Exactly. Okay. All right, great. I think, I think we're live now. Good afternoon, everybody. Outset Medical is up next. I am Travis Steed, the Bank of America medical device analyst, and we have Leslie Trigg, Chairman and CEO, and Nabeel Ahmed, Chief Financial Officer. Thanks for coming. Yeah. Um. Thanks for having us. Thanks, Travis. Great. Thanks for having us. Maybe just to start out, you just reported Q1 last week. Maybe high level kind of talk about the quarter, kind of what you saw in, you know, as the quarter progressed, January kind of versus March, April trends, if things kind of improved over the course of the quarter? Just maybe level set the conversation there. Sure. Well, I'll give some broad remarks. I think first and foremost, we felt great about the quarter. It was a really strong start to the year. We always look for kind of three levers in the business every quarter, which is, you know, how did consoles perform? How did treatments perform? How did ASP perform? Across all three of those dimensions, it was a really strong performance with some actually overperformance on the ASP side, which was great. I always look at ASP as kind of the leading indicator of demand, and is the value proposition resonating. In this case, it continues to. Really liked the performance in acutes. Strong performance in home. I think it was a really well-balanced quarter on both sides. That overperformance allowed us to lift the midpoint of the guidance range, such that we're now projecting 25%-30% growth year-over-year. I think last highlight from the quarter is gross margin performance. This is our eighth quarter now of consecutive gross margin improvement. We've just been putting kind of one foot in front of another, I think, in a very consistent, predictable way. We were able to deliver a gross margin that significantly beat even our own expectations, coming in at 20.3%. Yep. For the quarter. how much of the price uplift was from the TabloCart? Do you wanna talk about that? We saw ASP strength from three areas, really. First of all, just we have always maintained disciplined pricing, meaning not doing large discounts, not sort of being held hostage to end of quarter deals. We saw that continue, and we saw our pricing discipline continue to hold. Number two, we saw continued strong attach of our 24-hour software feature, which is an upgrade for Tablo that we launched in Q4 of 2020. We saw a really strong uptake, Travis, of our Cart, which is the new accessory, hardware accessory that we launched late last year. The three kind of factors combined to lift ASP. We're really pleased with sort of the performance on Cart. It is early innings. That is a new product, but sort of really nice reception out of the gate. I think acute and home utilization treatments per week were pretty stable over the course of the quarter. When you think about where they were in the quarter versus what you're guiding to for the year, are you assuming utilization over the course of the year? Just to unpack that a little bit, we think of utilization two ways. One is we have most of our consoles are connected to the cloud. We know how they're behaving and sort of the mature installed consoles are treating in the acute right around 5 x a week and right around 3.5 x a week in home. In terms of build utilization, we have the effect of new consoles that we've sold. For those of you who followed the story, we saw a large acceleration in our installed base back half of last year and then in Q1. Again, the impact of those consoles is sort of suggests that acute is between four and five, and home is right around three treatments per week. In terms of our guidance range, Travis, you know, guidance for us really is about console placement. Utilization, yes, it's factored in as we've described, but guidance for us really is about console placement as we move through the year. Right. On the console placements, I guess if pricing was up a little bit, units were down sequentially versus Q4. Is that right with the seasonality aspect? Well, I'll comment a little bit about the seasonality. Sure. Short answer, no, they weren't down. I think consoles came in just almost right on the postage stamp of where we thought they were gonna come in for the quarter. Going way, way back in time to February, I think on our Q4 call, for those of us that have a background in capital equipment, we had anticipated maybe some kinda calendar-driven cyclicality. Most hospitals tend to kinda spend through a capital budget in Q4 and then take some time in Q1 to kind of reset, reload, and finalize their operating budgets. We did actually see a little bit of that around the edges. Given that, and given that we're in sort of this Q1 cycle, the consoles came in right as we had hoped that they would. I felt great about the console placements. Okay. The only thing I'd add is console revenue has now grown for three quarters. Yeah. sequentially, right? We're really pleased with how consoles, console revenue has behaved, if you will, over the last- Right. Is the seasonality comment's more acute, not home. Is that correct? Yes. Yeah. Yeah. again, not related to Tablo, but just... Right. having been a part of the medical device ecosystem now for more years, and that I will not disclose how many years I've been part of the industry. This is pretty typical purchase behavior. Right. for anybody who's been around capital equipment. Okay. Expectation is to step up sequentially over the course of the year in placements? Mm-hmm. Yep. In the queue? Yeah. Yeah. Okay. Yeah. I think we said and will reiterate, we anticipate kind of very nice sequential growth rates