Outset Medical, Inc. (OM) Earnings Call Transcript & Summary

Okay. Good morning, everyone. Welcome to day 2 of the 42nd Annual Goldman Sachs Healthcare Conference. I'm Amit Hazan, one of the individuals on the medical technology and provider teams here at Goldman Sachs. And we're really excited to kick off this morning on the medical technology side with Outset Medical. And we've got the CEO Leslie Trigg on and the CFO Rebecca Chambers on as well to go through the story. And from my side, I've got my partner Jamie Perse on as well. And he's going to lead the Q&A. I'll drop into the background here. So Jamie, let me turn it over to you. And Leslie and Rebecca, hello, and welcome to the conference.

Thanks for having us.

Yes. Thank you for joining. So you're a 2020 IPO. You've been out there a little while now, but still plenty of opportunity for people to get to know you. So I wanted to start with some more introductory questions. And at a high level, you compete in the dialysis space with a new technology. So I want to get you to describe that new technology to investors and why you feel like you have a better mousetrap, so to speak, versus traditional dialysis machines.

Sure. Thanks. And nice to see you again Jamie as well. So Outset is a medtech company based out here in California and San Jose, with an eye on using technology to effectively change the entire care delivery model over time. The technology itself is aimed at reducing the cost and complexity of dialysis, wherever that dialysis is delivered, from the ICU all the way to the home. And what we've done more specifically is, for the first time, develop a single device hardware platform that can deliver dialysis anywhere, any time and virtually by anyone. Prior to Tablo, the name of our device, hospitals and health systems were delivering dialysis across their enterprise in the ICU, bedside by the -- on the floor, in LTACH, a SNF and even at home. And in order to do that, they've been forced to buy and maintain a bunch of different types of dialysis machines, all of which do kind of 1 type of dialysis, sort of a narrow strip of therapy. And so our technology vision really became one of a classic technology rollout, could we design a single hardware platform that could perform the functionalities of all of those different types of dialysis machines plus could we also integrate 1,000-square foot water treatment room in a box? And that's exactly what we did. It was not easy. It took our engineering group about 7 years to cross the finish line. So it proved much more difficult than we would have anticipated, but here we are. And we launched -- commercially launched the Tablo Hemodialysis System in the fourth quarter of 2018. So 2019 was our first full commercial year. Since then, we've seen very rapid expansion, both on the acute side. Tablo is now used in 6 of the top 8 largest national health systems, inclusive of the government, the VA, and in about 20 of the top 50 largest regional health systems across the country. In addition to that, we pursued home approval and spent about, all told, 4 years in clinical trial and regulatory approval process to get Tablo cleared for the use at home. And in 2020, actually in the middle of the pandemic, Tablo became the -- only the second ever in history of the device approved for home dialysis. So we now have a burgeoning home dialysis portion of our business as well and indeed have done a lot of good work on margin expansion all the way along. So I'll stop there, that's the short thumbnail on where Outset has been and where it is today.

Yes. That's a great way to kick it off. And during the IPO process, you talked about the market opportunity as you see it both in the acute segment and home. So one more question just to ground new investors to the story. How do you describe the market opportunity between those 2 segments in terms of size and how to capitalize on that? And what are the drivers of growth for those 2 market segments?

Sure. Well, all told, we see about an $11 billion -- over an $11 billion opportunity here just in the United States, which is where we're initially focused is state side here. About $2.2 billion of that, we size as the acute opportunity, which is also inclusive of subacute environments such as skilled nursing facilities and long-term acute care. So that's kind of $2.2 billion. And then the remainder is the home dialysis opportunity here in the United States. I think drivers of growth for Tablo specifically and why we've seen such rapid adoption and a sharp growth trajectory on the acute side is really all about the cost reduction and the operational efficiencies that Tablo does deliver to hospitals and health systems. On the home side, Tablo delivers a little bit of a different value proposition in enabling providers to get a much greater percentage of their patients to the home, getting more patients to raise their hand and say, I want to be at home on Tablo. And then keeping those patients at home for longer. And that's really driven by sort of the consumer product simplicity of the system. This system is just vastly easier, simpler and more accessible, less burdensome for the average consumer patient to manage in the home. And we think that, that will drive growth in the overall market by increasing adoption and also lengthening retention on the home.

