Title

Presentation

Company Representatives: Leslie Trigg – Chair, Chief Executive Officer Nabeel Ahmed – Chief Financial Officer Jim Mazzola – Head of Investor Relations

Operator: Good day! And thank you for standing by. Welcome to the Outset Medical Q4, 2022 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. . Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Jim Mazzola, Head of Investor Relations. Please go ahead.

Jim Mazzola: Thank you and good afternoon, everyone. Welcome to our fourth quarter and full year 2022 earnings call. Here with me today are Leslie Trigg, Chair and Chief Executive Officer; and Nabeel Ahmed, Chief Financial Officer. During the call we will discuss our fourth quarter and 2022 operational and financial results, provide an update on our outlook, and host a question-and-answer session. We issued a news release and filed an 8-K after the close of market today and updated our investor presentation, all of which can be found on the investor pages of www.outsetmedical.com. This call is being recorded and will be archived in the Investors section of our website. It is our intent that all forward-looking statements made during today’s call will be protected under the Private Securities Litigation Reform Act of 1995.

These statements relate to expectations or predictions of future events, are based on our current estimates and various assumptions, and involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied. Outset assumes no obligation to update these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of Outset’s public filings with the Securities and Exchange Commission, including our latest annual and quarterly reports. And with that, let me turn the call over to Leslie.

Leslie Trigg: Thanks, Jim. Good afternoon, everyone and thank you for joining us. We’re very pleased with our performance in the fourth quarter, which capped off an important year for Outset. During 2022 we significantly increased the number of Tablo Consoles in hospitals and homes, surpassed one million treatments and helped health care providers continue to deliver exceptional lower cost care in a challenging labor environment. We also fundamentally strengthened our platform for growth by innovating and extending Tablo’s technological advantages, adding key talent and strengthening our balance sheet. As a result, we have entered the year with a lot of conviction in our plans to further expand Tablo’s footprint with good visibility to continue sales growth across both our home and acute end markets.

And in addition to growing the top line, we also remain committed to meaningfully expanding non-GAAP gross margins this year toward our next milestone of 50%. Beginning with a review of our home performance: At a high level, home represents the single largest market opportunity for Outset. In 2022 we saw growing demand for Tablo as an enabling technology for Hemodialysis programs, fueled by exceptional clinical outcomes, positive patient experiences and retention, and the increasingly recognized economic benefits for patients and providers. While our overall year-end installed base across those markets increased 54% year-over-year to approximately 4,000 consoles, our fourth quarter performance contributed to a particularly strong year for home.

Exiting the year, we achieved a more than doubling of our home installed base to 800 consoles with sales to home care providers at roughly 20% of total 2022 revenue ahead of our original goal of mid-teens as a percentage of total revenue. In addition to Tablo’s continued growth with mid-sized dialysis providers, which we’ve discussed for several quarters, we were also successful in initiating home programs with both health systems and new adjacent specialty providers entering the space. This is an emerging segment of the home market, we believe will continue to be an important growth vector in 2023. As a reminder, we define a home program as a location offering Tablo for home dialysis, and we were pleased to exit the year with roughly 100 such programs in place.

Historically, 60% of home programs have sent between one and five patients home. While early, we are now starting to see multiple programs sending low double-digit numbers of patients home on Tablo. We believe the keys to profitable sustained growth in home moving forward are first, reaching higher than historical home patient numbers per home program; and second, maintaining higher than historical redemption rates. In 2023, we are employing a similar land and expand strategy in the home market, as it has been successful for us in the acute end market. It’s our goal to land the majority of the largest mid-sized dialysis operators and initiate home programs with two of the top national IDMs. We believe the progress we’ve made in 2022 and the new programs who had planned to land in 2023 will provide a foundation from which to further expand the number of patients dialyzing at home on Tablo.

Central to the success of our expansion in the home is a consistently positive and highly differentiated patient experience. We’ve learned over time that the home dialysis experience for patients is tied both to the product and the people behind the product. In other words, the art of how we support patients greatly contributes to Tablo’s success, and we believe it creates a separate protected competitive advantage, along with our technology itself. To that end, in early December we were able to provide a firsthand view into the home patient experience through an educational virtual panel webinar that included two patients currently dialyzing at home with Tablo and a caregiver of one of the patients. Those patients were previous users of the incumbent home hemo device and switched to Tablo for its simplicity and flexibility.

