same time. But the U.S. market is 30% of the global dialysis market, and we're very well aware of that, too. So I would call it an investment in discovery and smart thinking around it, Drew, for the time being.
spk07: One thing to add before Leslie moves on to new products is international is not currently baked into any of our revenue projections for the rest of through the forecasting period. And really, you know, as we've shared historically, those have primarily been driven by the acute market in the near term and in future years augmented by the home market. So just wanted to add that in before Leslie moves to new products.
spk06: That's a good point. And I will try to not wax poetic on the new product answer, because this could be a long one. But yeah, so I think I'll start by saying that a big part of what we're excited about is cementing our position as the innovation leader in this space. I think this space is lacked an innovation leader, and we intend to fill that void. Our ambitions in delivering on that go far beyond the Tableau device. There are so many ways that we already are inventing inside of Outset from supply chain to distribution logistics to manufacturing that we see many, many opportunities to invent broadly. You mentioned kind of data analytics, and yes, that is one area that we are really keen to further exploit, both for the benefit of patients. You could think about all sorts of digital, virtual, app-based sort of support mechanisms for the consumer at home that might build, you know, virtual community that might give patients access to virtual support on a real-time basis. That's, again, all in the name of benefiting retention in the home. You might think about sort of digital or more hybrid virtual strategies around training. So all things kind of a surround sound digital approach to consumer support might be one. And another is just building more value for the provider. Tableau already integrates into the EMR, provides a tremendous amount of data to the provider about their patients and their treatment outcomes. But in a value-based care environment, there is so, so, so much more information value that we believe we could deliver to health systems, both regional and national, over time. So those are the general vectors of growth through without getting too specific at this time.
spk00: Thanks for taking the questions.
spk04: Thank you. Our next question comes from Daniel Antalfi from SVB Learning. Your line is open.
spk05: Hi. Good afternoon, ladies. Thanks so much for taking the question. Rebecca, I think this question is probably for you, and I apologize if I missed it. But just on the backlog that you guys had talked about on the Q4 call, Is there a way to quantify how much of that contributed to Q1? Is it totally worked through, or is there still more to go? And where you are from a backlog perspective, if you're still giving that number. I apologize, I can't remember if you're going to keep giving that.
spk07: Yeah, thanks for the question, Danielle. To hit the last part first, we plan on disclosing that number annually.
spk05: That's right. I'm sorry.
spk07: No, not at all, not at all. But I'll answer the rest of your question for you. Okay. You know, as you mentioned, we ended 2020 with meaningful backlog, approximately 550 consoles in backlog. I mean, those are primarily expected to ship in the first half. And so we do still have a portion of those, obviously, in backlog here as we enter the second quarter. But in the first quarter, we continue to see strong demand for Tableau, and we're very pleased with our backlog position exiting the first quarter. That position, as well as our pipeline, is what effectively allowed us to modestly raise our revenue expectations for the year, just with one quarter underneath our belt. And going forward, our focus is less on the magnitude of the backlog, but really making sure that we use it as a tool for hiring, planning, and ensuring a good customer experience, which is the real benefit we get from that backlog position, if you will.
spk05: Yeah, that makes a ton of sense. And Rebecca, I'm going to keep you talking. Sorry, Leslie, but this question is on the gross margin. So you had another pretty strong quarter relative to we had been looking at for a decline in gross margins or a negative gross margin, I should say. You beat our number. It looks like you came basically in line with consensus, but still a positive number and feels like you're continuing to track sort of faster. I know you were committed to or you said last quarter that you were able to say, yes, we're tracking faster, but not ready to sort of put a new number out there for long-term margins. I mean, what can you say about how sustainable this trajectory of margin improvement is? Because it does feel like maybe now you've got two quarters of positive gross margins. Just wondering how that, you know, what you can say about the long-term trajectory now. Thanks so much.
spk07: Yeah, my pleasure. I would say that we are increasingly confident in the trajectory and that you should expect to see incremental sequential improvements throughout the remainder of this year. Really, as you think about the rest of the year in the second quarter, even a higher percentage of our councils being shipped will come from our new facilities. And therefore, obviously, that will lower the labor costs associated with each council as well as as well as increase the absorption from incremental productivity. And then in the third quarter, we'll be fully self-sourcing, if you will. So we will be fully building the consoles needed to hit our shift schedule, and that will continue on from there. So we'll see an incremental benefit, again, in the third quarter, and then timing of the cartridge move is obviously slightly out of our hands given we have the application into the FDA, but that also should be a back half tailwind to gross margin. And so we're pleased with how margin is shaking out. We're obviously still, we're incrementally confident, but we're not ready to change the 2025 target margins by any stretch of the imagination at this point in time. But our confidence is increasing.