Yes. And you've had great progress over the last 12 months. You mentioned the steep curve you're on in terms of adoption of the technology. COVID, I think, has been a part of that, and I'll come back to that later. But just broadly speaking, I mean when you think about the trajectory you've been on over the last 2 years or so, I mean what surprised you the most in terms of how things have gone and your commercial success so far?

Well I'm probably like most CEOs you talk to, I would imagine. What has surprised me the most is how incredibly effective and resilient the team was despite having, for us, virtually no experience acting virtually. We were really not a virtual company prior to COVID. So the ability of the team to do things like build a state-of-the-art manufacturing facility effectively at 12 months from paper to production in the middle of the pandemic and to do that virtually was quite remarkable. The ability of our supply chain team to be able to not only maintain supply chain continuity, but dramatically increase our production capacity, again, in the middle of a pandemic and doing so virtually, and when we also had suppliers in China and in Italy in the early days was sort of nothing short of miraculous, and I guess, also I would say, the ability of our field team to persevere and put themselves quite literally in harm's way. Early in the pandemic, we were in the field. There was not a day that we didn't have a service engineering team in the field, that we didn't have a clinical sales support team in the field. And I attribute all of the growth that we saw in 2020 and now into 2021 truly to our team of field employees and, company-wide, on the supply chain and manufacturing side.

Okay. Great. Let's get into some of the details, and I'll start on the acute side, which you mentioned is about a $2 billion opportunity for you, smaller relative to the home segment but a bigger driver of growth in the near term. The strategy, and correct me if I'm wrong, is basically to get into these large IDNs and regional hospital systems. Land and expand was the term you've used a couple of times. So where are you in the land portion of that strategy?

Sure. So our commercial strategy is very much top down, as you alluded to. This is not a model where we have to go and knock on the door of every nephrologist or knock on the door of every individual hospital. So our team, we have a capital sales team and then a clinical sales and support team. The clinical sales and support team is focused really on driving kind of pull-through utilization once the Tablo consoles are sold. The capital team, of course, is really focused on these big -- bigger national and regional console contracts. So the -- on the land side, the Tablo is being used in 6 of the top 8 largest health systems across the country, as I said, inclusive of the VA. And then at the regional level, in about 20 of the top 50 largest regional hospitals. Now each one of those systems is obviously going to be at varying levels of adoption, just that it's mostly time dependent. When did they start using and where are they on their adoption journey? But we are seeing a lot of expansion, I guess, the depth of expansion, I'll say, kind of not only growing out but also growing going down in vertical depth, and we've been really happy with that. In the last quarter, we reported that about 75% of our console bookings in that quarter actually came from existing customers. And that's exactly what we want to see. We won't be successful unless we can drive a very successful experience for the hospitals and health systems that choose to adopt it. So we were really proud of that success in Q1.

Okay. I'll follow-up on the depth concept in just a moment, but I want to just better understand how you talk about the value proposition to the key constituents at a hospital. You mentioned in your introductory remarks cost and complexity are key parts of that. Wondering if you can add a little bit more detail to the cost piece, and then there's also other constituents outside the CFO office at a hospital. How is this technology resonating with nurses and other constituents that are using it?