They talked about getting space back from no longer having to store mountains of boxes and getting time back from no longer having to spend hours on end preparing dialysis day in advance of treatment. And more importantly, those patients said they felt better, felt less stress and were quickly able to master Tablo. These patient experiences underscore why Tablo’s controllable attrition rate has been consistently in the 10% range and continues to be roughly half the historical rates on the incumbent home hemo device. We believe one of the key drivers of retention is Tablo’s simplicity, which we see in our training data. Patients are able to master their Tablo learning curve in just 10 days on average versus four to six weeks for the incumbent device.

We see this advantage demonstrated in our 90-day retention rate, which shows the rate of patients choosing to transition back to in-center hemodialysis is less than half the rate of the incumbent device. It is our goal to maintain our markedly higher retention rates even as we substantially grow the number of patients at home on Tablo. Turning now to our results in the acute end market, the fourth quarter was also marked by strong growth, including sequential revenue growth each quarter from Q2 through Q4. Broadly, we saw the macro acute care environment largely stable over the course of the fourth quarter and through the first several weeks of this year. We do expect staffing headwinds will persist and affect providers through 2023, and we’re also keeping a close watch on hospital capital spending, which can affect the timing of deals, but to-date has not proven to be a meaningful headwind for us given Tablo’s strong value proposition.

We did see further evidence during the quarter of third-party dialysis service providers continuing to increase prices, decrease service levels and in some cases, cancel contracts with their hospital customers. As our customers move towards in-sourcing, inpatient dialysis of Tablo, we remain fully prepared to support them as needed with our bridge program. The program is designed as a temporary staffing solution by providing short-term dialysis nurses who deliver Tablo treatment, both in the ICU and bedside on the floor, while the patient completes the process of hiring its own permanent staff. As hospitals continue to manage a challenging staffing environment in 2023, we expect the bridge program to continue to serve as an important staffing stop gap for providers who are eager to move forward and recognize cost savings with in-sourcing initiatives.

From a product innovation perspective, last quarter was our first full quarter in market with TabloCart, a new accessory that provides additional maneuverability around the hospital and incremental pre-filtration capabilities for sites with water quality that is far worse than the national drinking water standards. As a reminder, TabloCart is sold separately at a gross margin accretive ASP. Since its launch in Q3, we’ve been pleased with the strong demand and positive reaction from customers. Throughout 2022 our team continued their very disciplined, determined execution to the same commercial strategy that has worked so well for us in the last two years, which is our land and expand approach. We are low double digit penetrated in our acute base today and beginning to see larger console orders as hospitals expand and transition their dialysis service lines to Tablo.

During the quarter we closed multiple deals involving the purchase of 20 consoles or more including a large Midwest provider who ordered nearly 30 consoles. With recent new acute customers landed in the quarter, our focus for 2023 and beyond will remain on expanding within those networks. Before turning the call over to Nabeel, I’d like to briefly highlight a few operational updates. First, we took a significant step forward in our long-term margin expansion strategy by initiating production of Tablo cartridges in-house at our outset Mexico manufacturing facility. This move also secures an important component of our business model and continues to improve the flexibility of our operations. We recently began production from a state-of-the-art Class A clean room, which our team designed and built within our existing facility in Mexico.

The clean room fully leverages our digital manufacturing infrastructure, and has capacity to carry us well into the future. With this move, we now have three qualified suppliers of the Tablo treatment cartridge. I want to congratulate and thank our exceptional operations team for the work to expand our facility, build the clean room and ensure our readiness to initiate this critical step forward for Outset. It’s another significant achievement from this high-performing team and another example of the type of innovation we continue to drive across the organization. Second, we talked about gaining operating leverage as we scale the business, and we made excellent progress during the quarter. In our sales organization, for example, we are gaining sequential improvements in productivity, increasing account penetration without the need for additional reps.

Importantly, we are also getting operating leverage from the investments we’ve made in our service organization. Service has historically been a very manual process for capital equipment, something we thought to change with Tablo. Our proprietary software and data analytics platform enables our service team to remotely access Tablo with permission, see the system during a treatment and assist users on a real-time basis. At the same time, we increased our installed base by 50%. We also improved our remote resolution rate by 170%, lowering our cost to serve and taking full advantage of Tablo’s two-way wireless communication capabilities. Not only does this approach improve our efficiency, it dramatically improves the customer experience and reduces the support burden for our providers.

