Good day, and thank you for standing by. Welcome to the Outset Medical Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jim Mazzola, Vice President of Investor Relations. Go ahead, please.
Great. Thank you, and good afternoon, everyone. Welcome to our third quarter 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 third quarter operational and financial results, provide an update on our outlook and host a question-and-answer session. We issued a news release after the close of market today and updated our investor presentation, both of which can be found on the investor pages of 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. With that, let me now turn the call over to Leslie.
Thanks, Jim. Good afternoon, everyone, and thank you for joining us. We are very pleased to share our third quarter 2022 results, which were marked by strong revenue growth and a home re-ramp that outpaced our expectations. On the acute side, we were encouraged by meaningful Tablo expansion among current customers and adoption from new customers despite lingering staffing and inflationary pressures. On the home front, the early success of our rebuilding process validated our strong relationships with home providers and patient preference for Tablo. What's more, just following the close of the quarter, we shipped our one millionth treatment for Tablo. I am immensely proud of the impact our team has been able to make in the lives of patients in such a short period of time.
Based on Q3 momentum, we are raising our fiscal year 2022 revenue guidance today to reflect our continued confidence in the strong underlying market fundamentals and demand for Tablo across our acute and home end markets. Since the third quarter marks the beginning of our home re-ramp, I wanted to start by sharing an experience I recently had visiting a patient using Tablo in her home. This individual had tried every form of dialysis possible, from in-center dialysis to peritoneal dialysis to the incumbent home hemo machine. The first thing she said to me when I walked in the door was, "I love my Tablo. It's quiet. It gives me the flexibility to alter my treatment schedule when I need to. It's super simple to set up.
It's been extremely reliable, and I feel good on it." As I was leaving a couple hours later, I heard her and her husband discussing a weekend drive up to a festival, freedom that home dialysis affords them. This individual is just one of many who now have been dialyzing on Tablo for over a year. Her experience underscores why Tablo's retention rate continues to sit far above the historical retention rates on the home incumbent hemo system. Our real-world data indicates that at 12 months, the controllable attrition rate, excluding death or transplant, is nearly 50% lower than what is reported in the USRDS database for home hemodialysis. We believe part of Tablo's retention advantage is because patients report feeling better physiologically during and after Tablo treatment. They also report learning Tablo quickly and not feeling overwhelmed or intimidated by it.
They talk about the simplicity of managing Tablo at home with no long, involved advanced preparation required and none of the space requirements that kept many of them from considering home in the past. Despite all of these advantages, we were unsure how many patients would choose to wait for Tablo through the home ship hold, particularly because the timeline was unclear and uncertain. While our information is qualitative, what we now know is that a majority of the patients decided to wait for Tablo. Anecdotally, we are aware of several patients who chose to go home on another home hemo system and then asked their provider to switch to Tablo after it became available again. Another card turned over in the quarter was customer reaction. Customers could have migrated back to primarily using another home device.
What we learned was that all our provider customers returned to Tablo, and quickly. The choices made by patients and providers enabled us to close Q3 ahead of our expectations for home growth. We sent a record number of patients home during the last 30 days of the quarter and entered Q4 with a healthy backlog due to Tablo home orders more than doubling compared to Q3 2021. Our third quarter ramp also speaks to the expertise and commitment of our service and support teams, whose focus on improving the lives of dialysis patients and their caregivers is unwavering. As the number of patients who dialyze at home with Tablo continues to grow, so does our home footprint, which now covers major U.S. geographies in approximately 50% of the states.
We have strong conviction around the ability to grow as we work to continue ramping our pipeline with new physicians and providers who are eager to expand the use of Tablo in the home setting. While our progress in the quarter was a positive step toward rebuilding our home order book and patient pipeline, I do want to emphasize that it's early and our work to fully reestablish our momentum will continue to build. That said, we do expect the fourth quarter to be another strong one for home placements given our large backlog for home consoles. This visibility provides conviction in our ability to deliver on our original 2022 goal of more than doubling our home revenue exiting the year, representing roughly mid-teens% of total revenue. Turning now to a review of our acute performance.