quarter-over-quarter for the remainder of the year. Okay. Maybe, I know home's usually a more topic, but I'm just gonna jump to acute. Sure. I guess there's a couple comments that you made on the call that kinda stood out. Maybe we could start with thinking through, like, the new customers, kind of versus some of the expand within existing accounts of where you're seeing more opportunity, more growth between kind of those expanding current customers versus opening new accounts. Well, I would pick C, all of the above versus more or less of. We had given this example, well, I'll give you the two examples we gave of just about the health of the acute business. One, we had talked about 30 new hospital locations that are now using Tablo. That was a mix actually of new customers and existing customers that were just proliferating their use of Tablo and sourcing in more hospitals through their network. The second example we gave was of a 50-unit order that was sold to a single customer, which was a health system that actually was an expansion order. That was a health system that had already been using Tablo, and a couple of their hospitals obviously were pleased with their outcomes on cost and operational efficiencies and then decided to again expand that through their network. I think we continue to see through this year so far really good expansion in the new names and then also the new sites and existing names. All the above. Yeah. The large IDNs, how much more opportunity is left, like in the near term on that? You see a lot of, you know, things coming your way in terms of IDNs potentially signing up on this. The second part of that question would be utilization or in terms of the ramp for the large IDNs, how quickly do they typically uptake Tablo? Do they do like one center at a time or kind of go broad brushes? Well, I'd say short answer on how much more opportunity in the, in the large IDNs, a lot. I mean, we've talked about our generalized penetration across all acutes being in the very low double digits. You know, maybe high, low double digits. That would apply also to the, to the large IDNs. Some of them we got in several years ago, some of them we've just started to penetrate. Factored all in, I think that low double-digit penetration is probably a pretty good estimation for large and then the regional. I think we have plenty of runway. Utilization and the ramp, and I'll maybe give you kind of the end of the story before we go back to the beginning. If you're looking at a hospital that's using Tablo predominantly on the floor for sort of average regular three to four-hour treatments, you might see them using it a couple times a day, maybe six out of every seven days. That could be and often is double-digit treatment utilization per week. If they're using it principally in the ICU, those are often 24-hour treatments. You're theoretically limited by the number of hours in a week. You might see a hospital in the ICU using it more like four or five times a week. Taken together, it does depend on a few different variables, the location of the hospital, and then of course the hospital's own volume and their census. By and large, we are seeing many hospitals in our universe using it low double digits treatments per week. Then again, we also have to factor in as Nabeel said, Tablos that have just been shipped or just ramping up. Overall, over the last 12 months, it's stayed pretty consistent, all factors being considered around five times per week. Got it. In terms of the large centers that are coming, do you see some like your conversations with a lot of large centers so that there's probably some more near-term wins coming from the large IDNs? I think we're always having a lot of conversations with IDN, so I don't know that I would wanna predict, you know, some big win. What I will tell you is as we think about our pipeline, our pipeline is bigger today than it was a year ago, and it was bigger a year ago than it was two years ago. The pipeline continues to get bigger. I think because the technology has proven itself, our team has proven itself. We now have many more customers that can serve as reference sites for others and also who have published on their results. So I am liking what I'm seeing on the pipeline, and I think the macro environment has stabilized, which helps a lot with regard to staffing in particular. Great. When you think about the awareness of the economics, like it seems like a no-brainer for a hospital CFO. Just kind of curious, like where do you think awareness is for the economics of Tablo and what you can do to kind of accelerate some of that awareness? I think awareness it certainly is growing. I'll use sort of the same pattern. I mean, more people know about Tablo this year than they did last year, that's for sure. We really to be honest, I mean, we have not put tremendous amounts of money or resources actually into marketing, we got to kind of $100 million in sales primarily on sales. We did not really have a very robust marketing team or medical affairs. Those are actually investments that we started to make in 2022 that I do think are starting to pay off on the awareness front, both in terms of peer-to-peer education, physician to physician, webinars, case studies, medical meetings and the like. I think that, as the data points are being shared more broadly, the awareness is certainly growing at the hospital level. When you think through, I guess the Bridge Program, it sounds like not a lot of hospitals are actually using the Bridge Program, but it's just more like a, an insurance policy, if you will. I think that's right. It couldn't have worked out better if