Sure. Well, so in our space, we have kind of decision-makers and end users. And so in the way that we're pursuing this, the decision-makers really are at an administrative level. You're talking about a health system CFO, COO, Chief Nursing Officer, CEO, et cetera. Of course, our users would be the nephrologists who prescribe and then the nurses or the techs in a hospital or subacute setting, they are actually setting up and running the machine. And so we have to -- we have to be effective on kind of both ends of the spectrum. The way that and the reason why I think administrators are making the decision on Tablo really gets to cost reduction. So I can break that down for you a little bit more specifically. There was an HCA hospital, St. Mark's, that published an abstract at a nephrology meeting last quarter that showed a $550 per treatment savings after they switched to Tablo compared to their previous expenses. This was for ICU dialysis. So very, very significant savings, and that's driven by 2 changes that Tablo enables. One is supplies cost savings because the Tablo device automatically purifies water and also makes the dialysate on demand kind of in a single module. That gets hospitals out of the business of having to buy and store and manage kind of thousands of bags of like prefilled dialysate. That's the way it was done before. Tablo just uses a container of generic bicarbonate, a container of generic acid and it makes that dialysate in real time, which ends up being a lot more cost effective. And so you might have on the supply side, maybe your average ICU treatment might be $300 to $500 just in supplies, whereas Tablo will be kind of in the $50 to $100 range on an apples-to-apples basis just on supply. So pretty significant savings. On top of that, kind of layer 2, is labor. A lot of hospitals do outsource dialysis because it's just been too complicated in the past for them to manage on their own, we feel, largely because the equipment was too complicated and cumbersome to train their own staff on. We feel we've solved that problem by delivering a system that's easy enough for a patient to use. It's certainly very easy for hospital staff to learn quickly. And so for the hospitals then that choose to re-insource dialysis and take back that service line, those savings get kind of compounded pretty significantly. Most hospitals are spending kind of $500 to $700 per treatment if they're outsourcing it, and Tablo brings that expense down kind of to the $100 to $200 range. So it's really kind of the cost reduction and the immediacy of the cost reduction. This is cost reduction that's not at some distant point in the future, maybe. This is a cost reduction that starts literally the first day that they turned Tablo on and start treating patients with it. And then the operational efficiency I think is really the simplicity of just having to manage 1 machine now versus, again, having to kind of manage multiple machines, all of which really only serve a strip of the enterprise dialysis that they're delivering. The simplicity of only having to train and maintain competency on 1 machine is some of the positive feedback that we've heard from folks who have adopted Tablo.

Yes. And just on that point, I mean do you feel like you have enough clinical and economic evidence to make this case to hospital decision-makers today? Should we expect more development of these supportive data points? Or you're in a good spot from the evidence thus far?

We feel we really are in a good place. We spent the last couple of years in the past really building the evidence base clinically around, let's say, the efficacy of the device; around urea clearance, which is the principal clinical end point for dialysis; around ultrafiltration, probably the second most important piece of clinical efficacy, are you removing fluid effectively? So we have a really, really nice data sets around clearance, around ultrafiltration. We've now -- what we're now seeing, though, is a greater array of customers deciding to publish their own data, as I mentioned, an HCA hospital doing so on economics, the Cleveland Clinic has published on their economics, and then a variety of hospitals have kind of done single-center reports on their clinical outcomes, and we certainly expect to see more of that. But at this time, I think the evidence base is pretty clear and pretty compelling.

Okay. Great. Let's go to some of your growth drivers. So you've mentioned recently that some of the key leading indicators you look at are whether existing customers are buying more machines. You've mentioned that already here today. So maybe talk a little bit more about that. I mean what are you seeing from existing customers? And maybe any anecdotes you can share around, are these hospitals trialing it for 1 hospital and then expanding over 3 to 6 months? Or just how does that process work of going deeper, as you described it, with your existing customers?

Yes. Sure. Well, normally, and there is a distribution, so I don't want to paint with too broad a brush. But I would say, on average, most of the bigger health systems will choose a couple of hospitals to pilot. And for them, like what are they interested in? They really want to prove out the economics and we can sort of quantify the impact, QTI. And so usually they'll have a goal around, hey, let's measure how much we're saving in the first month or so, and then also get staff feedback. Is it faster for the nurse to learn? Is it faster for the nurse to set up by the bedside? Is it really 20 minutes from sort of door-to-dialysis time. And they'll -- so they'll run a pilot program in a couple of hospitals and then proliferate out from there. How long that takes? Actually it has probably less to do with Tablo and more to do with how that health system is structured. As you know, some health systems are highly, highly centralized. And they'll kind of do -- they'll master plan the community, if you will. And then other health systems are probably a little bit -- the decision-making is more distributed and the planning will be done kind of at the individual hospital level. So I would say -- and how big the system is. Are they trying to roll out to 25 hospitals or 125 hospitals? And so all of those variables come into play. But typically, we'll see a health system starting to expand anywhere from 3 months in to maybe 9 or 12 months in. It really just depends on how they're structured and how big their implementation is going to be ultimately.

