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

Good afternoon, everyone, and thank you for joining us this week at the JPMorgan Healthcare Conference. My name is Andrew Lang, and I'm an associate here on the JPMorgan Health Care team. I'm pleased to introduce you today Outset. Joining me today are Leslie Trigg, Chair and CEO; Nabeel Ahmed, CFO. With that, I'll turn it over to Leslie.

Thank you. So first of all, you will not offend me if you're looking at your phone. I think it's still 7-0. I have not looked in the last couple of minutes. How many Michigan fans we have, show of hands? No, and that's why you're all here at my presentation versus watching the game. Okay. Charlie Baker, the NCAA President, did contact me and ask me to switch my presentation because he was worried about the competition. I don't think you have much to worry about. But we do have the most beautiful room. I've actually never presented in this room before, and it's lovely. So thank you again to Andrew and JPMorgan for the introduction. I will shockingly be talking about some non-GAAP financial information and making some forward-looking statements and, of course, direct you to our SEC filings for more information and full financial results. So, to start the story here, for those of you that don't know as much about Outset, we are located actually here in the Bay Area. We are a high-growth Medtech Company focused on transforming dialysis from the hospital to the home through a technology that we call Tablo. There are really four key things. I'd love you to take away from today's presentation. The first is that, we've now achieved Scale, quite a bit of scale, actually, in the US Acute Care market, which is over $2.5 billion. Second, we have a one-of-its-kind product and service ecosystem that has created and will continue to create higher and higher switching costs. This is a difficult market. It's got very high barriers, not necessarily to entry, but high barriers to success. And we are continuing to elevate those barriers to success by widening both our technology moat and our regulatory moat. Third key point, we have an enviable business model. If you think back to 2023, over 50% of our total revenue is already generated from recurring revenue, and I'll talk more about that. But that's a very enviable place to be. It's a visible, predictable and reliable form of revenue that we only expect to continue to increase over time. And lastly, most importantly, we have a growing footprint in the almost $9 billion US market for Home, and we'll touch more on that in a few minutes. But let me take a step back, for those that may be less familiar than you really want to be with dialysis. The dialysis landscape, it is by far one of the largest, most costly and least changed aspects of our US health care system. That's a combination. I don't often read that sentence. We spent $73 billion a year on ESRD patients. ESRD stands for end-stage renal disease. Medicare picks up the tab for about $41 billion of that expense. $41 billion is roughly 7% of the entire Medicare budget. We were spending that on about 1% of the Medicare population which is pretty staggering. This is a problem that is getting bigger, not smaller. As we sit here today, there are roughly 600,000 patients already on dialysis. These are folks who have irreversible kidney failure. And that translates to about 90 million treatments per year. That's 245,000 treatments that have taken place just today when we've been here at this conference. So on an episode of care basis, think about that, somebody telling you, yes, our market is 90 million procedures a year. That's dialysis. That's the space that we play in. So I'll talk a little bit about, how do patients wind up on dialysis. Well, there are about 135,000 patients starting dialysis every single year, and that's just in the United States. And the majority of them actually start a crash what's called crash-in, unfortunately named, crash into dialysis in the hospital setting. They don't have any symptoms. They don't have any nephrologist. They don't have any planned care prior to the start of dialysis, which is right in through the doors of a hospital. About 40%, as you can see on the right-hand side, do have some advanced nephrology care, and they are managed into dialysis into any one of several thousand dialysis clinics across the United States, where, unfortunately, the majority of them will spend the rest of their lives. Those people who enter dialysis clinic never leave it. They are there three times a week for several hours a day, not including their transportation to and from the dialysis setting. As many, many patients have told me when they enter dialysis clinic, they instantly enter a zone where they are living to dialyze as opposed to dialyzing to live. That is something that we fundamentally aim to change in terms of the moral mission of the company. 