Finally, we announced today that Martin Vazquez will retire from Outset after a 30-year career in med tech. We have been extremely fortunate to benefit from Martin’s expertise as we established world-class manufacturing, supply chain, logistics and R&D capabilities and we’re pleased that he will continue to consult with the company. I really want to recognize Martin’s contribution and his legacy of building and mentoring a truly incredible team of leaders, all of whom keep Outset punching above its weight. Taken together, these updates and the progress made throughout the year leave us feeling more optimistic than ever about our opportunity in 2023 and beyond. We are very well positioned in one of the largest segments of healthcare with a highly differentiated product, a growing base of customers and a compelling recurring revenue model.

And aside from our financial and operational goals, we aspire to deliver another year of deep impact for patients and their families. Dialysis patients for too long have been overlooked and served and experience that is just good enough, but they deserve great, and I want to thank the entire Outset team, as well as dialysis nurses, technicians, nephrologists and hospital leaders and ever-expanding community of change agents focused on patients who have fully embraced our mission to change the status quo. With that, I’ll now turn the call over to Nabeel to review our financials and provide more detail on our results and key drivers for 2023.

Nabeel Ahmed: Thanks Leslie. Hello everyone! Our four quarter revenue increased approximately 15.3% sequentially and 13.7% year-over-year to $32 million with a year-over-year change driven primarily by higher consumables revenue and higher service and other revenue. This uptick in recurring revenue is one of the benefits of our expanded installed base and continues to be one of the key drivers of gross margin expansion. Product revenue was up 21.3% from the prior quarter and increased 11.5% year-over-year to $26.4 million. Console revenue grew 22.8% from the third quarter and increased by 1.5% year-over-year to $18.4 million. We saw console ASPs increase again year-over-year, driven primarily by the ongoing demand for Tablo XT and by demand TabloCart, our new accessory launched in the fourth quarter of 2022.

Consumable revenue was $8 million, up 17.9% from the prior quarter and an increase of 43.9% versus the prior year as our installed base grows. Based on data from consoles deployed and connected to our cloud network, we see Q4 cartridge utilization continuing to be in-line with our expectations. Service and other revenue of $5.6 million was down 6.3% from the prior quarter and higher by 25.3% compared to the prior year. Our core service and other revenue increased approximately 90% year-over-year with the growth of our installed base, and was offset by the planned X3 of the HHS agreements. As a reminder, the third quarter of 2022 saw the X3 of the final components of our HHS agreements. 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 fourth quarter gross margin was 17.1%, a sequential improvement of 7 basis points and an improvement of just over five percentage points versus the prior year period. This progress marks seven consecutive quarters of consistent and substantial gross margin expansion, and once again demonstrates our commitment to our next milestone of 50% gross margin. The primary drivers of our margin expansion has been our ongoing console cost down program, lower freight costs as our Mexico-based cartridge contract manufacturer has taken over the majority of our cartridge production and higher margin revenue mix. We anticipate that our internally manufactured cartridges will start to reach customers in 2023.

Operating expenses in the fourth quarter were $38 million, down $1.5 million versus the prior year period as we trued-up incentive compensation for the year and realize some of the benefit of our efforts to fully manage spending. We reported fourth quarter GAAP net loss of $41.4 million, resulting in a net loss of $0.86 per share compared to a net loss of $41.2 million or $0.87 per share for the prior year period. Non-GAAP net loss was $34.1 million or $0.71 per share compared to a non-GAAP net loss of $36.4 million or $0.77 per share for the same period in 2021. We ended the quarter with approximately $290.8 million of cash, cash equivalents, restricted cash and investments, which includes $100 million of drawings under our term loan. We continue to have access to up to an additional $200 million of capital under our SLR debt facilities.

Moving now to our full year 2023 outlook, starting with revenue. We project revenue for the full year 2023 to range from $140 million to $150 million, which represents approximately 22% to 30% growth over fiscal year ’22 revenue. Our revenue guidance assumes that revenue from both our acute and home end markets will grow and that revenue from our home end market will grow at a faster rate than acute. Given the strength of our XT features, we’re now assuming that XT is in a majority of the units we ship into the acute end market. This will translate into a slightly higher ASP. In terms of consumables, our guidance for 2023 contemplates utilization at the lower end of our four to six treatments per week in the acute setting on average and the three to four treatments per week in the home setting on average, largely due to how we’re seeing our customers’ ramp to full productivity.