Our team executed well and continued to broaden our footprint as part of our land and expand strategy. A key highlight for the quarter was expanding within one of the largest regional healthcare systems in the country with 50 hospitals in 9 states. This win represents one of the largest expansion orders in Outset's history. In concert with console placements and new sales agreements, another vital part of our commercial strategy is to drive utilization across the install base, and we were pleased to see consistent utilization during the quarter, evidence that our recurring revenue model continues to work well. The macro headwinds we discussed on our last call did persist, most notably a nationwide shortage of dialysis nurses, which we expect to extend into 2023. In addition, we continue to keep a close eye on capital spending trends.
However, since our August call, we've seen positive indications of stability. Similar to our home customers, our acute customers continue to demonstrate strong preference and demand for Tablo. Additionally, on our August call, we talked about initiating a novel program aimed at mitigating the impact of dialysis nursing shortages on our sales cycle. I'm pleased to report that the early results of what we call the Bridge Program have been very positive. The Bridge Program is expected to be margin accretive and is a temporary solution designed to bridge hospitals on staffing by providing short-term dialysis nurses who deliver Tablo treatments both in the ICU and bedside on the floor while the hospital completes the process of hiring its own permanent staff. As permanent staff is hired, the Outset nurses also help with training and onboarding.
While still in an early phase, we are seeing evidence of the program's effectiveness in giving health systems the confidence to move forward on insourcing initiatives. Speaking more broadly, our footprint continues to proliferate across the country, both with existing health system customers expanding to new hospital sites and new health systems adopting Tablo to begin their process of insourcing across their network. The value proposition behind this growth remains cost reduction and operational efficiency. As we've outlined before, Tablo generates cost savings in two ways, supply cost reduction and labor cost reduction. Accessing the significant cost savings related to labor involves the hospital using Tablo to change from outsourcing their dialysis to insourcing and owning inpatient dialysis themselves. Insourcing dialysis delivers powerful cost reduction benefits.
For example, one large regional player recently conducted an internal analysis demonstrating a nearly 40% annual cost savings by converting from an outsourced dialysis model to insourcing with Tablo. As labor rates and labor shortages continue to rise among third-party dialysis service providers, we continue to see a long runway of opportunity with hospitals seeking more strategic ways of improving inpatient dialysis care and reducing their costs at the same time. Earlier in the quarter, we were also pleased to announce that Outset was awarded a VA contract aimed at improving dialysis care for our veterans. Specifically, the contract, which was awarded by the Strategic Acquisition Center of the Department of Veterans Affairs, enables Tablo to be sold into 106 VA hospitals throughout the United States.
While Tablo is already deployed in some of those facilities, this new five-year indefinite delivery, indefinite quantity contract will enable VA centers to acquire consoles to both send veterans home and expand usage in the acute setting. This partnership with the VA will help to further our mission to bring a technology-enabled, patient-centered approach to dialysis, both in the acute and home settings, and we look forward to supporting these patients across care settings as they dialyze with Tablo. Our recent acute and home wins were validated from a clinical perspective at the American Society of Nephrology's Kidney Week meeting last week, as some of Tablo's advantages were shared through eight poster presentations that covered a wide range of outcomes from Tablo's performance in the ICU to treatment adherence and retention among home patients. Over half of the abstracts were submitted by Tablo customers reporting on their experiences and outcomes.
For example, a 300-bed hospital, which is part of a large national IDN, reported improved nurse staffing efficiency, reduced treatment costs, and increased patient time off dialysis in the ICU, all by switching to Tablo. We also presented data from the largest human factors study ever performed on a home hemodialysis device. Healthcare professionals participating in the study were tested on 7,365 tasks with an observed use error rate of just 0.5%. Among patients and their care partners in this landmark study, the observed use error rate was just 0.9% on over 5,400 tasks tested. These data support Tablo's ease of use, which clinicians and patients tell us contribute to the higher home adoption and retention rates and stickiness in the hospital setting.
To close on ASN, we came away from this conference incrementally more positive about the tailwind driving Tablo adoption. Across three days, our conversations with providers, nephrologists, and patients reinforced more than just interest in driving home adoption, but a real call to action. Dramatic in-center staffing shortages, patient experiences during the pandemic, improved outcomes at home, and the comfort patients and providers now have with home health are all factors that replayed in nearly every discussion. We were also pleased with the recent updates CMS issued in its calendar year 2023 ESRD prospective payment system final rule, which reinforced the ETC model and helping to keep home dialysis top of mind with acute and home providers. Before turning the call over to Nabil, I'd also like to briefly highlight a new product update. As we have reiterated many times in the past, we're an innovation company at heart.