13% of patients today are educated, lucky enough to be educated about home and choose home. This is a very expensive care delivery model to say the least. In the hospital setting, hospitals are not reimbursed by and large, for dialysis delivered in patient. This is one of the most important factors you can take away from this whole presentation, it's [indiscernible] if you were looking at the game score. Dialysis is not reimbursed in the inpatient environment. It is a pure play cost center. I'm going to come back to that. This is the reason why, because every time a hospital treats a patient for any range of DRGs and it happens to involve dialysis, they lose between $5,000 and $25,000 on that entire DRG. So if you're in first stand or you're in for a hip replacement or you're in for a valve and you require dialysis, the hospital will lose $5,000 to $25,000 on that procedure. It's a staggering amount. Dialysis as of 2020 was delivered in conjunction with over 600 different DRGs, if you can imagine, 600 different DRGs. Dialysis said differently is a margin eroder for hospitals. Now, they go into the clinic after the hospital, they are typically referred right into a clinic, where we spend about $30 billion on dialysis treatment in the clinic environment with a staggering 34% 30-day readmission rate. We can do better. This is not only an immensely expensive care delivery model, it's challenged with a lot of operational difficulties. Let's just start with staffing. Staffing has been a big challenge in the acute. So I think we're in a very stable environment now and so far as dialysis is concerned in the hospital setting. And now we're on to the next crisis, which is a severe absence of dialysis nurses inside the dialysis clinics. This past year or two, several hundred dialysis clinics, chronic clinics have closed around the country, which actually serves as a unique tailwind for enabling home for patients. I think some of these challenges have also been exacerbated by technology. This is a state-of-the-art, part of the state-of-the-art equipment that you would actually see today in 2024, rolling around the halls of the hospital. Most of this equipment was designed 30 to 40 years ago. And so being the technology-centric people that we are of course, we see a technology way forward. And that technology way forward is a device that we call Tablo. It is also what we call an enterprise solution for dialysis. It is the same hardware platform regardless of where Tablo is used in the ICU, in home or anywhere in between. Its simplicity was really aimed at allowing dialysis to be delivered virtually anywhere, anytime by virtually anyone. We focused on a couple of things. I mentioned the first, the single hardware platform. We do version of the software. There's one version of the software, I guess, I'd call it the prosumer version for the ICU for professional users and a different version of the software for the consumer user in the home. We also do over-the-air wireless two-way data transmission, which allows us to do instantaneous software updates anywhere in the country, again, whether consumer or prosumer. The device is also connected and intelligent. After every treatment, Tablo, every Tablo in the country and our installed base now is over 5,300 consoles across the country. All of those are transmitting about 0.5 million data points after every treatment every day. Suffice it to say, we have amassed an impressive amount of data in our cloud. We use that data both externally to feed our customers with intelligence. We use it internally to guide our decision-making around R&D and future innovation and device improvements. We feed that data into machine learning algorithms that ultimately make Tablo smarter and smarter over time. And of course, Tablo is small, and it's cute. That's my editorial comment. That was not in the script. But every time I look at it, I think it's cute. It's small in its mobile. It stands about 36 inches tall. That's kind of right about the height of my hip and really easy for, again, whether a patient or a nurse to wheel around anywhere that Tablo may go. We really thought about Tablo, frankly, as a dialysis clinic on wheels. That was from the beginning the vision. And those of us that started from the beginning, I've been working on this since 2012. We didn't know anything about dialysis, and that turned out to be an immense advantage because we were unencumbered by the way it had been done. When we were designing, we didn't know that it was supposed to just look like a dialysis machine. We didn't know that it was supposed to not be scary, not be intimidating, not takes six to eight weeks to learn. We took a common sense approach from outside of dialysis. And I thought, well, what -- sort of what would we want to use. And one observation we had right away was that, all of these machines that were on the market today, they did the clinical therapy well, but it was pretty narrow vertical. One machine did this type of dialysis, another machine did that type of dialysis and the machine did this one, there was not a single device in the market at that time and still today, that did it all. And so we actually thought about it kind of as a classic technology roll-up, but housed in a single 36-inch box on wheels. That proved to be very challenging. It took us about eight years to really perfect the technology because we were trying to roll up all the functionality and the features of all those machines plus a huge water treatment realm. So what the heck is a water treatment room? Every dialysis clinic in America has one. They are probably about half the size of this room, usually, they are industrial water processing facilities that sit behind the clinic. They take incoming water from the city water main, let's say, they purify that water in these huge vats. And then there are other vats where they