Now, to give you some more detail from your models. Based on what we’re seeing in our pipeline and typical Q4 to Q1 capital purchasing trends, we expect that revenue growth will be flat sequentially or slightly down from Q4 to Q1, and will then accelerate from there as we move through the rest of the year. With respect to gross margin guidance for 2023, we expect our gross margin to continue to benefit from our ongoing cost down activities on the console and our higher ASP, as well as the full year impact of the primary place of manufacturer of our treatments to move to Mexico. We have line of sight to non-GAAP gross margin expansion to approximately 20% for the full year of 2023. Given our expected revenue profile, we expect non-GAAP gross margin in Q1 to be relatively flat compared to Q4, ’22 and then expand sequentially such that we exit 2023 with non-GAAP gross margin in the mid-20% range for Q4 ’23.

As a reminder, our gross margin may fluctuate from period-to-period based on the mix of home and acute consoles we sell. Now, I’d like to turn to non-GAAP OpEx. Given our strong progress to date, the large market opportunity we see in front of us, and the tailwinds we continue to see in the home market, our intent is to continue to invest in our business to drive long-term revenue growth, ongoing gross margin expansion and focused R&D to continue to extend Tablo’s differentiation. Having said that, we expect to start demonstrating operating leverage as the investments in people and infrastructure that we made in 2021 and 2022 start to bear fruit. We forecast operating expenses to increase in 2023 relative to ’22 with low double-digit growth in 2023 expected, significantly slower than our expected rate of revenue growth.

And finally, I’d like to make a few comments about our strong balance sheet. We have previously talked about carrying large amounts of inventory as one of our strategies to mitigate the tough supply chain environment we operated in during 2020, 2021 and into 2022. As we look forward and see increasing stability, if not improvement in the macro environment around supply chain, we’ll be thoughtful in terms of managing our inventory levels and expect to be able to reduce our inventory levels relative to what we have exiting ’22. In combination with our expected revenue increase, gross margin expansion and increased operating leverage in 2023 relative to 2022, we expect to burn less cash in 2023 than we did in 2022. In summary, we had a strong finish to ’22 that demonstrated Tablo’s value proposition in our large acute and home end markets.

And we have great momentum in 2023 that gives us a high degree of confidence in our ability to execute through the year as we continue to deliver on our promise to dialysis, patients and providers. With that, I think we are ready for Q&A. Operator, please open the lines.

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Operator: Thank you. . One moment for our first question please. And it comes from the line of Travis Steed with Bank of America. Please proceed.

Travis Steed: Hey! Good afternoon. Thanks for taking the question. I heard the guidance on Q1 is flat to down sequentially. Curious now that we’re halfway through the quarter, maybe give a little bit more context on what’s shaping that guide up for Q1? And I think you had record patients in December, curious how January is shaping up in terms of record patients. And for the full year, you said home would grow faster. And so you ended the year at 20% of revenue at-home. Curious if that’s like end of the year around mid-20s or if we are lower or a high 20% range for the percent of revenue coming from home in 2023.

Nabeel Ahmed: Yes, hey Travis, its Nabeel. Travis, I missed the second part of your question. I got the first part, which is the Q1 guidance and the back part, which was the home. Can you remind me what the middle was?

Travis Steed: That was just the – I guess December was record patients. I’m kind of curious €“ and for home. So kind of curious where in January and February shaping up in terms of in December?

Nabeel Ahmed: Yes. Got it, got it Travis. So thanks for the question. So on to Q1, look, a couple of things. One, our guidance is always informed by what we’re seeing in our pipeline and what we’re starting to see is that you know these capital purchasing decisions that every company talks about, where you know Q4 is a strong quarter and Q1 comes off a bit softer, that’s starting to affect us as well. And so we’re looking at a softer Q1 with an acceleration through the rest of the year, and that’s only just sort of the trends that we’re seeing in the macro around us. So that’s for the part one. Now on the full year, so last year €˜22, we were pleased that home came in at roughly 20%. You know we had said that home is going to grow faster in €˜23 than in ’22, and so if you look at home growing at even that €“ even contributing 20% of full year revenue, if we even can see that off a higher base, home is going to grow significantly faster and be a big part of €˜23 revenue.

Travis Steed: Okay. And you didn’t give a backlog this year right, in terms of backlog number like you did in the years past?

Nabeel Ahmed: Yes Travis, backlog still continues to be a big part of our business. We run our business in a backlog position, and it certainly is the first thing we look at when we think about guidance for any period. Now as we’ve talked before, our backlog has been shifting more and more to home consoles, which have a longer sort of tenure, longer cadence to deployment and so it’s less and less of a relevant metric to sort of disclose as we move forward. What we did give and what we think is relevant is our installed base, which we talked about growing 54% to 4,000 consoles in 2023 and we talked about our expected revenue growth of 22% to 30% for the full year and that’s sort of given shape in terms of the fact that we expect homes to grow faster than acute, and so we think that those are the right metrics to monitor as we are looking forward.