Okay. Let's go to the new customer piece for a moment. And I want to ask this question around sales force as well. I know you've got the capital sales force and the clinical support sales force as well. How is your sales force, the capital side, being allocated now that you're already in 6 of the top national IDNs and, I think you said, 20 or so of the top regional hospitals? Is it getting easier to get into these incremental accounts? Or just how is that sales force time now being allocated on the capital side?

Yes. That's a great question. And what I do really love about this model is the capital cash, meaning cash efficiency of this structure. The last couple of medical device companies that I've been affiliated with were more single-use disposables into the cath lab where it truly took a village, 1 physician at a time, 1 cath lab at a time and you're sort of slogging through it. And sales rep productivity comes slowly. What I -- what we've already seen with the capital team is really nice kind of up-and-to-the-right growth in sales rep productivity. Again, because these deals are kind of single entry point at the top, but as they proliferate, they get bigger over time without you actually having to grow your capital team. So we've seen some really good sales force productivity through capital. But to answer your question about, so what are they doing now? This is really the expand part, right? So we talked about land, but you still need your national accounts team or we use them to make sure that as that experience grows, an experience base grows and continues to be positive, that the overriding kind of national regional health system is continuing to execute against their plans to proliferate and to expand their utilization across other hospitals. So our national and regional capital teams spend a lot of time not only on the landing part in new accounts, but also on the expansion piece is a big part of their focus.

And there are some large entrenched competitors in this space, in the acute setting. They probably don't like you taking their technology out of the hospital and displacing them. Are you seeing them do anything to try to compete? Or -- and the follow-up to this is, are you getting into these hospitals at the end of a contract term, and that's where the opportunity is to get your technology in there? How do you actually open up a new account?

Yes. I'm glad you brought that up because that would be a logical conclusion to draw. But actually, what's happened really over the last 2 years is that Tablo is rarely purchased because of a machine replacement cycle. I mean very -- I won't say never, but very, very, very rarely. Are we even in RFP? This is not an RFP-driven business because what we're offering the health system executive is really not a new device. The opportunity here isn't like this machine has different features and it's better. This is, hey, would you like to expand your margin across 600 different DRGs that are suffering because of dialysis? And the reason for that and probably really important for investors to know is that on the inpatient side, dialysis is not separately reimbursed. So if a hospital is taking care of a patient for something else, an other procedure against which they're billing and dialysis is required, the hospital is eating the cost of that dialysis 100%. So this is a pure-play cost center for the hospital. So normally, when you sit down, again, with a health system executive and you get them to run their numbers on what they're spending and then that is effectively purely negative margin for them. You also then can get them to look at, like, where did you deliver dialysis and it's hundreds of different DRGs. Most of those admissions end up being negative-margin admissions when it involves dialysis. So the motivation ends up being pretty high and urgent to adopt Tablo as a cost-reduction initiative, not as an, oh, here's a new dialysis machine. The conversation is really around, let's improve your contribution margin kind of across the board using, as a tool, a technology that can drive down the cost of this very expensive cost center. So typically, not related to our machines are old, not related to RFP. It's just -- it becomes a strategic initiative for the hospital. In terms of competitors, I've never -- I won't -- I don't talk anymore about how many years I've been in the industry. That's -- I don't speak about that with pride anymore. But I have not been in a market that's not competitive in my medical device career. And I actually think it's -- I really think it's super healthy. That's ultimately what stimulates more invention and more innovation, and it will help ensure that we stay on our toes and that we continue to obsolete ourselves. I have every expectation that the competitors in this market will start to invent and start to improve their technologies. And I think that's truly a net positive for the industry, all of us, and of course for patients.