was basically like a mixing chamber and they use the purified water with bicarbon acid and they make dialysate in bulk, in huge water tanks. And then they feed these this plumbing in the walls of the dialysis clinics into the backs of these dialysis machines, conventional dialysis machines. So, our ambition, which sounds really immensely crazy now that I'm telling the story in hindsight, but we made it. We actually got there. The crazy part was, let's take a 1,000 square foot water treatment room and put it in a 15-inch box. It had never been done before. It was really hard to do, and we have achieved it in a single, integrated, as I said, clinic on wheels. So we got there. So all of the functions, features and forms of dialysis are now integrated into a single mobile unit. So I want to talk a little bit about where we're making a difference, where we're making an impact. I'll start with the acute market. I told you the most important thing already about the acute market, and I should mention that, excuse me, by acute, we also include subacute, LTACs, rehab and skilled nursing facilities, along with acute hospitals in this market. And the most important thing is that hospitals are not separately reimbursed for dialysis. As I mentioned, it's a pure-play cost center, and it costs a lot. Even a small hospital, we'll typically spend millions of dollars on dialysis. Some of the bigger national acute players are spending hundreds of millions of dollars providing dialysis for which they are not paid. So it's a big, big focus and a huge opportunity for hospitals to expand their margin across the board by lowering the cost of dialysis. We scaled pretty rapidly, because we have a pretty darn good product market fit here in that we save the hospitals a tremendous amount of money. This is an economic story, and I'll get into some of the numbers in a minute. But the outcome of what we've been able to achieve look something like this over 1 million treatments annually. By the way, our first full commercial year was 2019. So this is still a relatively nascent story. And so we've gotten up to over 1 million treatments a year quickly. We trained over 10,000 nurses in the United States. We educated over 400 doctors just last year. And we've amassed a pretty extensive and impressive clinical evidence base, demonstrating the power of Tablo clinically, operationally and economically with 15 papers and 70 abstracts under our belt. And so that's allowed us to do the following. We are contracted and Tablo is used as the technology of choice in all 10 of the 10 largest subacute providers, again, LTAC and rehab. We are contracted and Tablo is used in all 8 of the 8 largest acute health systems in the country. And together Tablo, you would find a Tablo somewhere, many Tablo's, somewhere in the hallways of over 650 acute facilities in the US again, all just since 2019. The good news is we still have a ton of runway. We estimate the acute market at about 40,000 consoles, a total addressable market of 40,000 consoles. And as we reported on in our preannounced release this morning, we have a total of just a little over 4,000 in the acute space. So we're roughly low double digits penetrated. We have a ton of runway in the acute and the subacute market that we're really excited about. So how does Tablo save money? As I mentioned, this is an economic value driver for the hospitals. Well, the cost reduction comes in two forms. First, supply cost reduction. So on the left, you'll see what were they doing before Tablo and the right, what are they doing now that they have Tablo. Prior to Tablo, they were using two -- typically two incumbent dialysis machines. Both of those machines require the ICU to buy, maintain store hundreds of bags of premade sterile dialysate, just like the saline bags and they also had to use a lot of saline. Well, it turns out that was really, really costly, typically upwards of $1,000 to $1,500 for treatment in the ICU. Because Tablo purifies the water and makes the dialysate on demand just using one container of acid, one container bicarb, which are very inexpensive, we dramatically lower the supplies cost of dialysis in the hospital. The second way is labor. Most hospitals over time ended up outsourcing their dialysis service line. And it's pretty interesting when you look at the history of it, like, why? Well, it's because, frankly, the machines were so complicated. Most hospitals had no confidence that they could train and maintain confidence with their own staff using machines that we're taking people like six to eight-plus weeks to learn. They were very, very complex. What we found out with a simplified system that was really originally designed with the consumer mind, that would really open up the opportunity for hospitals to utilize their own staff or hire a couple of dialysis nurses on their team, and they could kind of take back control, control their own destiny of an inpatient service line they have long since lost control over. And so the labor model here is hospitals terminating their service -- dialysis service agreements with third-party vendors, dialysis service organizations and standing up their own inpatient service line enabled by Tablo. And that really is what has led to the really rapid growth rate that we've seen in the acute with Tablo, driven by the financial results. Typically, hospitals will save post insourcing