Travis Steed: All right, that’s helpful. And then I guess a last question on margins. There’s a little bit of a reset on the 2023 margin guide last month. Just want to make sure if there’s any color you can provide on €“ does that change the pathway to the 50% over three years kind of linear pathway? When you think about this year’s margins, you know the four levers that you talked about in driving margins. You know where do you think you can pull the lever a little harder this year and if revenue growth comes in a little better than expected, how well that’s going to flow through on the margin for 2023?

Leslie Trigg: Yes, look Travis, the levers are unchanged. So it continues to be console cost down. It continues to be consumable pull-through and it continues to be service leverage, as well as sort of scale and revenue growth right, so those levers are unchanged. We continue to have confidence in our ability to get from the 16% we predicted for the full year of €˜22 to roughly 20% for 2023 and exiting the year again in that mid-20% zone.

Jim Mazzola: And sorry, Travis you’re cutting in and out a little bit for us. I thought I heard him ask, is it still kind of a linear path to do that?

Nabeel Ahmed: Thank you. Yes, yes, Travis sorry, you were cutting in and out. Yes, and it continues to be a linear path to that sort of 50% next milestone that we have, yes.

Travis Steed: All right great, thanks for taking the questions.

Operator: Thank you. One moment for our next question please. It comes from the line of Rick Weiss with Stifel. Please go ahead.

Rick Wise: Hi! Good afternoon Leslie, Hi Nabeel. I guess I’ll €“ let me come back to the question that Travis was asking about, the sequential change, and Nabeel, I totally get that you’re telling us what you’re seeing. But I just want to make sure that I’m really understanding, why the sequential direction first quarter versus fourth, and why you’re so confident in acceleration after that? I mean is that just the way that customers are saying they are going to take systems, i.e., they are going to move a little more slowly in the first quarter and they are committing to accelerating thereafter. And you know it does seem like a slight in the short term, slightly greater pressure. I’m just not exactly understanding why and exactly where it’s €“ who’s moving more slowly to decide about what, the acute setting or the home. If you could just expand on your comments there would be great?

Nabeel Ahmed: Yes, Rick. I mean, it’s spot-on what you said. Sort of again, when we set guidance for any period, we look at our backlog, how that’s rolling off and then we look at our pipeline, and what our customers are telling us. And it’s exactly what you said in terms of what we’re hearing, is folks are looking for a slower start to the year and then accelerating beyond and that’s based again on the backlog pipeline and the conversion that we have sort of baked in.

Leslie Trigg: Let me €“ I’ll add Rick, I’ll add a little bit of color too. I’ll add that we aren’t seeing any worsening of staffing or any worsening of the capital spending environment. There’s really nothing in the macro that has changed from Q4 or really from our preannounced at JPMorgan. From my vantage point, we are entering €“ we have entered Q1 and 2023 from a very, very exciting position and so I am really bullish on the year. We have a lot of momentum, both on the acute and the home, so there’s nothing in this that concerns me whatsoever. I think I’ve seen this a bunch just in other capital equipment businesses. That you know Q1 sometimes can be a little bit flat to Q4. So I just wanted to add that there’s really nothing in the macro fundamentals that is new or different here.

Rick Wise: Yes, good, good. Leslie, the Bridge program has obviously been a huge success based on the customers I’ve spoken with. But I had the sense maybe if we heard when we heard from you, three months ago or so about it, that you thought it was going to be the terminator. I don’t know, am I misreading you? It sounds like it’s going to be a little longer. I think that’s excellent. So I guess my question is, maybe talk about where you are, how long does it go on? Is this maybe in the best sense of permanent program. I just wondered about the impact on margins from this program, good or bad?

Leslie Trigg: Sure yes, I’m happy to talk about that. I think there are two questions when you talk about duration or two aspects to duration. One is the program duration, and then the other is the duration of each implementation, and so when I talked about you know short term in nature so far, that remains true and that speaks to the duration of each implementation itself. We offer our partners the option of using bridge for up to 90 days. However, I think the great news is almost to a customer they have been able to hire dialysis nurses faster than they originally feared it would take, and so most of our implementations have been on the shorter side, well less than 90 days, so that was the point I was making a few weeks ago.