we had tried. I did not predict this, by the way. This is kind of like better to be lucky than smart. At the beginning, I really thought this was gonna be an implementation answer for hospitals that were really, really struggling with staffing. The implementations that we have done have gone really, really well. There was actually a customer we talked about, Deaconess, in our scripted remarks, that used Bridge and ended up standing up their own program in 30 days. The majority, though, really have found that they have been able to hire much more quickly than they thought they were gonna be able to and at affordable wage rates. The benefit that we've gotten from Bridge, which kind of is free, is our ability, the salesperson's ability to talk about Bridge as an insurance policy and sort of a backstop, which has given the health systems confidence to move forward even though there are some unknowns. Most hospitals have not hired a team of dialysis nurses before, so it's kind of a fear of the unknown, and I get it. I would be apprehensive about something I had never done before either, and they are standing up a new service line. I think that the power of Bridge was simply in giving them the confidence to move forward with uncertainty and knowing that, "Hey, if you don't hire as quickly as you hope to, we got you, and we can install a team of people ready to go very, very quickly. Some of the outperformance in Q1, obviously, we talked about came from TabloCart, and that's in the acute setting. Is that something that's picking up, you know, in terms of what we're Like the attach rates for that? Just kind of curious if that go to 100%, 50%, or where what the opportunity is there. I don't know if you've disclosed the ASP uplift. Yeah. on that as well. Yeah. The ASP, it's about $10,000 for the cart itself. You know, it's still in early innings with the cart. We just launched that product in Q4. We're very happy with the performance we had in Q4 and in Q1 with that cart. You know, I'll go back to our first sort of accessory launch. We launched our 24-hour feature, Travis, back in Q4 of 2020, initially thinking we would see it in one in four consoles, now we're seeing it in the majority of our consoles. We've had a good track record with one software accessory, happy with cart's early rollout, but still early to sort of say where we think it'll end up. Are there other things you could potentially put through the channel and like, rather than have call it ASP, but more of a like mix in terms of sales, like add on additional value? I'm kind of curious. Maybe it's in the data side of things. Yeah. hardware side of things. Maybe expand upon, like, your vision here. I, look, I've always thought about Outset or increasingly thought about Outset as a software company that happens to have hardware. I think that we have been a real leader in this space, and we intend to retain that leadership position. I think there are opportunities... well, sorry, let me back up and say one more thing. I think question mark, were we gonna be successful in using our capital sales team to sell, software, to sell accessories? I think we answered that question through 2022. I think that they've proven themselves very, very effective at selling kind of core Tablo and then the optional add-ons. That's probably emboldened us in thinking, more expansively on the software, data products that might be advanced analytics, advanced dashboards. There might be a basic and a premium EMR offering, things that are delivering real value, obviously, to the customer. Also we think about competitively things that will continue to differentiate, Tablo and keep it sort of unique among its peer group. Potentially moving to more of like a SaaS model in some of the stuff in terms of software, charging for software. Potentially, that's a, that's a possibility. All right. Yeah. We already have a chunk of our revenues that are recurring revenues, so the service and then our consumables. The business is sort of architected. That's true. already in a way Right. where a little bit under half of it is recurring. Right. We think as the installed base grows, that grows as well. Right. Mm-hmm. Yeah. I think that's some unappreciated by a lot of people. Agreed. Yeah. Switching to home. I think one of the things that kind of perked my ear on the earnings call, you know, talking about some of these centers and getting to a number of centers with 10 home patients per center. Like maybe start with what you're seeing on the ground when you're talking to these centers. Like, what's driving, you know, them to put more people on, how much momentum you can get to? Like, I don't know where this actually peaks. Like what's the opportunity a center can actually even manage potentially in the home? Yeah. Thousands. No, I'm kidding. It's not. Millions. I'm changing my model today. Yeah. I think there's two things going to the first part of your question. I think there's really two moments that start to give a location, a clinic location, a lot of confidence and enthusiasm about Tablo. Well, three moments. The first moment is most of these locations will offer Tablo and the incumbent home hemo system because they're already using the incumbent. We've just found that they've gravitated to sort of the Coke and Pepsi taste test, at least in the early part of this, because they're curious. Like, if you offer 10 people a choice, how many will choose A versus B? That's the first moment when they see, you know, the vast majority choosing, "I prefer Coke, so I'm gonna align Tablo with Coke." When they see the vast majority preferring Coke, that's the first aha. Oh, okay, this