with labor and supplies using both of those levers 50% to 80% of what they were paying previously, with about a one-year payback period dependent on the hospital's volume. So let me give you a specific example of this. This is a health system by the name of Covenant. I don't know if any of you all have had exposure to Covenant. It's got about 20 inpatient outpatient facilities. And they decided to collect their data and find out for themselves with Tablo really delivering on the results that we promised. They looked at the ICU mean length of stay. And I think this is a really interesting one and draws at another nuance. Prior to Tableau, their patients on dialysis had an average length of stay in the ICU the most expensive part of the hospital of over 13 days. Then when they measure the ICU length of stay on patients on Tablo, that was cut to eight days. The reason for that, this hospital in particular, too, they were outsourcing dialysis. When you are outsourcing a service line, you have to wait for that organization's nurse to show up. And so what frequently happens with patients in the ICU or bed side on the floor, they're not -- those patients are not going to receive dialysis when they need it. They're going to receive dialysis when it is convenient for the third-party service provider to get there and provide it and so waiting for dialysis ends up being a really big driver of extended length of stay in the ICU. And I think these results really demonstrate what's possible, again, when you control your own destiny. Patients are going to get the dialysis care and the clinical care in general that they need at the time that they need it. They also looked at the total ICU dialysis treatment costs. And you can see here that they went from well over $1 million, $1.3 million down to 240,000 and then on a per treatment basis, $97 roughly cutting that in half on a per treatment basis to $46. We now know having done this dozens and dozens and dozens of times that these results are very reproducible. And we've gotten really pretty good at it. I think that is ultimately the secret sauce behind Outset. Everybody looks at the device and says that your competitive advantage is your device, yes, and. Our competitive advantage is the device and our team and what I would describe as sort of our franchise playbook around in-sourcing. We know how to work with, partner with and lead those health systems in the change management process. We know every step along the way and ultimately, how to guide them towards replication of results like this. So, I think that's a big part of our success. So I'll turn our attention a little bit to the future of Chronic Care. We talked about inpatient care and maybe I'll make a quick editorial note here. The dialysis market consists of three parts. Part one is the acute, that's the front end. Part two is the middle part, that's dialysis clinics. We are not focused on that market at all. We are focused on the part three, which is the home. So we're kind of focused on the beginning and in the end, if you will. So the home market is $9 billion just in the US alone, and we see really a significant underpenetration. There's been a lot of promise around home. I might state it as right idea, wrong time. I've heard many shareholders and investors, potential investors say, gosh, this has been tried before. People have been at this for 2005, there's a season for everything. It takes more than the right technology. It takes more than the right idea. It also takes the right time. And I think where we are today, and I'll show you my belief set behind us, I think today, we are finally at the right idea at the right time with the right technology. But some of the barriers that are eroding, which help make it the right time, there have been reimbursement barriers. In the past, Medicare only reimburses for dialysis typically three times a week. The incumbent device required treatments of five to six times a week, which meant providers, were only getting paid for three times a week, but paying for the supplies, if you will, for five or six, there was a gap that was not helpful. We have closed that gap. There were not generally attractive financial incentives in place for providers at large to send more patients home. And I think there was certainly kind of a cumbersome technology and training barrier that we have now erased. So the good news is, the home market, again, is poised to change and it is changing actually. What's changed in the macro CMS put new financial incentives in place through something called the ETC program, ESRD treatment choices program effectively and oversimplified version of this is they pay providers more over the Medicare base rate for patients that are sent home, they also have some disincentives for patients, for providers who keep patients in center. So that's starting to actually have, I think, a motivating impact on providers toward home. Dialysis patients are not eligible for Medicare Advantage. That might seem like so what who cares for Home. But in prior about two years ago, dialysis patients could not select Medicare Advantage. Now over 40% of all dialysis patients are part of an MA plan. And that means that the MA providers are highly engaged as they have never been before in ensuring that patients get home. The payers are convinced that home is less costly and higher quality. Also, I think