All right. Good morning, everyone. My name is Cindy Xu. I'm an associate at the JP Morgan Investment Banking team. Our next presentation will be with Outset Medical, and the presenter from the company is the CEO, Leslie Trigg, and we're also joined by the CFO, Nabeel Ahmed, and the Head of Investor Relations, Jim Mazzola, who will be helping with the Q&A sessions. With that, I'm going to hand over to Leslie.
Thanks. Thanks for having us back again this year. I'm going to start with the most shocking slide in the presentation that I know everybody's really surprised to see it. I will be making some forward-looking statements. I do refer you to our SEC filings for more information. With that out of the way, maybe I'll start by introducing ourselves. We're a Bay Area-based med tech company. Today, I'll be talking about who we are, what we do, why it matters. And I think this slide summarizes it pretty well. What we do, what we are here to do, is to catalyze change that is profound and permanent in the way that dialysis is delivered and received from the hospital to the home through a technology we call Tablo. And as we sit here today, a lot has changed with Outset over the last year and even a week ago.
I hope to give you guys some updates. But before I do that, I want to leave you with five things to really know about Outset, the Outset today. First and foremost, we operate in some of the largest end markets in health care. There are 90 million dialysis treatments performed every year. That is well over 200,000 treatments that are going to occur today just while we're sitting here at JP Morgan. We first commercialized in 2019, and over the last five years, we have driven a very substantial number of competitive advantages into our device, into our data platform, into our service and support ecosystem. It is through those competitive advantages that we've been able to grow our footprint, our installed base, our presence here in the U.S. very, very rapidly.
Tablo is now used in roughly 850 hospitals, health systems, health care facilities in the U.S. Over a million treatments are now delivered every year with Tablo. And it's actually the sale of consoles, the sale of the consumables that go along with those treatments that is partially responsible for a very, very high and high growth recurring revenue base. Through the sale of consumables, service, and in the future, increasingly EMR and software, today alone, we are well above 60% of our total revenue being driven by very consistent, predictable utilization of the consoles and, as a result, recurring revenue. It's an enviable business model. We spent a lot of time in 2024, and we've talked about this in some previous earnings calls. We spent a lot of time in 2024 thinking about examining and reexamining our commercial execution.
The reason why we did that is that we increasingly have opportunities from health systems who want to standardize to Tablo across all their hospitals all at the same time. We have a larger percentage of our pipeline than we've ever had, with deals over $1 million. We're selling at the enterprise level now as a result of all the economic and clinical benefits we've been delivering over the last five years. In order to take advantage of this next kind of level of growth, we needed to change. We needed to change our sales force. We needed to change our sales process. We needed to change our pipeline management, and we exited 2024 having done all of that in ways that we think really set us up well and positioned this company to reignite growth in 2025.
We also are exiting 2025 with a new and improved balance sheet as well. We announced on Monday, January 6, a $169 million equity financing and a debt refinancing that was designed to ensure that the company was very, very well capitalized through and beyond cash flow breakeven, and so across the board, we are entering 2025 from a position of strength. So with the Cliff Notes version out of the way, let me get a little deeper into the story. For those of you that may be less familiar with the dialysis space, it is still one of the largest, most expensive, and least changed sectors of our health care system. About $73 billion is spent every year just in the U.S. alone on dialysis. Medicare picks up the tab for roughly $41 billion of that.
That's 7% of the whole Medicare budget spent on just 1% of the Medicare beneficiaries. About 600,000 people are on dialysis today, and unfortunately, this is a problem that is getting bigger, not smaller, as we look out over the next decade. Most patients actually kind of start their dialysis journey not in a dialysis clinic, but actually in the hospital. Most people don't know that they have chronic kidney disease, progressive kidney failure. Most people don't have a nephrologist. Most people don't know, see, or recognize the signs of acute kidney failure, and so they wind up in the hospital, what's called crashing into dialysis, where they are in acute kidney failure. They are stabilized, and they start dialysis. Welcome to the rest of your life. They start chronic maintenance dialysis in the hospital setting.