In terms of the duration of the program, I you know €“ I think it’s going to be a part of our portfolio or part of our sales process for as long as it adds value. We in no way shape or form intend to or want to be a staffing company, but we don’t need to be. A lot of the value here, probably the majority of the value is in our ability to just give €“ help us in executive comfort that sort of I think I said psychological safety in the past, that if they have trouble staffing, if it does take longer than they expected to, we’re there for them. And it’s a stop gap, a lever that they can pull as needed. So I think what I love about bridge is that we’re getting a lot of value for it without €“ really without much material cost to it at all.

So we’ll see more to be revealed Rick, but I could see it a part of our portfolio you know for some time in the future in €˜23, but not necessarily in the form of a lot of implementations, but just giving customers the knowledge that it’s available if needed.

Rick Wise: Got you. And one last one for me. I think in recent months you talked and maybe I missed it in your prepared comments. You had said you were something like 30 states and you had hoped to be in €“ or expected to be in 50 states by year end €˜22. I just want to be clear, did you achieve that? Number one. And number two, maybe relate that back to an aspect of operating leverage that struck me. That you can now, because of the size of your sales force, you can now penetrate accounts if I heard you correctly, without adding new reps. So if you have to add new states, how would you not need to add new reps? And maybe just expand on that, because I think it’s an important point. Will the sales force not need to grow from here? Thank you.

Leslie Trigg: Oh sure, yes sure, I’ll give some color and then kick it over to Nabeel to see specifics. I think what we were trying to point out €“ well, I’ll start on the acute side with sales force productivity, is that when you have a really, really strong foundation up in a large base of existing customers, as they start to proliferate Tablo programs across other hospitals in their network, you know there’s sort of a formula there. You don’t need to invent the wheel every single time, as a health system is expanding to hospital eight, nine, 10, 12, 25, etc. And so that makes our team much more efficient, because we’ve really got quite a good recipe book down in terms of how do you insource with Tablo and how do you make it a success.

And so that’s just an example of how our team has become much more efficient, which therefore allows us to do more with fewer. We do have broad coverage now. Tablo is used widely across the country, and yes Rick, you’re right, that also gives us some geographical test across the sales force and yes, it does allow us to expand without necessarily making a lot of additions to the sales force. We absolutely will continue to add to the team as needed, but those will be variable expenses that are tied to expansion revenue. So we don’t foresee big, big jumps in the size of the sales force, which is great news, and we’ve always talked about from an operating margin perspective, the fact that at scale we would start to see advantage from not necessarily needing to employ an army of thousands to reach our revenue target.

So, I continue to believe that this model is one that will €“ has already and will continue to produce operating leverage as we go forward.

Rick Wise: Great, thank you.

Operator: Thank you. One moment for our next question, please. It comes from the line of Shagun Singh with RBC Capital Markets. Please proceed.

Shagun Singh: Great! Thank you so much for taking the questions; one for Leslie and one for Nabeel. Leslie, could you talk about your home strategy in 2023 in maybe a little bit more detail; you know maybe the different buckets, the U.S. hospitals expanding to the home as well as how you’re thinking about opportunities with the dialysis clinic, perhaps with partnerships and just how you the incumbent in the home setting to respond? And you know as you think about the strategy in 2023, are there any major pushback that you expect? Anything in terms of risks that may be on top of your mind as you think about executing the home strategy? And then I have a question for Nabeel.

Leslie Trigg: Okay. Sure, I’ll go ahead and answer this one and then flip it back to you, Shagun. On the home strategy, I think there are sort of two layers I guess that I could describe our strategy. So layer one is what matters most and what matters most is making sure that people have a great experience on Tablo, not only patients, but family members. Dialysis is an experience that ends up affecting a lot more members of the family than just the patient. And so if there’s something that I think about a lot or that worries me, it’s always our focus of premium on making sure that we retain these super high retention rates, even as we’re trying to obviously push the accelerator down further and grow even faster. So is there a risk?

Well, maybe that we don’t manage to push retention rates up to these historic levels, but I can tell you that every single individual in this company is focused on doing so. So retention is at the top of the list strategically, followed by of course, a never-ending effort to expand channel access. Make sure that Tablo is offered in more and more and more home program locations so that the patients who want it have access to it. And third, we do now have a really pretty nice, pretty exciting base of home locations where Tablo already is offered, and we will be doubling down, really focused on growing and deepening the number of patients who are sent home from each and every one of these already existing home program locations. We offered in the script some early data that some of our programs have 2x and 3x the average number of patients who typically are sent home for a home program, so I’m really encouraged to see that.