Okay. I've got some more questions on acute. But for the sake of time, I'll skip those and go to the home opportunity. So we've had kind of this forced acceleration of home health care during COVID, and you guys have a great technology for that. So maybe you can talk about some of these tailwinds you're experiencing in the market generally, not only the COVID factor, but there's the AAKHI out there and some of these incentives to move patients to the home setting. So let's start with those tailwinds, and then we'll get into your solutions for the home.

Sure. Well, it's been really interesting to watch. I mean I got involved with this company in 2012. And this was a real sleepy part of health care, that there were no and had not been any catalyst. It was not a terribly dynamic space. It had been, in fact, rather static and sort of, as I thought about it, frozen in time, kind of a forgotten corner of health care that just happened to consume 7% of the Medicare budget. But I would say what's been fascinating to watch really over just the last 2 years, if not 18 months, is this convergence of catalysts that have never existed for home. So you touched on one of them. Yes, I think COVID has really probably changed or minimally impacted the patient mindset. There was just some new data out earlier this week in the journal CJASN that actually showed for the first time that the incidence of COVID ICU hospitalization and death was lower amongst home dialysis patients compared to patients who are receiving dialysis through the pandemic in center. So clearly, I think there will be a patient movement or a psychology that favors home, one. Two, telehealth, you raised it. Assuming that the telehealth benefit is preserved post EUA, I think patients now are more comfortable than ever. On the home dialysis side, they do -- they just have to do a once-a-month visit with the nephrologist. There's absolutely no reason why that cannot continue to be done virtually. I think that will be quite enabling. And then three, and perhaps most importantly, for the first time in history, there are actual financial incentives for providers to send patients home. That was connected to the presidential executive order in the summer of 2019, the policy follow-up to that is called the ETC. And that was a program that CMS established to pay clinics and health systems, pay them either more or less over the Medicare base rate, predicated on the percentage of their patient population that is dialyzing at home or is on the transplant waitlist. And these are pretty ambitious targets for providers who want to get into that top-tier payment. In this measurement period, for example, they have to have 28.8% of their patients dialyzing at home, whereas the national average is closer to 11% or 12%. So we really like and are encouraged by how high these targets are. And we've already seen -- just through conversation and observation, we've already seen providers taking much more active steps to creating an environment that will lead to more home dialysis. So many catalysts kind of all converging, and I think we've worked hard to have the technology ready. But now that the technology is ready, I think we find ourselves in a bit of a right place, right time, right technology.

Yes. And you've laid out the strategy where you want to take it slow and get it right and have a them controlled rollout. I guess the question is, what do you need to see in your own training protocols and experience to feel like you're ready to accelerate that?