really could help us expand home adoption. Because they will often offer it to people who have not chosen home in the past. That's aha number one is like, okay, Tablo really can expand the envelope here. The universe of people who want to go home, great. The second moment is, when they put their first few patients through training, and kind of a seeing is believing, and they really do see patients of many different types getting through training in about 10 business days, if you will, very, very consistently. That tends to be an aha because the nurse now is going into, "Oh, I don't have to spend nearly as much time. I can increase my throughput. People are getting this. I don't have to keep doubling and tripling back on the same material over and over again. This is easy. It's easier for me as a training nurse." Then I think the third aha moment, which is probably the most powerful and happens a little bit longer over time, is the retention. When they don't see people wanting to come back in center, when they do see patients happy at home, thriving at home, and doing well clinically at home. I think those are the three big moments that start to really galvanize the clinic toward, and many, many clinics have actually isolated down. We will only offer Tablo now moving forward. It feels like the first 10 takes longer. The next 10-20 go a little faster. I feel like there could be some momentum, you know, in terms of like a center. Like, once they see the first 10 successful, why not do the next 10 pretty quickly? There could be. I would just say it's more to be revealed time on task. I don't have enough evidence in my own mind to say categorically you're right, but I think you might be. It would make intuitive sense. When you think about some of the things driving these centers, like staffing obviously is an issue, dialysis nurses or whatever, it feels like there should be more of a reason that these centers would be pushing home even more. You know, if you think about are there maybe some examples you could talk about, Like centers that do have 10 + people per home? Like are they getting efficiencies that some of these other centers are not? Is that something they can talk about to these other centers and just kind of help spread awareness? Yeah, I think so. There's certainly a lot of efficiencies. I think some of the efficiencies, by the way, I'll just go back to technology, because Tablo sends all of the data from every treatment directly up to the cloud or directly to their EMR. That saves an immense amount of administrative time. On the incumbent machine, the patient, him or herself, had to fill out written flow sheets. You'd end up with maybe 30 or 40 pieces of paper every month. Those had to be either faxed, if anybody still has a fax machine, or manually carried into the dialysis clinic, and then the nurse would actually have to take the piece of paper and then type it all into their EMR system just so that they could get paid. Tablo in a great way, makes all of that go away. We also have not yet, I think, reached the ceiling of how many patients can an individual nurse manage. I think we're gonna drive a lot of efficiencies there. I don't know what the peak number is gonna be. What we do find over and over again is that patients are incredibly self-sufficient, aided by technology, which I think will increase throughput and then also management efficiency of these programs over time. What's the limiting factor on the growth here in the home? Like Well, if you had to boil it down to like one aspect, like what do you think is the most limiting to the home growth? I would say there's a reality to which I have come to appreciate on a deeper level as the years have gone by. I think there is a reality to something in medicine, being done the exact same way for 40 years. You have had this the way it's been done, just the easy button autopilot for physicians has been like clinic, clinic, and there's always been an abundance of chairs and an abundance of clinics, and there's always kind of room in the inn. That's changing. I think that there it's gonna be a process of behavior change, both with physicians and even some of the staff in the clinics. To me, I am a fervent believer in when, not if. The when is gonna take a little bit more time than just, you know, my background is mostly like new devices in the cath lab. That when to, you know, you do tend to see inflection points- Right. because it's just this device is a little bit better than the other and but the cath lab hasn't changed. We're in an equivalent way changing the cath lab through the use of a new technology. We are changing, kind of changing minds and changing practice patterns, and that's gonna happen over time. Right. No, I think that makes a lot of sense, when I thought about it that way. Are you seeing like younger surgeons or not surgeons, but doctors? Yeah. come in that are more receptive to the technology? 'Cause we kind of saw that in robotics where market kind of slowly grew, then kind of inflected as there was this like younger generation of surgeons coming in. You know, I wanted to believe that, but, as somebody now in their fifties, I'm actually proud to say that the older physicians, I'm rooting for them. No, we too are capable of change. So I actually haven't seen as much of that. Okay. As I think about sort of our population of prescribing physicians, I can't say that I see any trends around age or anything else. Okay. That's interesting. I guess why not do DTC advertising in terms of like start spreading awareness with patients? 