We will never stop listening and acting upon the ideas and needs of our patients and providers, nor will we stop inventing new ways to surprise and delight them. To that end, we are pleased to introduce TabloCart, which is a new accessory for Tablo. TabloCart provides additional maneuverability around the hospital and incremental pre-filtration capabilities for sites that suffer from water quality that is far worse than the national drinking water standard. TabloCart will be sold separately at an expected margin-accretive ASP. We closed Q3 exceeding our internal projections for TabloCart orders, indicating strong early demand for this innovative accessory. In summary, our strong Q3 was driven by significant expansion in the acute setting and a home pipeline that is rebuilding ahead of expectations.
It is clear to us that Tablo remains a highly differentiated solution in one of the largest, most expensive, recession-proof areas of healthcare. Our performance reflects the truly incredible Outset team, who I would like to thank for their courage, commitment, and conviction in all they do every day to advance our mission. With that, I'll now turn the call to Nabil to review our financials and provide more granularity on our updated outlook for the fourth quarter and the remainder of 2022.
Thanks, Leslie. Hello, everyone. Our third quarter revenue increased approximately 11% sequentially and 6% year-over-year to $27.8 million, with the year-over-year change driven primarily by higher service and other revenue and higher consumables revenue from our expanded installed base. Product revenue was up 11% from the prior quarter and roughly flat year-over-year to $21.7 million. Console revenue grew 13% from the second quarter and decreased 3% year-over-year to $15 million as we regained momentum from the home shipment hold and worked through the macro headwinds we've previously described. We saw console ASPs increase again year-over-year, driven primarily by the demand for Tablo XT, which continues to exceed our initial projections.
Consumable revenue was $6.8 million, up 6% from the prior quarter and an increase of 6% versus the prior year as our installed base grows. Our Q3 cartridge utilization continues to be in line with our expectations. Service and other revenue of $6 million was up 11% from the prior quarter and higher by 34% compared to the prior year. Our core service and other revenue almost doubled year over year with the growth of our installed base, but was offset by the planned expiry of the HHS agreements. As a reminder, the third quarter saw the expiry of the final components of our HHS agreements, which were just under $2 million of total revenue in the quarter. Moving to gross margins 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 third quarter gross margin was 16.4%, ahead of our initial projections, a sequential improvement of 50 basis points and an improvement of approximately 5 percentage points versus the prior year period. The steady and substantial improvement we made over the past year reflects our entire team's commitment to margin expansion, the primary drivers of which have been the ongoing console cost down program, aided by higher margin revenue mix. Operating expenses in the third quarter were $38.1 million, up $7.8 million versus the prior year period. The increase was driven primarily by headcount growth resulting from investments in our commercial organization and investments in R&D, as well as G&A expenses tied to operating as a public company.
We reported third quarter GAAP net loss of $40.8 million, resulting in a net loss of $0.85 per share. Compared to a net loss of $30.5 million or $0.65 per share for the prior year period. Non-GAAP net loss was $33.4 million or $0.70 per share compared to a non-GAAP net loss of $27.6 million or $0.59 per share for the same period in 2021. We ended the quarter with approximately $261 million of cash equivalents, restricted cash and investments. Last week, we announced a pair of new five-year loan arrangements with SLR Capital Partners to raise up to $300 million.
The financing favorably strengthens our financial position and when combined with the cash on our balance sheet, gives us access to around a half billion dollars of liquidity in support of our mission. We believe we have access to the capital we need to get us to cash flow breakeven. We drew $100 million in funding at closing and in conjunction with securing this debt facility, we also retired our existing cash secured debt facility. We are excited to partner with SLR Capital Partners on this milestone financing. Moving to our third quarter and full year 2022 outlook, starting with revenue. Given our strong performance in the third quarter and the visibility afforded by our backlog and pipeline, we are increasing our 2022 revenue guidance.