Sure. Well, we're really looking at and holding ourselves to a high standard in 3 areas. So one is training. The bar that we've set for ourselves, the goal was, hey, we want to train patients in 2 weeks or less. We had heard -- we've heard for years that from home hemodialysis nurses, gosh, if you could get the training now to 2 weeks, you really have something. That would be very differentiated. And that's what we saw in our clinical trial, was a very fast, rapid training. But would it hold up in the real world? So far, the answer to that is yes. We trained a very wide array of patients in terms of race, age, gender, educational background and were consistently in under 2 weeks, which matches the training time for peritoneal dialysis, the incumbent device on the home hemo side. That training time has been 4 to 6 weeks. So cutting that by 75%, 80%, we believe, is going to get a lot more patients enthusiastic about going home because it's just going to require a lot less time to learn. And that's, again, because Tablo is automated, largely, the setup is automated by sensors and software. The second thing that we're holding ourselves to a really high bar on is retention at home. One of the challenges of home hemo in the past has been the churn rate. That 40%, 50% of patients were choosing to drop out at a year. And so we've had our eye on our thesis, which is because Tablo is easier, because it is less burdensome and requires less time in the home, that people will stick with it for longer. That's the thesis. And we did see higher retention in our clinical trial compared to the incumbent device. The question is, again, would it hold up in the real world? So far, the answer to that is yes. And we have not yet had any patients who have chosen to go off of Tablo. That -- I'm sure that will change as the patient base grows bigger. But so far, we're happy with the -- I'd say the early returns on that metric. And then third is something that will be less visible to you and investors. We're holding ourselves to a really, really high bar just on the patient experience. And for example, the patient experience is really informed by distribution and logistics. We do have to send supplies into the home on a monthly basis. Do they show up on time? Was the communication great? We're partnered with FedEx on this initiative. Were they happy with our -- with FedEx, our partner? All those little things I think that we can identify with as consumers. Was it a seamless frictionless experience? Did I enjoy my conversation with the Tablo customer experience specialist that I called? All those sorts of kind of behind-the-scenes thing that really drives the consumer experience, we're measuring in different ways and continuing to monitor our progress so that when we really are ready for a sharper escalation of growth, that we -- we're confident that we can preserve the really good metrics that we have so far foundationally on a smaller customer base.

Okay. Great. Rebecca, I'm coming to you next, but I have to ask one more quick one here. You guys have a new partnership with Satellite Healthcare, wondering if you can give us some of the details of that partnership. Let's start there and I'll probably have a follow-up on that.

Yes. Sure. So on the home side, and we talked about -- maybe I'll just take a quick step-back and talk about the commercial strategy for home. As we talked about the commercial strategy on the acute side, really focusing on the top 8 national players and then the top 50, 100 regional players, okay? That's the commercial entry point on the acute. It is also the commercial entry point for home. And this is a bit of a change. I think we are the first dialysis -- home dialysis technology company to think about this differently. In the past, I think the incumbent home dialysis player really kind of thought about the universe probably principally through the existing dialysis clinic operators. And I think that, that also presents an opportunity for Outset for sure, but we're also very interested in expanding the provider universe. Because of our strong partnerships with health systems, these health systems increasingly actually want to manage that patient all the way to the home. And in fact, many health systems are already doing that, this whole kind of hospital-to-home movement at a macro level is already happening. And when you look at partners like DispatchHealth and others, I think this idea of more care in the home is -- encompasses home dialysis. And so we are focused on our -- using our health system partners to manage that patient all the way to the home. Additionally, of course, we are also very interested in partnering with more conventional dialysis clinic operators who are probably a little bit smaller, more nimble, more agile and are just reacting more progressively and assertively on some of these financial incentives that we just talked about. One of those players kind of in this mid-tier bracket is Satellite. I'd say mid-tier in terms of just their size, certainly not their quality. So we saw an opportunity with -- in Satellite with a player who had very ambitious goals around the percentage of the patients that they wanted to send home by a certain year. They were willing and able to move as fast as we wanted to move on programs to make that happen. And then that led to this multiyear sales agreement where Satellite will be using Tablo as their exclusive technology for all of their patients who are put on home moving forward.

So should we be surprised if you announce more similar partnerships in this space? I mean it sounds like that is a big part of the strategy here and it's just a matter of time before you have more partnerships. Is that the right way to think about it?

Yes. I think that's the right way to think about it. Yes, absolutely. I mean we plan to drive really, really healthy and exciting growth in the home space over time. And so driving that growth will come through these partnerships and collaborations, again, both with the traditional but more progressive, I would say, innovative dialysis clinic operators and also with hospitals and health systems.

Okay. Great. Rebecca, let's go to the financials for a few minutes. Margins were a profile during the IPO process. You guys have made a lot of progress and it's been quicker than expected so far. Maybe just at a high level talk about where you are today with margins and how we should be thinking about the next few years, both on gross and operating margins, then I've got a few more detailed questions on that progression.