some of these clinic staffing shortages I alluded to earlier, do serve as a tailwind. We're hearing in many, many, many communities that nephrologists, hospitals, they simply don't have a chair in their communities, dialysis clinic to put the next patient and the next patient. Home is a pressure relief valve. The patient can go straight to home, whether they're coming out of a clinic or out of the hospital. So we continue to see that as a tailwind and patient preferences. Yes, of course, I'm talking about COVID, and I think that COVID certainly was a wake-up call for many patients realizing, I'd probably rather be dialyzing in my own home rather than being surrounded by 20 to 30 other immunocompromised people sitting two feet away from me. Yes, that was a part of it. But also, I think as everybody's comfort with telehealth has grown at technology and home care in the home, this has really become quite its own phenomenon. Home dialysis is really just a subset of care in the home. And we see and hear a lot from patients who are thinking differently about where they think they can get the very best care. So for all those reasons, home dialysis is parentheses finally poised to take off. And I think that, that is only aided by an amplified by a better, easier, faster technology. So here's why I think we win. The historical device over on the right was approved by the FDA in 2005. Nothing else was cleared by the FDA for home between 2005 and 2020. So it's been a long time coming. The incumbent device, as I mentioned a few minutes ago, requires patients to treat five to six times a week. I mean, if you think about that, what's your incentive to go home. Most people want to go home because they want to spend more time not on dialysis, not on dialysis. And so this value proposition is, you can go home and spend more time on dialysis, not less time. So that was a big barrier for them. So one of the things we worked really hard at in the early days of design is making sure that Tablo could deliver good clinical care in the home at 3x a week. So the patient could maintain their same schedule and really take advantage of the benefit of being home, which should be time, time and flexibility. So that's point one. Second, it should be just a lot easier to learn. Most patients on the incumbent device reported about a four to six-week training program. And by the way, that's four to six-week, like five days a week. It was a lot of time and their caregiver had to come with them, too. So how many of us could just kind of drop on the thing we're doing and b, going to a dialysis clinic five days a week for four to six-weeks, learning something, by the way, our spouse, friend, son, relative has to come. It's very difficult, very cumbersome to learn. In our real-world data where our training time is now under two weeks, less than 25 hours total. And that's everything that's the technology, clinical protocols, et cetera, et cetera. So we're very proud of that. And lastly, one more point about time with the incumbent device, patients had to make their dialysate in advance. This is a big tub, you could sort of see it on the bottom they would typically have to spend eight or nine hours making a batch of dialysate, that batch had a shelf life to it. It could not be used after a certain number of hours. So you've got a complicated calculus around, when do I want a dialysate, I have to back up, I have to make it. Do I have enough waiting time? Is it going to last me with my prescription? It's just kind of a heavy cognitive load there that probably more people done over time. Again, Tablo sort of magic is the ability to instantaneously purify water. It's right out of the person's sync or faucet or what have you, and transforming that into dialysis ready water on-demand and customized to the patient's prescription in real time. So this is all translated to a pretty exciting growth rate for Tablo in the home on the technology front. And I think bolstered also by the beginnings of our clinical evidence base starting to grow in the home. We're newer in the home. We started our launch in acute, as I mentioned, in 2019. So we just had a little bit more time on task there. But we're starting to accumulate data in the home. Here's one peek at it. So what are you looking at? The blue line and the orange line represent two validated well-established quality of life indices called the SF-12. The blue version of the SF-12 is physical health, and the orange line represents the SF-12 evaluating mental health. What you are obviously seeing, and this is patients on Tablo specifically. When patients go on Home on Tableau with the blue line, they experience and this is patient-reported outcomes. This is kind of the only way you can do it is to get the feedback from the patients. They experienced a pretty significant improvement in physical well-being and mental well-being. Now, the yellow line is really interesting. I think all of us can relate to sleep as a critical factor of both physical and mental health. I'm experiencing that right now. But you want the yellow line to be going down. The yellow line represents sleep-related symptoms. So obviously, all of us in the room would rather experience fewer sleep-related symptoms rather than more. So the yellow line is going in the right direction. The blue line and the orange line are both going in the right direction. So those