We now project revenue for the full year 2022 to range from $111 million-$113 million, a $4.5 million increase at the midpoint following our previous guidance of $105 million-$110 million. This new range represents approximately 8%-10% growth over fiscal year 2021 revenue. Looking further ahead into next year, we do expect much stronger growth relative to our expected growth in 2022. At the same time, we remain mindful about the headwinds from the ongoing macro factors such as nursing shortages, which we expect will persist into next year. We look forward to providing 2023 guidance early next year as we get greater visibility into the year.
Now, with respect to gross margin guidance for 2022, we've had 3 quarters this year of sequentially expanding gross margins. We expect to end 2022 with gross margin in approximately the mid-teens % of revenue, with Q4 roughly in line with our Q3 gross margin. In summary, we had a strong Q3 that demonstrated Tablo's value proposition in our large acute and home end markets, and we have a high degree of confidence in our team's ability to execute as we round out 2022 and set ourselves up for 2023 to continue to deliver on our promise to dialysis patients and providers. With that, I think we're ready for Q&A. Operator, please open the lines.
Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. Our first question comes from Travis Steed with BofA Securities. Your line is now open.
Hey, everybody. Congrats on a really nice quarter. I guess wanted to touch on some of the comments you made, Leslie. Positive indications of stability in the acute setting, record number of patients in the home in the last 30 days of the quarter, and a healthy backlog. Just would love for you to expand upon that a bit more. Also, how much do you have baked into the Q4 guide? Because I'm looking at the midpoint of the 2022 guide, and it implies about a $1 million step up into Q4. I would think you could see a little bit better step up in Q4 if that was actually happening in the macro.
Yeah, sure. Thank you, Travis. I'll start maybe with some of the color and then turn it over to Nabil on the guidance part of the question. I think the dynamics in the home in Q3. I think the big unknown as we sat there on the August call was how many, if any, of the patients, the home patients that were in the pipeline in early June would end up waiting for Tablo. That was a card that we just hadn't turned over in August. What we found out, as I just said in the scripted remarks, is that actually the majority of the patients did end up waiting, which was really quite remarkable. The Q3 home growth was fueled by two drivers. One was working through this sort of pent-up pipeline, if you will, number one.
Number two, sort of de novo patients that materialized through Q3, making that choice to go home on Tablo, anew. As we look at Q4, we already have worked through the pent-up part of the pipeline. We thought about sort of the Q4 guidance, and again, I'll turn it over to Nabeel for the quantitative color. As we thought about the Q4 expectations for home growth, and we really thought about it in the context of more sort of normalized home growth, focused just on part two, those new patients in the quarter that would be choosing home for the first time. That's how we thought a little bit about home growth. Again, we were really pleased.
I mean, one quarter does not a recovery make. I think we're very aware and very humbled by that fact. I would say it's a so far so good story, and I'm really happy with where we landed the quarter and how Q4 is shaping up on the home front. On the acute front, I would say as we sit here today, staffing remains a headwind. It certainly is top of mind for all of the health system executives that we talk to about in-sourcing with Tablo.
However, as I mentioned a few minutes ago, we do see indicators that it has stabilized, number one. Number two, you know, we've gotten better as a team. We've gotten better at showing hospitals how to overcome sort of the fear factor around finding and hiring dialysis nurses for their insourcing programs, part one. Part two, we have a new offering in this Bridge Program solution, which I think more than anything, gives hospitals the confidence to move forward with insourcing, knowing that they have a staffing safety net available through Outset if needed. With that, maybe I'll turn it over to Nabeel.
Yeah. Thanks, Leslie. Hey, Travis. Travis, as we thought about the lower end of our guidance range, we're essentially that guidance range, by the way, implies a flat Q4 relative to Q3. We're essentially assuming on the home side, as Leslie pointed out, that the Q4 home population is more normalized, if you will. On the acute side, we're assuming that our acute patients navigate through these headwinds that we've talked about in a very similar way to the way they navigated in Q3. As you move through the guidance range to the top, it assumes that home is a little stronger than it was in Q3, and it assumes that our acute customers are better able to navigate through these headwinds, either using our Bridge Program or through their own mechanisms.