spk05: Thank you so much. My pleasure.
spk04: Thank you. Our next question comes from Rick Weiss from Stievel. Your line is open.
spk08: Good afternoon to you both. Leslie, maybe you could add some more color on your comments around the expanded Tableau use or orders from existing customers into other facilities. which I think you said was 75% of the orders in the quarter, if I understood you correctly. Correct me if I'm wrong. But help us think about that kind of number going forward. I mean, it's fantastic and a real vote of confidence in the technology and you. Should we expect that to make up a significant portion of orders going forward? or is opening new accounts, or how do we think about that mix in this quarter and going forward?
spk06: Yeah, sure. I'm happy to take that. And yes, you're absolutely right about the 75%. That was the correct figure. Well, we don't, Rick, and I'm not sure if this is going to be totally helpful to you. You know, we don't really think about forecasting our business that way. We have to be good at both. We have to be great, actually, at new customer acquisition, and we have to be great at the experience that that customer and now our consumers have after they've adopted the technology. And so our whole commercial strategy really is kind of a – I think we talked about this before. We use kind of the mantra land and expand, right? And we talked about that since last summer. We have to be great at both. And so – We just today mentioned the expansion data really to give you all some evidence for the first time that the expand part of Landon Expand is materializing in a way that we're really proud of. And I use the word proud because this is certainly not easy. And I would love to take the opportunity just to kind of salute our clinical and capital field team. This is not, it's never an easy one to work with customers within a new technology and oftentimes a new kind of care delivery model. And I think the team has done a fantastic job in introducing and also executing change management in a way that is resulting in both customer expansion and new customer acquisition. So I don't know if that's helpful color, Rick, but we just view it effectively as a reflection of of our land and expand commercial strategy and just hadn't talked as much about the expand part, thought it was a good time to do so.
spk08: That's great. Rebecca, turning to the guidance, obviously you raised both the low end and the high end, roughly $3 million. You outperformed at least, well, I think consensus by a million and a half or so in the first quarter. How do we think about factoring that slightly higher guidance into the quarterly cadence? And how do we think about the sequential pattern of quarters now for the rest of the year? I mean, just sort of steadily, slightly, sequentially higher? Or do you think that for some of the factors that you mentioned, we might see, no, it might be now a shade more back in loaded, the that extra guide above the outperformance.
spk07: Yeah, happy to take that one, Rick. The former statement in that is the correct conclusion. Given our outperformance in the first quarter, we are forecasting sequential growth across the balance of the year. with roughly equivalent growth expected in the second and third quarter, and then slightly lower growth in the fourth quarter, given, if you recall, we have the headwind with the first HHS lease coming off in that quarter. So there's some puts and takes there, as you think about some chunky revenue, for lack of a better way to say it. But we are expecting, you know, pretty steady sequential growth for the rest of the year.
spk08: All right. Two more questions for me. First, back to the home, the 50% sequential increase in home orders, I appreciate the base is small, but maybe help us understand what's involved there. If you could give us a little more color in that kind of order increase, how quickly you can deliver it. I personally don't frankly, you'd be curious about these master agreements. What's involved there? I mean, what's the, you know, what are the implications for sort of go forward, Leslie, if you could help us understand a little more about how to think about master agreements as well.
spk06: Let me give you a little bit of editorial here and then you can redirect me if we're not quite getting to what you want to learn more about. So in terms of when you said kind of the how quickly and and so forth on these home contracts, I would say generally speaking what we found is that the home contracts are generally following a pretty typical sales cycle on the acute side. We're not seeing them necessarily any faster or longer than our typical acute sales cycle, which we've shared in the past is about nine months. Some are faster and some are longer. But that's kind of what we're seeing, and if I had to characterize our sales cycle on the home side, nothing really special to call out there. And in terms of the master agreements, we don't have a one-size-fits-all. Each one is a little bit different and unique depending on the goals of the provider, again, whether that's a health system or one of these kind of innovative new entrants or a conventional dialysis care provider. But generally speaking, the master agreement is a commitment on both sides. It typically speaks to a pretty significant commitment from the provider to put more patients on home than they have today and to do so principally with Tableau. So I'm not sure if I'm getting to what you're curious about, Rick, but those are a few comments that come to mind.