I want to see it again and again and again and again. And so we’re going to be focused on scaling some of the early successes and again, the recipe books that we’ve developed that have created the early success. I think through another lens, when you look at our strategy, and we talked about this sort of two principal channels, one being partnerships with the midsized dialysis operators and the second being partnerships with health systems and other adjacent specialty providers. The midsized dialysis operators, we already have growing relationships with several of these players, and now we want to get ambitious because there’s more room to grow. And so as we talk about our goal to be with the majority of the largest of these midsized operators and also to lay a claim to partnerships with at least one or two national IDNs and helping them stand up home programs.

We have a good roster of regional health systems that have successfully created home programs with Tablo, and we want to see that expand now up at the national level. So simply put, I think elements of the strategy really are not too terribly different from ’21 and certainly from 2022, because it’s working. And so now it’s all about kind of tripling down and continuing to get execution work as a team.

Shagun Singh: Got it, that’s really helpful. And then Nabeel, just for you, can you provide a little bit more color on cash burn, you know in 2022, as well as you said it’s going to be lower in ’23, any magnitude of that? And just your plans to maybe incrementally draw on the term loan and not have the need to return to capital markets? Thank you for taking the questions.

Nabeel Ahmed: Yes, Shagun. So cash flow, look 2022 we delivered over $150 million of cash, and our expectation for 2023 is that we’ll burn less than that, and that’s really you know on the strength of higher revenue, expanded gross margins, lower growth in OpEx year-on-year, and then finally our working capital management. So hopefully, that’s helpful there. With respect to our term loan facilities, look we still have up to $200 million that we can draw down on. If we burn less cash year-on-year, you know we’re ending last year with just under $291 million of cash. We may not need to draw on the term loan and as we think about that line, we’re going to sort of look to optimize cash we have on the balance sheet and the cost of growing on that line, right, because that does not come cost free.

So that’s sort of what I’ll tell you there. And then look, we will always make sure over the long run that we are thoughtful about making sure that we have the capital we need to run our business and expand into these large end markets that we have. And so we’ll always evaluate what makes sense for our business.

Operator: Thank you. . One moment for our next question. And it comes from the line of Suraj Kalia with Oppenheimer. Please go ahead.

Suraj Kalia: Good afternoon, Leslie and Nabeel. Can you hear me all right?

Nabeel Ahmed: Yes.

Leslie Trigg: Yes.

Suraj Kalia: Perfect! So Leslie, one question for you and then one I’ll quickly throw in for Nabeel. So Leslie, the one for you, before the home hemo hold guide for FY ’22, was it approximately the same that is now for FY ’23? So I’m curious, in your commentary then and now there are similarities, but expand more and tell us what specifically has changed? So that’s for you. And Nabeel, if the math suggests, new home patients added in FY ’22, I was wondering if you could give us some additional color on the average number of treatments for patients at home setting? And also, there is a lot of commentary about crossovers from next stage, if you could shed some color on how many are de novo patients versus crossovers? Thank you for taking my questions.

Nabeel Ahmed: Yes, so Suraj, so with respect to our guide for ’23, I mean look our expectation is that our home €“ number one, we expect that both our acute and our home business will grow in ’23 relative to sort of their performance in ’22, right. We also said that home will grow faster than our acute business, and remember, this is off a bigger base, right. And so even if the contribution remains the same, there is still growth, significant growth implied in that statement, right? So absolutely, unequivocally, we are looking for our home business to grow in ’23, looking for both of our home and acute businesses to grow in ’23, that’s part one. Part two, with respect to the average transaction – sorry, average treatment in homes, we’ve always seen between three and four treatments per console in the home.

And that is just based on the physician’s prescription for that patient, and it depends Suraj, where we are getting home patients. They tend to be the de novo patients because you know, there are large numbers of newly sort of diagnosed ESRD patients who come in every year, and we’re still in relatively small numbers, all things considered.

Leslie Trigg: Well said. I can’t top that Nabeel. Well said on the home. Hopefully that answers your question Suraj.

Operator: Thank you. One moment for our next question please. And it comes from the line of Drew Ranieri with Morgan Stanley. Please proceed.

Drew Ranieri : Hi, Leslie and Nabeel. Thanks for the taking the question. Maybe actually just to piggyback off of the last question, Leslie you mentioned your now see multiple program sending low double digits of patient’s home, and I mean that’s really encouraging. I understand that it’s De Novo mainly now, but I guess how are you kind of thinking about the PD opportunity and the eventual burnout that kind of results from using that as a first home therapy? And maybe just how are you kind of thinking about like the low double digits growing to even further in ’23? Just trying to get a better sense of that and any potential catalysts that you can point us to for ’23 for new products or the VA relationships? Just anything on those two topics. Thank you.