Yes. Happy to, Jamie. Thanks for the question. With regard to gross margin, our path to profitability was really focused on 3 initiatives. First, moving our console manufacturing from a contract manufacturer in the Bay Area to our own in-house manufacturing in Tijuana, saving both on labor costs as well as, obviously, the contract manufacturers overhead and profit. The second is moving from a contract manufacturer for the consumable in Thailand to one in Tijuana, which really saves both on labor costs as well as on the logistics expense, getting the cartridges over the ocean and moving to just being over the border. In parallel, we have cost reduction activities that allow us to move from a higher cost component to a lower cost component with equal quality. And those 3 things are really marching in parallel, if you will. We have successfully completed the move to Tijuana on the console side, and you saw a benefit of that beginning really in the first quarter. In the second quarter, we expect to manufacture more than 75% of our consoles in Tijuana. And so as we march through this year, the incremental benefit of that move will just benefit us sequentially as we march through the year. In the third quarter and beyond, 100% of our consoles will be manufactured in that facility. So as Leslie mentioned earlier, very strong progress in getting that facility up and running in just a year. On the consumable side, we have the application for the 510(k) at the FDA. And once that is -- that's completed, we'll be able to take our manufacturing or the vast majority of our manufacturing to the Tijuana facility as well. And that really is less of a 2021 benefit and will be more of a '22 and beyond benefit, especially as mix becomes more weighted towards the recurring revenue streams that we have. And then in parallel and kind of more at a step function level throughout the next couple of years, you'll see the benefit of cost reduction activities. So how that translates is we have said in 2021, we expect to see sequential expansion at the gross margin line throughout the year. And in '22 and beyond, we will see the benefits of the other activities that we mentioned. So we do expect to see incremental margin expansion each year. Mix will also help that over time. And eventually, by 2025, we expect to be at the 50% gross margin level, and that still includes 45% of revenue being driven by consoles. And so by no stretch of the imagination, it's not the top of where we could go, but it's the top of where we can go with 45% of revenue being good consoles. On the operating expense side, obviously, we're still investing heavily in this business, given the stage of where we're at, and that is going to continue. So as we look forward through the next, call it, 3-ish years, that operating expense is I going to grow. We did a financing, as you know, in April and part of that financing was both to support incremental revenue growth that we -- given the curve had shifted, if you will, since we did the IPO, meaning revenue is growing faster than expected since the IPO. And also to satisfy and support initiatives on the R&D side, for home, scoping international and on data. And that's going to drive incremental OpEx as a result. But that OpEx obviously will be productive over time. We still believe we can be profitable in, call it, 3-ish years. And that's, call it, in the back half of 2024 time frame. And we're excited to get there. But between here and there, there's a lot of unknown matter.

And I mean you talked about some of these day 1 benefits moving from Asia to Mexico logistics and other items. How should we think about those kind of day 1 benefits versus the longer-term opportunities of just spreading the cost across more cartridges, more consoles? And then in the interest of time here, I'll ask my final one as well. But what are the key levers just to accelerate those types of plans that you just laid out? Obviously, you're making progress, but as we think about things that could accelerate that or delay it, what are those key items?

Yes. Sure. So on the on the day 1 piece, I would say on the consumable side, it's really -- it's the benefit of each and every, right? So the actual unit cost will be lower. So that benefit will be more day 2 and beyond, if you will. On the console side, you're going to get a good chunk of it in the near term. And the absorption on a go-forward basis once we're fully there is, it's less about absorption and it's more about other cost reduction activities. So that's effectively the day 1 question. With regard to what could go better or worse on the gross margin line, I think it's really the -- how quickly we do these things, right? How quickly we move things to -- how quickly we -- how efficiently we're in the factory and effectively, how quickly we do cost reduction activities, how well we protect ASP? What's the mix of XT is? So those are the things that I think about on the margin side that really will impact us over time.

Okay. Great. Well, I think we're up on time, but I want to thank you both Leslie and Rebecca for joining us today and investors for listening in. Thank you.

Thank you. Great to see you.