spk08: Great. No, that's helpful. And last question. going to keep asking about the macro environment and the, you know, evolving, clearly positive macro tailwind. Again, maybe I'd be interested in hearing how the ETC model impact and, you know, potentially expanding reimbursement. How's this factoring into these discussions with providers? Is it a factor? Is it at all? Is this a whole change in sentiment? How do we think about it? Thank you.
spk06: Yeah, absolutely, Rick. I would say that it has absolutely had an impact in terms of mindset and planning on the part of those providers that are participating in it. And to cover just a few of the facts, the ETC is mandatory for approximately 30%. of the clinics, it's geographically based. But think about roughly 30% being required to participate, and over time, the ETC will either involve up to an 8% increase in the treatment base rate, or a penalty of up to negative 10% off the treatment base rate, dependent on how successful that individual clinic has been in growing its home population. But getting back to your question, Rick, Yeah, what we continue to experience pretty consistently is that because of the ETC, I do think it is shifting a mindset toward more home. I think it's increasing motivation both with providers and also with physicians because the ETC also pays nephrologists more or less depending on their patient census at home. And, yeah, I think it's accelerated some planning. I think it's activated planning. a lot more thought and certainly increased interest in conversations around, hey, how do we drive X percent of our patients home? And what I've noticed is that in my personal conversations with providers, their ambitions and aspirations around the percent going to home are more elevated today than they would have been maybe in conversations I would have had a year or two ago. So those are the impacts we're noticing thus far.
spk08: Very interesting. Thanks so much.
spk06: A pleasure.
spk04: Thank you. Our next question comes from Siraj Kalia from Oppenheimer and Company. Your line is open.
spk02: Hi, Leslie, Rebecca. Can you hear me all right?
spk07: Yes, thanks, Siraj.
spk02: Perfect. Ladies, congrats on the quarter. So, Leslie, a bunch of questions from my side, and forgive me if I didn't get this right. The attrition rate, Joel, were implying versus next stage. He's a 50% lower, I got the 50% number in my notes. Can you just provide some additional context of what period was this measured? Were these existing home hemo customers? What N is equal to was?
spk06: Sure, sure, happy to. So the number that we talked about in the script was 60%. So that's kind of part one. The period of time that the attrition data pertains to is training. There are a number of cuts that attrition data over time on the incumbent device just because they've been around for 15 years, and so there's been more opportunity to study that device. But so the way that some researchers have studied attrition rates on the incumbent device are at the time of training and then at the time of one year are some of the studies that we've read. And so to try to compare apples to apples, since we just received FDA clearance in the spring of last year, we just haven't had enough time on task to measure an adequate population, of course, at a year and longer. But we do feel that we have an adequate sample size of our patient dropout rate on Tableau training. And so we just, in the script, compared the dropout rate during Tableau training versus the dropout rate that's been reported during training, patient training on the other incumbent device. And that's when we noted that the attrition rate on Tableau during training is approximately 60% lower.
spk07: Additionally, Siraj, we did cite that once we have gotten patients home, we haven't seen anyone drop off. Now, that is, you know, as Leslie mentioned in the script, a very small number at this point measured over, you know, I would say a handful of months, a little bit more than a handful of months, but that is notable as well. And obviously, there's only one place to go from here, so we don't want to get too excited about it, but it is a positive number. positive indicator as to the experience of tabloid.
spk06: And it does mirror so far our experience in the field and our retention, this very high retention rate in the home does mirror our data from the IDE. In the IDE, we did not have any patients who started the home arm drop out, and that was not the case in the incumbent device trial for FDA. So we had a little bit of a hopeful indicator through the trial, and thus far that has been the commercial experience in the real world. But I do stress, again, so far and in small numbers.
spk02: Got it. And Leslie, Rebecca, I'll just throw in my two additional questions and I'll hop back in queue. Leslie, one is just my pet topic in this whole space. Look, you guys have done so well against a tough backdrop, right? Just a structural backdrop. And you mentioned you'll think yourself as the innovation leader. Leslie, why not go also on on-demand real-time PD? That is one question, if you care to answer. And the second thing, maybe I missed it. Any updated comments on NTAP, you know, just getting the extra payment? I know we talked about the quality, the 8% upside and 10% downside. I'd be curious more so in terms of the NTAP. Ladies, thank you for taking the time.