That's really helpful. Nabeel, I did wanna touch a little bit more on your 2023 comment, expecting much stronger growth, you know, especially given that 2022 was a pressured year. It kind of leaves a big room of outcomes or range of outcomes for 2023. One of the ways I was thinking about it was, beginning in 2022 before the ship hold, you're expecting $145 million-$150 million for this year. Maybe that's about the right place to be for next year. Basically, just the ship hold pushes things out a year. I'm just curious if that's a reasonable way to think about it for 2023.
Yeah. Travis, you know, we are obviously not giving a formal guidance for 2023 at this point. We'll give guidance in due course. Now, for modeling purposes, as you think about your models, I'd say a couple of things. One, we absolutely expect to return to much stronger growth in 2023 relative to our expected growth in 2022. However, we don't wanna get ahead of ourselves. What we are also sort of very mindful of is these macro factors in the acute setting around nurse staffing and the fact that we expect these factors to persist into 2023.
All right. Great. Thanks. Congrats on a good quarter.
Thank you.
Thanks, Travis.
Please stand by while we compile the questions. Our next question comes from the line of Joshua Jennings with Cowen. Go ahead, your line is open.
Hi, good evening. Thanks for taking the questions. I echo Travis's sentiment on the congrats on a strong quarter. Just hoping to start, maybe try, you may not be able to quantify this, Leslie, Nabil, but just thinking about both acute and the home channels, your commentary suggests nice recovery as your results. Any way to quantify the recovery and where you think you are relative to prior ship hold? I think you're 75% back in terms of momentum in both of those business, both those channels.
Joshua, thanks for the question. I'll give you my two cents. I think we're right where we wanna be. You know, in August, we communicated an expectation that we thought the re-ramp would take a couple quarters, and that's played out largely according to our plan. Again, if not a bit ahead of schedule. I do think that given the strength of our patient pipeline when combined with our backlog, I think that's exactly what gave us the confidence to raise the full year 2022 revenue guidance and also to underscore kind of our commentary about 2023 being a much stronger growth year compared to 2022. Short story long, I think I'm right where I was hoping we would be on the home front.
Thank you. Just to follow up on the Bridge Program, I just wanted to better understand where you're sourcing, you know, staff for the Bridge Program. Is there any competitive dynamic with hospitals or is there any ability to help these hospitals recruit their own staff through the Bridge Program? Any further details would be super helpful. Thanks for taking the questions.
Yeah, sure. Thanks for the question on the Bridge Program. We over the last many quarters already have been adding dialysis nurses to our staff. We have our clinical sales and training team, what we call PCSRs, already was populated by a fair number of dialysis nurses, which is part of what made us realize, hey, we're actually really pretty good at attracting, finding and attracting really high-quality dialysis nurses. There's no one pool that we've drawn from as we've continued to add dialysis nurses to our team, so there's no real trend line there to comment on. The second part of your question, are we able to help hospitals recruit their own staff? You know what? I think what we found is most hospitals really don't need our help on that front.
They have taken solace in knowing again that they have a backstop in the Outset nursing team if they need it. But most hospitals, as we've done our first few pilots, and again, it's early, have been very successful actually in finding and attracting their own teams of dialysis nurses. It's just held a little bit of uncertainty for some health systems because they've never done it before. But what we found so far is they've been very successful and very competent in adding dialysis nurses to their staff in relatively short periods of time. Then this Bridge Program, again, is there as a safety net, if they need it.
Right. Thank you.
Please stand by. Our next question comes from Philip Coover with Goldman Sachs. Your line is open.
Hi. Thanks for taking the question. Leslie, I might have misheard you during the prepared remarks. Did you say that you're reestablishing the original home guidance of doubling revenue this year?
Yeah. Nabeel, do you want to take that one?
Yeah. Yeah. What we said is sort of we are expecting home revenue to get to roughly mid-teens% of our total revenue for this year. Yes.
Okay. The original comment was mid-teens% for this year on the original guidance, and now it's still mid-teens%, it's just at a different guidance level. It's not the original doubling of revenues that we heard at the start of the year.
Phil, it would still imply roughly doubling from 2021 revenue, but you are right in terms of it, the math is on a different base.