Many of them then pass through a post-acute facility, maybe a rehab, a long-term acute care, a skilled nursing facility, and the vast majority of them go then on to a dialysis clinic, one of many thousands of dialysis clinics across the country. That's not on this slide because we're not focused on the conventional. We're focused on getting as many people as possible into the home. That's the moral mission of this company, and it's our largest financial opportunity. It's the largest market in the U.S. for Tablo, roughly $9 billion, acute and post-acute, roughly a $2.5 billion market opportunity for us, and we'll talk more about that, so I talked about it being one of the largest and yet the most troubled sector of the health care system, and I'll talk a little bit about why and why it's so important to deliver new solutions into this space.
One, it's super expensive. Hospitals lose money on dialysis every time they deliver a treatment inpatient. Skilled nursing facilities lose money on dialysis when they have patients that are on maintenance dialysis living in a SNF. It's the SNF that has to pay for the transportation costs for those patients to be transported to and from a dialysis clinic three times a week. That can cost up to $1 million a year. That's all at the SNF operator's expense. So it's expensive. Two, it's complicated. Most hospitals over time sort of just resign themselves to outsourcing dialysis to a third-party vendor. We'll throw it over the wall, we'll write the check, and someone else will come on site and deliver the dialysis when our patients need it.
That's resulted in a lot of clinical complexity because patients in that model don't receive care in the ICU or outside the ICU when they need it. They receive that dialysis when it is convenient for the third-party vendor's nurse to come on site and deliver it. So it's complicated. And lastly, it's antiquated. Not only the service model, but the machines that have been used in the past, like the one pictured on the right, were developed 30-40 years ago, believe it or not. So being the technology-centric people we are, of course, we firmly believe that there's a technology way forward, a technology way forward to solve the biggest problems in the dialysis sector. Our technology way forward is called Tablo. It does a few things that no other dialysis system has ever done before.
And it is specifically aimed to reduce the cost and the complexity of dialysis, again, from the hospital all the way to the home. We first started designing Tablo, believe it or not, in 2011. It took us seven years to get this device across the finish line. Why so long? Well, when we started, we didn't know that we were attempting the impossible. And it's probably a good thing we didn't know. None of us were from dialysis. And so we had the benefit of sort of a beginner's mindset, a healthy dose of naivete and a little bit of crazy. But what we saw in the landscape was, one, a lot of different dialysis machines. It's not like dialysis machines didn't exist. They all typically did one form of dialysis or one modality really, really well.
But it was kind of like all the knives of the Swiss Army knife, but there wasn't a Swiss Army knife. And that's what we set out to do. Could we develop a single hardware platform that combined all the features and functions of all these different machines? Could we eliminate the water treatment room? Most of the machines on the market prior to Tablo required hookup to a very large, sometimes the size of this room, what's called a water treatment room. It purifies the water in these massive vats. It makes the dialysate in these massive vats. And then the machines actually are fed that purified dialysate from the water treatment room in clinics or in hospitals. And so our ambition also became, can we eliminate the water treatment room? Can we put effectively a dialysis clinic on wheels into about a 36-inch package?
That's exactly what we did. It's also why it took us so long. But now, as we've crossed that finish line on the other side of it, we have a very, very durable and deep competitive advantage, a set of advantages and a lead. On top of that, we thought about data. We thought about data really early. And so today, every treatment, Tablo transmits about 3 million data points up to the cloud. We actually, in the aggregate, now have over 1 trillion data points in our clouds in the aggregate. We've passed the 1 trillion mark. And we do a lot with that data. It fuels our R&D pipeline. It fuels our field service and our support team. We are able to remote into Tablo. We have two-way bidirectional data communication.
We are able to remotely diagnose if there's issues with the machine in the field, what's going on, what does the user need to do, and ensure that machine uptime and the user experience is as impeccable as it can possibly be, and lastly, we tried to go after a consumer embodiment, as hopefully you can see. This doesn't look like a dialysis machine, and that's no accident. This is particularly important in the home where we do have consumers setting up, learning, and setting up dialysis entirely on their own, so we wanted to make sure that this was a system that delivered medical therapy but felt like a consumer product, and we do that through software. We do that through over 70 sensors, and we do that through a form factor that doesn't look and feel intimidating.