spk06: Yeah, no, I'm happy to, and maybe I'll just take those in reverse order. So the NTAP program, which for renal is called, I always love saying this, TIPONES, but spelled T-P-N-I-E-S, and stands for something that I would probably butcher by trying to pronounce it, but it's pronounced TIPONES. So that program, no new updates there, Suraj, is the short story long. We put in our application in the winter, and we would expect that we would get some indication of CMS's thinking about our application when the proposed rule comes out mid-year. But I'll maybe repeat a comment that Rebecca made earlier that's probably important to share about Chiponese is that none of our forward-looking revenue projections assume that Tableau ever receives a positive deponie's approval from CMS. So we're not dependent on it. Would it provide some nice, useful upside if it were to occur in 2021 or 2022? Absolutely. But it's not something that we count on happening. I think your other question was PD. I guess I'd say, I mean, look, I think we'd be foolish not to be looking at you know, interesting technologies and adjacent, even adjacent areas within this market, you know, more broadly. And we intend to do so, and we're, you know, we're always engaged in doing so. So nothing, you know, specific to share at this time, but I think we're going to be a company that takes a very broad look at where we can have impact, utilizing both, I think, the people advantages that we have and the technology, you know, platform advantages that we have.
spk02: Thank you.
spk04: Thank you. Our next question comes from Shagun Singh from Wells Fargo. Your line is open.
spk03: Thank you so much for taking the question. So I guess the first one is just on the average cost savings that you're seeing in the acute setting. Can you share that with us? I think previously you'd indicated about 300 to 500, but it looks like it may be tracking at the upper end just based on some of the checks we've done. And I think in one of the cases, you've been called out 550. So if you can help us there. And then with respect to the guidance, your full year revenue guidance and given what you did in Q1, it implies a deceleration on a sequential basis, just looking at quarter over quarter growth versus what you did in Q1. So how should we think about that? Is it mostly backlog or is there some conservatism baked in? And then, you know, if you could just give us, you know, the cadence of OPEX through the year. I think you mentioned, you know, there will be a step up from Q1. Thank you.
spk06: You want to go first?
spk07: Sure, I'd be happy to. Taking those, taking revenues and OPEX, you're correct. So if you think about 2021, there's really two major factors which are impacting sequential growth. The first being the HHS agreement and how that rolls through the remainder of the year. If you think about the pacing from the first quarter to the second quarter and then the second quarter to the third quarter, there's a $500,000 or so headwind each quarter that we have to take into account. And then from the third quarter to the fourth quarter, you know, a million dollars or slightly more. So when we think about that plus the timing of the backlog, that we had entering in the quarter and when our customers have asked us to ship that backlog, those are the primary drivers of the pacing of sequential growth through the remainder of the year. With the topic or on the topic of operating expenses, we expect to see a decent pickup, as I mentioned in the script, sequentially for the second quarter and then again for the third quarter before more flattening out for the fourth quarter as compared to the third. So two decent-sized pickups as we invest in the commercial organization to support the significant consoles that we're placing, as well as the other initiatives that Leslie and I have referred to in the scripted comments.
spk06: Okay, maybe I'll address the first question that you mentioned around a little bit more color around the cost reduction results. So what I would say is, yes, it's certainly the case that some customers, some hospitals and health systems are seeing more than a $300 to $500 per treatment savings. I guess, look, we try to be very conservative and err on the side of conservatism when we talk about the type of impact that Tableau is having on the marketplace. So what would... what would account for kind of a 300 versus a 500 or even higher than 500 is really the difference between the components of cost reduction. So probably on the lower end of that estimate would be a hospital that is just enjoying lower supply costs through the use of Tableau in contrast to a hospital on the higher end, maybe the 500, 550, et cetera, would be a hospital that is not only benefiting from lower supply costs, but also benefiting from lower labor costs. And hopefully this is helpful. That explains the range. And yes, there certainly are hospitals that are on the high end or maybe even the higher end, as we note in this one abstract that was published in Q1 by one of our national customers.
spk03: Great. Thank you for taking the questions. Absolutely. Thank you.
spk04: Ladies and gentlemen, I'm not showing any further question at this time. I would now like to turn the call over back to your speaker for any further remarks.
spk01: Thank you so much. As a reminder, a replay of this call will be available as a webcast in the investor section of our website, as well as through the dial-in instructions contained in today's earnings release. Thank you for joining us today. This concludes our call, and we look forward to our next update following the close of the second fiscal quarter of 2021. Thank you.
spk04: Ladies and gentlemen, this concludes today's call. Thank you for participating. You may now disconnect.
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