are pretty exciting results, more to come. We also earlier in our rollout had asked patients about their symptoms during dialysis. How well are you feeling during treatment? There is a very, very long and rich clinical literature describing pretty severe symptoms that most patients feel while they're dialyzing in center. That ranges from nausea to an incredible fatigue. You'll hear patients over and over and over again, say, we just actually had a patient webinar in November, and this patient talked about this that he would go to the dialysis clinic, do his treatment, come home and sleep the rest of the day. By the next morning, he would typically be, he said, kind of okay enough to live a normal life and then boom, you're right back in the clinic the next day. That's no way to live. And so fatigue is really a big deal. And for those of us that would have to experience it, so is cramping, so is nausea, so is migraine headaches. So across the board, patients have started to report few or many fewer intradialectic symptoms so many so and so many patients that we sort of have a moniker for called the feeling better effect. It's over and over and over again, patients report feeling better during Tablo and after treatment with Tablo. So we're pretty excited about that. So I'll kind of close Home, talking a bit about our commercial strategy. We have kind of a first entry point and then an upstream funnel entry point. So our first entry point has been through what we call the mid-sized dialysis organizations. These are existing dialysis companies that care for about 180,000 patients in the US. That's about 30% of the market, and that's where we derive the roughly $9 billion TAM. So said differently, this is kind of everybody under DaVita and Fresenius. Those two control about 70% of the patient flow. So if all you ever had access to was 30% of the market, that's $9 billion. So that's where we started. And this segment, this customer segment has been growing really nicely for us over the last two years. We've seen a really nice growth in terms of the number of programs, offering Tablo, the number of patients per program. We haven't yet found a ceiling of how many patients a single facility can sent home. And of course, we've really had a lot of success with our retention rate, patients staying how much, much longer on Tablo compared to the incumbent device, which is important. So that's the starting point. Now -- but wait, there's more. Because what sits above any dialysis clinic is actually where patients enter. We talked about in the way beginning 15 minutes ago that the majority of patients actually start the dialysis journey in the hospital. That means hospitals, subacute providers, others at the top of the funnel have an opportunity to actually direct patients home first. And many of them are starting to adopt a home first program where the patient would exit the hospital or the LTAC or the rehab or and go directly home without ever entering a dialysis clinic. This is really the disruptive kind of cool part of what we're doing is getting patients kind of upstream of the clinic infrastructure, which, by definition, in the theoretical, and we're not formally increasing our TAM because I think Nabeel would kill me. But in the theoretical, this, of course, would be beyond a $9 billion TAM, because you would be over time, getting access to the other 70% of these patients. That will not happen overnight. But in 2023, some of our fastest-growing programs, our fastest-growing customers, we're actually at the top of that funnel. They were not in the business of dialysis, home dialysis in 2022. They got into the business of home dialysis for the first time in 2023, and several of them grew faster than everybody else. And I think it's because they're -- like we were, what, 8 or 10 years ago, unencumbered by what's not possible, unencumbered by the way it's done. A lot of them have really experimented with cool ways to get patients home more seamlessly, less in a less costly fashion and keep patients at home once they're there. So, we're really excited, ultimately about the transformative aspect of the commercial strategy, while also serving the existing dialysis organizations in the middle. So I'll close with a little bit about our financials. Our financials are underpinned by, as I said, kind of an enviable revenue structure here. Prior to Alta, all of my companies have been in the cardiovascular space. So I was very accustomed to the environment of kind of one and done, one procedure, one procedure, one procedure, one sale. And every procedure was a new sale in the cath lab, let's say. What I've really appreciated and grown to love about Outset and Tablo is the predictable visible nature of this recurring revenue stream, which will only get larger than 50% over time. So every Tablo you see there in the home generates in perpetuity, roughly $15,000 per year. Every Tableau in perpetuity generates roughly $20,000 per year in the acute setting, simply because there are more treatments performed in the hospital than there are with a single patient at home. That recurring revenue is driven, of course, by the sale of disposables that are UV cell disposables for every treatment and our service contracts, we have a very, very high service attach rate today. But that's just the beginning of the story. When I talk about my confidence that this