Phil, what I just said, just to reiterate, in the prepared remarks, I was just commenting on Q3 and the fact that, you know, we did enter Q4 with a very healthy backlog and had, you know, have Tablo home orders that are more than double compared to Q3 2021 exiting the quarter.
Okay.
So that was where that-
Wow. Yeah.
That was where that double came in.
Okay.
Yeah.
Yeah, a great number. On the acute side, I didn't hear that there was a fair amount of discussion on the last call about sort of the capital environment and constraints at the hospital level around capital purchasing, notably not in the remarks today. What's sort of the update in the situation? It may be misguided last quarter, and it was more so around nursing and now you're remediating that issue. What are you seeing on the capital front in terms of purchasing cycles?
Yeah, sure. I'm happy to answer that. I think the short answer is that while it certainly remains a consideration for hospitals, it was not a major impediment to our growth last quarter. We're obviously gonna continue to really closely monitor this going forward, I think like all medical device companies. Thus far, we have continued to see Tablo prioritize toward or at the top of capital spending budget lists. I think, you know, it's probably due to the fact that insourcing with Tablo really does offer immediate and tangible cost reduction. It's kind of a day one, dollar one benefit, and the fact that it has a very fast payback period.
I would say, Phil, it doesn't feel like we're fully out of the woods yet, but more a function of we don't know what we don't know than because it affected us in Q3. In general, we've got a very close eye on this, but I would not cite that, as I just said, I would not cite that as a major impediment for us in Q3.
Okay. Very clear. Thank you both.
Yeah, sure. Absolutely.
Please stand by. Our next question comes from Rick Wise with Stifel. Your line is open.
Good afternoon, Leslie. Hi, Nabeel. I just really want one key topic from me for now. Gross margin, again, it's great to see the progress there. Congratulations on that. I heard your comment about the fourth quarter. A couple things. One, I appreciate that Tablo volume, higher volume is going to drive gross margin, but help us maybe better understand the next step forward, and I'm gonna say 2023 because that's just the year ahead. What steps up beyond just volume the gross margin? What drives the gross margin in 2023? Cost reduction, mix, I mean, the Bridge Program, one time I think I've heard you say it was margin accretive. To what extent is that gonna help?
Just to wrap up this whole gross margin topic, the 50% gross margin target by 2025, I think in the last few months, given some of the challenges, I sort of might imagine that that got put out is, how are you thinking about that target now in light of your progress this quarter? Thank you very much.
Yeah, Rick. Absolutely happy to talk about this. On gross margin, a few things. Number one, our next milestone is indeed this 50% gross margin target. From our progress to date, we expect that march forward to be linear, right? There's really four factors, Rick, that drive our margin expansion, all of which we have sort of executed on, all of which we have a lot of conviction in our ability to continue to execute on. Those are, number one, as you alluded to, it's just volume, revenue volume growth. Number two, it's ongoing console cost down. Number three, it's consumable pull-through as our installed base grows. Finally, it's service leverage.
Rick, it's been basically these four things that have helped to contribute to the 500 basis points margin expansion we saw in Q3, and it's those same things that'll continue to propel us to that 50% gross margin target going forward. Gotcha. Thank you very much.
Please stand by while we compile the roster. Our next question comes from Suraj Kalia with Oppenheimer. Your line is open.
Good afternoon, Leslie, Nabeel, Jim, can you hear me all right?
Yes.
Yes.
Perfect. Hey, let me start on Nabeel. Forgive me, I got a little confused to one of the prior questions. The original guide of $140-$150 million, if memory serves me right, 15% or so was supposed to be home hemo contribution. The comments just made, now that the guide is approximately $112 million, is home hemo still 15% of the original number or 15% of the new guide? Sorry, I got a little confused there.
Yeah, Suraj. Absolutely. The 15 to home we're projecting to be 15% roughly maintained of the new guide.
Okay, fair enough. Leslie or Nabil, you know, when you look at the original guide, right? At the beginning of the year versus the current guide, and then you layer on your positive commentary in terms of patient retention, you know, some of the big wins, so on and so forth. Can you help us understand the $30 million delta still? Is it entirely explained by supply shortages, nursing shortages, or are there any other residual factors that we should consider also?