'Cause at the end of the day, it's really the patient making the choice, I guess. A couple of reasons. I did this once, different company, different situation, and I, and I did it prematurely. Patients got all hyped up and jazzed up before we had really properly educated the physicians. Most people, I think if we just put ourselves in the shoes of like, let's say, we don't know very much about something, I still listen to my physicians. I'm gonna do my own research, but if a physician were to tell me strongly, "Do not do that," or, "That's not for you," I probably would listen to them. My lesson learned from this other company many years ago is kind of at the right time and the right place. I think having said that, we have kind of parallel path. We've been doing, I would call it controlled experiments with geo-targeted social media, which has worked very, very, very well. We've ring-fenced it around clinics that already offer Tablo so that it's actionable. Earlier when I did this, it was kind of more, more of a buckshot. I'm not a believer in that. So we are doing limited, very, very cost-effective pilots with social media, but all aimed around in supporting locations that already offer Tablo with physicians that are bought in. I think that's you'll probably see us do more of that. Mm-hmm. -type of approach. I guess the thing to really wait before you go even bigger with this is to get more centers doing Tablo and have more infrastructure in place. Is that right? I think channel access is a big part of last year. It's a big part of this year. I would say this year we're also really interested in, now that we have enough locations, though, as we've talked about sort of growing depth, and finding new ways to grow depth. It's more efficient for us, actually, as a commercial organization and certainly more efficient for the clinic. I think there's a flywheel going in a location where more and more people that might be dialyzing in center are hearing and seeing and. Right. Watching people, get trained on Tablo. Helpful. Nabeel, do you wanna talk about margins before we run out of time? I'd love to. All right. That's good. I guess it's important. I guess one of the things I would think through, like the upside in Q1, you know, pricing is a little bit better. Like, it feels like that momentum really that you saw in Q1 on the upside of the gross margin side hasn't really changed. Yeah. Well, margin expansion for us has always been three things. Primarily, one is console cost down, two is the consumable pull-through, and three is service leverage. That's been what has allowed us to expand margins for eight consecutive quarters now, Travis. The benefit we saw in Q1, we saw all of the above, plus better ASP for the reasons we talked about earlier. Again, that just gives us more conviction in our, number one, exit in the mid-20s, and number two, our path to 50%, which is kind of the milestone, the next milestone we're aiming towards. The best news on margin is it's nothing new. It's just us executing on things that we have proven to be very good at. Mm-hmm. On the Tablo cartridge and sourcing. Mm-hmm. in terms of like ramping the throughput on that, where are you at in that stage? Yeah. We started that late last year. As we sit here today, we have started sort of shipping those cartridges to our customers. Our plant is ramping up. By the end of this year, most of the cartridges that we produce will come from our plant in Mexico. As we think longer term, there's two big objectives of that project. Number one, we now have, or by the end of the year, we'll have three sort of credible sources of supply, which we think is important. You know, diversification of our supply base is really important. Number two, it'll allow us to protect our longer term margin expansion because we're not dependent on a contract manufacturer for new resins or we're not ceding a profit margin or anything of that sort, right? Those are the big objectives there. We're really excited about that project and happy with the way it's going. When you think about to get to that 50% gross margin goal, where's the mix of the consumable versus capital go to get to the 50% margin versus where you're at today? Travis. Today the console is the majority. It's 54%, 55% of our total revenue. At that 50% margin point, we think the console is 50%, and then consumables and service, the two recurring revenue elements, are about 50% of the mix. As long as revenues growth is sustained and is where it's been, you know, 20%+, like, it feels like the margin trajectory should be pretty linear from here exiting the year 25%-50%. Spot on. Yeah. We've demonstrated again going back in time that the margin trajectory is linear, and going forward it will remain linear from here where we exit this year to the 50%. What about cash burn? Just Q1 was a little lighter on cash burn. Our big commitment for cash is that we will burn less cash in 2023 than we did in 2022. That'll come from three things. One, more revenue in 2023 relative to 2022. Two is sort of improved gross margin, and three is operating leverage. You know, we talked about revenue expected growth of 25%-30% and OpEx expected growth of sort of low double digits. We're gonna drive operating leverage with a higher top line. Q1, we have a bunch of annual payments. We make compensation payments. We do our sales and service meetings. Q1 tends to be the heaviest cash burn quarter for us and for others. You would expect that to ameliorate as we move forward. Great. Any questions in the audience? Great. I think that's really all I had, so we can stop there. Thank you. Yes. Thank you. Appreciate it. Yeah. Good to be here. Thanks. Thanks, Travis. Thanks, everyone. Thanks.