recurring revenue stream, these recurring revenue streams only grow, it's underscored by our pipeline on the software side and data analytics and interoperability, all of which could enable us in the future to introduce, I'll call it, sort of SaaS like incremental revenue streams that are also incredibly gross margin friendly as well. And so this is our future, growing recurring revenue to a larger and larger percentage of our total revenue, all ultimately rolling back to our installed base, but increasingly over time, driven by software, data and EMR. So we exited frankly, a big part of it through the recurring revenue. We exited 2023 with over 50% of our total revenue coming from our existing recurring revenue streams. We generated roughly -- we announced this morning in a press release of $130 million for the year. We have driven a 70% compound annual growth rate from 2019 to the end of last year. We do have over 5,300 consoles in the installed base. As I mentioned, roughly 4,000 of those are in the acute and roughly 1,300 now with home providers. Our estimated cash position as of January 2 is roughly $270 million. So the company is very well fortified and poised for all of the growth and emerging initiatives that we intend to execute against in 2024. And speaking of 2024, we have a very exciting year ahead of us. We had provided some guidance back in November that we expected 2024 to bring a mid-teens growth rate. This morning, we reiterated that guidance and put a little bit more specificity around it with the numbers. As you can see, they're up on the screen, somewhere between 12% and 18%, which kind of frames the midpoint of the consensus for the year. That was preexisting. And on a gross margin basis, it's a big part of our story and frankly, a big catalyst for the Outset story in 2024. We expect to exit Q4 of next year in the mid-30% range, with full year coming in, in the low 30% range. Now back in the November time frame, we also decided to put some longer-term guidance out there. We wanted to give shareholders and potential investors a sense of the win. Okay, that's great. But when? When are you going to get to that next mile marker of 50% gross margin, which is, by the way, not -- the story is not over. That's not a terminal value, but just our next marker in their journey. When are you going to get to a 50% gross margin, kind of when are you guys going to get to cash flow breakeven. And we've put some guidance out there that we expected non-GAAP gross margin to reach about 50% when we were roughly in the $250 million revenue range. We expect to be there exiting 2027. And nothing about the guidance that we reiterated today takes us off that path. We're firmly on that path and very, very dedicated kind of top to bottom left and right across the organization to getting there, and we have quite a bit of confidence in that. So I will close with what we feel matters most, of course, second to shareholder return, which is the patient impact. These patients and more have been served up good enough for far too long. This has sort of been a forgotten little backwater of health care. I don't think anybody really has cared much about dialysis patients for a very long time. They're not wealthy. Most of them are not employed. They're not commercial insurance. Most of them are Medicare, now Medicare Advantage, Medicaid. I don't think people have much care. And I think that shows up in the absence of new technology over the last three to four decades. You actually care. It's hard to innovate in this space as every shareholder in this room knows it's hard to get things to the FDA. It's hard to commercialize. You have to care a lot. We care a lot about these patients. We care a lot about making sure that they have the experience that they deserve that we would all want for ourselves and for our family members, which is not good, but great and we will relentlessly prosecute that through 2024 and beyond. So, I thank you for listening and not checking your phone. With that, we'll open up for some questions. Maybe Nabeel can come up.

Yes. At this time, if there are any questions, we can get a microphone around. Maybe I'll just ask one question then.

Yes. Well, I can talk about.

Okay. So I know gross margins have expanded from being negative at the IPO to now, and you're giving guidance in the low 30% range for 2024. What are the drivers and goals over the next two to three years? I know you had mentioned potentially 50%.

Yes. The good news, Andrew, is that the drivers going forward and the same things that we have done to expand gross margins to date. And it's number one console cost down, so reducing the cost of components in our Tablo device. Number two, it's consumable pull-through. So the consumables were the highest gross margin product we have today. And as the installed base grows, we sell more consumables, that will drive margin lift. And then three is service leverage. So some of that is natural. They have the installed base grows. And then again, Leslie talked about making software investments. Some of those investments are also in remote, repair remote diagnostics capabilities of our console, which will drive further leverage. So it's the same things we have to do going forward as we've done to date, that gets us to the mid-30s exiting next year and then to 50% and beyond.

Great. And I think we have one question over here?