I'll jump in just qualitatively, Suraj. Short answer, no. No new factors. The nursing shortage on the acute side, we talked about this again, you know, into kinda Q2 and through Q3. It's definitely a factor and it remains a factor and we certainly don't wanna overlook that. I think this past quarter was the beginning of, you know, this team going on offense and having new ways and mechanisms to do that, where we're not gonna just stand around and wait for things to get better. This is the, you know, this past quarter we stood up and took action.
In terms of the reasons behind our revisions, those are the same reasons that you think you're, you know, you and other investors are already very familiar with regard to the nursing shortages in acute, some possible concerns about the capital spending environment and of course, most notably the home shift hold. No new factors that we're aware of at this time.
Thank you. Please, one minute while we compile our next question. Our next question comes from Drew Ranieri with Morgan Stanley. Your line is open.
Hi, Leslie and Nabeel. Thanks for taking the questions. Just two questions coming out of ASN, if I may, and I'll ask them both up front. I guess one thing just talking to nephrologists last week was just there's really palpable interest in moving patients to home, and that's partially driven from the staffing shortage issue that's kind of happening across the sector. One, just as you're thinking about 2023, could this be an accelerator for potential home adoption? Then, second, some data that was presented at the conference kind of suggested that PD through the pandemic kind of remained stable if not increased while home hemo declined.
Just as you're thinking about PD burnout rates, could that also be maybe another inflection driver in home adoption, for you or for others as we're thinking about next year? Thank you.
Yeah, sure. Thanks for the questions, Drew. Maybe I'll take those in reverse order. We have absolute belief that PD will over time become a funnel for home hemo. It just makes all the sense in the world. You have a population of people who are already very successfully managing their care in the home and wanna stay in the home. Unfortunately, in the past, historically, just only about 3% of patients who come off PD, just 'cause PD is typically a two or three year sort of transient therapy. Only about 3% today do stay at home and transition onto home hemo. The vast majority in the past have gone into in-center dialysis.
Again, today, you know, sort of the dawn of a new day, with all of the incentives and all of the tailwinds, and you mentioned a new one around staffing shortages, really encouraging dialysis providers to push more patients into the home. We do see a future in which many, many more PD patients will be given the active choice of staying in the home with HHD. Yes, I do see, and we do feel that the PD to HHD transition will be a very important driver for more home inflection in the future. That's one. Your first question was about staffing in the in-center environment.
Yes, I think we've all seen and heard the big and even medium-sized dialysis care providers talking about their own challenges with staffing shortages in the in-center environment. Home, whether PD or HHD, is clearly a way that you can serve the same or more patients in a particular location without having to increase your staffing census at the same time. I don't wanna be overly prescriptive or precise about the exact extent to which, 'cause I don't know yet, the exact extent to which staffing shortages in the in-center environment will benefit home dialysis. Generally speaking, we had many of the same conversations at ASN and every day from providers who all seem to see home dialysis as an important answer to the problem of in-center staffing shortages in the future. We're bullish on both fronts.
2, is there anything else?
My apologies.
Yeah.
Please stand by while we compile the next question. Our next question comes from Philip Coover from Goldman Sachs. Your line is open.
Thanks. I wanted to follow up on the VA contract. I think it'd be an opportunity to talk more about the scope and scale. I heard the word indefinite. I remember from the press release. I think home was used before hospital, and so I'm just interested in any other qualitative or contextual you can put around the contract.
Yeah, sure. This was, as we mentioned, it is a five-year. Now why it says indefinite, you know, ask the government. It's another acronym that doesn't make a whole lot of sense because it is a five-year. But the acronym does have the I stands for indefinite, so go figure. What matters most is what it could mean for Outset. The big win here was the fact that the contract did include home. The VA has had a long-standing interest in making home modalities more available to veterans. We are very, very excited about the possibility of serving veterans, more veterans in the home.
This contract does enable Outset and our team to expand the use of Tablo both in the acute setting and also to work with various VA facilities around the country to start new home programs or to support their existing home programs with Tablo.
Hey, operator, is there any more questions?
There are no more questions at this time. I would now like to turn it back to Leslie Trigg for closing remarks.
Thanks, operator, and thank you all for joining today. Have a great evening.
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.