Leslie Trigg: Sure. Happy to. I’m just getting those VA new products. Well yeah, let me start with the home and PD. And you said we do have some examples of low double digits and could it grow further? Short answer, absolutely yes. We have not found the ceiling yet, which I find really exciting. I think in the past, maybe there’s been a historical assumption that you know oh, you can only ever really send X number of patients homes in a given location, and that’s just not been our experience. I think it again speaks to the simplicity of the device. I think it speaks to the experience that our team creates for each patient and our goal has always been to really open up the envelope and cash who can be successful at home.

And we’ve seen that over and over again in our demographic and so far we’ve just not found any limits in terms of age or education or income status. We see equivalent ease with Tablo really across the population. So I don’t yet see a ceiling and how could we grow up further and how high could it get, more time on task. I think more to be revealed as time marches forward, but I am very, very bullish on how big these home programs could get over time and obviously as they do, that makes us incredibly efficient with our own team’s time. I’m also really very, very excited about PD in the future as a funnel flow into HHC. What I find unbelievable and almost criminal is that the vast majority of patients who are already successful on home with PD end up in clinic.

It’s like 98% transition of PD in the home into in-center dialysis. It makes absolutely no sense. They’ve already shown themselves to be thriving at home, what an opportunity to keep successful people at home, and HHD a transition from PD to HHD would be a terrific way to do that. How do we do that? Well, in partnership with providers, educating that population much, much earlier. That will be €“ that will take time. You know it’s a work in progress. It’ll take a lot more educational time, which we intend to do with physicians, with home training nurses, with test. I think we’ve got to get the mindset evolved to one in which HHD is the first option and what is offered first to PD patients who have to transition off PD, which typically happens at around the two-year plus mark.

So I just see this as a big growth opportunity for HHD over time. That’s my thoughts on home. I think in terms of the catalyst for ’23 and maybe I’ll widen the aperture beyond new products in VA. Obviously I think our biggest opportunity is the one that we are pursuing right now in the land and expand approach to acute and home. I continue to talk with health system executives that are really seeing and feeling the value that Tablo is delivering economically, operationally and really eyeing this home opportunity now has a very, very compelling one for them, for all sorts of reasons. So, I think that’s kind of catalyst one. Catalyst two, we intend to stay very ambitious and very inventive. We are not done with the Tablo platform, and we will innovate on the tablet platform across hardware, software and data far, far, far into the future.

I hope we do have some new things to talk about for 2023, and I think you know in terms of the new customer base, yes, we do have a really interesting opportunity over the next five years with the VA and with some new kind of adjacent specialty providers in the home space. So we’ll leave you in suspense on all of those things, Drew, but I think what’s most important as we look at 2023 in our guidance range is doing what we have done in the past to produce success, is what will produce success for us in 2023 and again, entering the year with a very high degree of conviction around that.

Operator: Thank you. One moment for our next question please. And it comes from the line of Joshua Jennings with Cowen. Please proceed.

Unidentified Analyst: Hi! This is Brian here for Josh. Thank you for taking my question. Just on pricing in the acute segment, I believe you commented that competitors have either raised or attempted to raise prices in recent months. Is there an opportunity for outset to increase pricing in the current environment as well or do you see your ASP increases this year primarily coming from the continued rollout of XT and TabloCart?

Nabeel Ahmed: Hey Brian! Look, we don’t comment on pricing matter as you can imagine. I think what I’ll say is a couple of things. Number one, we have absolutely seen ASP increases from the XT attach, which is again adding value to our customers instead of monetizing that value, which we like. We’ve also seen TabloCart be a big driver or be a driver rather of ASP sort of in the quarter here and are really pleased with the performance there. You know the one thing, we have also talked a lot about the fact that we haven’t had to discount very heavily in our past, which we view as again, a testament to Tablo’s economic value proposition. So pricing, we have no complaints about pricing and pricing is favorable, was favorable for us.

Operator: Thank you. And I’m not showing any further questions in the queue. I will pass it back to Leslie Trigg for final thoughts.

Leslie Trigg: Great! Thank you, operator, and thanks to all of you for joining us today. Have a great evening!

Operator: And with that ladies and gentlemen, we concludes today’s program. Thank you for participating and you may now disconnect.