I'll talk a little bit about the markets in which Tablo is making a difference. As I mentioned, we operate in very, very large opportunity end markets totaling over $11 billion, again, just in the U.S. alone, about $2.5 billion of that acute and post-acute. And for us, when we say post-acute, we mean long-term acute care facilities, rehabs, and skilled nursing facilities, and the home environment. Starting with acutes, there are roughly about 3,500 hospitals in the U.S. that deliver dialysis in the inpatient environment. And that's our principal target market. More recently, we've been seeing traction with critical access hospitals. There are about 1,000 critical access hospitals above and beyond the 3,500. Critical access hospitals in the past have not actually offered dialysis in their communities, largely due to the complexity of the machine and running a program.
Tablo, because it's made all of that a lot easier, we've seen some early traction with critical access hospitals now offering dialysis to individuals in their community for the first time. These are typically smaller communities, rural communities, where a lot of dialysis clinics have been closing over the last two years. And so these critical access hospitals have a unique opportunity not only financially, but also in terms of offering a really, really vital clinical service for the first time in their communities. The most important thing to know about the hospital environment is dialysis is a cost center. Dialysis, for the most part, is not separately reimbursed in the acute or the subacute setting.
So a patient that's in the hospital, maybe for a cardiac procedure, who's already a dialysis patient or a new dialysis patient, the hospital is going to bill the overarching DRG for that cardiac procedure. And if the hospital has to deliver dialysis as a part of that stay, they eat the cost of it. And it turns out that that adds up quickly. So when you look at the Medicare data, about 600 different DRGs wind up involving dialysis. And on those DRGs, about 60% of the time, the hospital is losing between $5,000 and $25,000 on the procedure DRG itself because of the enormous expense of dialysis. And these costs have only continued to go up. Inside the ICU now, third-party providers, whether it's DaVita, Fresenius, others, typically are charging between $1,200 and $1,500 per treatment.
Outside the ICU, for regular three- or four-hour treatments, those third-party vendors are typically charging anywhere from $400-$600 per treatment. The essential value proposition behind Tablo is giving hospitals the opportunity to terminate their outsourced service agreements and insource dialysis, doing it themselves, DIY dialysis, through the use of a vastly simpler and less expensive technology in Tablo. Typically, we see hospitals will be able to reduce the overall cost per treatment and for their dialysis service line by 50%-80%. How do we do that? It's through labor, and it's through supplies. I talked a little bit about the labor model. Again, most hospitals, the majority of hospitals in the U.S., over time ended up just outsourcing dialysis. When you peel it all back, it's actually really because the machines were so complicated.
All of these older antiquated machines were just way too complex for hospitals to train their nurses on and to maintain those competencies over time, especially because the hospitals typically had to buy and maintain several different types of machines. It's a lot, and so by allowing the hospital, number one, to standardize on one machine that can deliver almost every different type of treatment anywhere in the hospital, we enable the hospital to use its own staff to deliver the therapy, terminate the service agreements that can total tens of millions of dollars a year for them, and also deliver a faster and better standard of care for patients when the patients need dialysis, not when it is convenient for the third-party vendor to provide it, so there's a lot of labor savings, and then supplies cost.
Because Tablo purifies the water and delivers the dialysate on demand, we can offer dialysate and dialysis at large at a much, much lower cost than conventional machines. So that's the economic story. And it's one that's being told by an increasing number of hospitals, be it HCA, Cleveland Clinic, Covenant. We are seeing an increasing number of publications and white papers around just how the economic power and the economic benefit that Tablo can deliver. HCA has published about a $550 per treatment savings through their use of Tablo at one hospital. Covenant has also published on cost savings through reducing length of stay. And how does that happen? It actually speaks to wait time. When you're outsourcing your dialysis, again, be it to DaVita, Fresenius, or others, you have to wait for their nurse to come into the hospital and deliver the dialysis.
If the patient in the ICU or outside the ICU needs the dialysis care and the third-party vendor nurse is not available, they're doing something else, that patient is going to wait, and so Covenant, for example, was able to reduce their ICU length of stay by almost five days simply by using their own team to deliver the dialysis, kind of controlling their own destiny both from a cost and a clinical care standpoint. As a result of the results that we've been able to generate time and again, we now have achieved an ever-expanding footprint and a pretty good measure of scale, especially in the acute and the subacute spaces. We are now contracted with all 10 of the largest 10 LTCH and rehab providers in the United States.
We are contracted with all eight of the largest health systems across the country nationally and a very healthy percentage of the largest regional IDNs as well. As I mentioned in the beginning, Tablo is now being used by over 850 different facilities nationwide, delivering over a million treatments a year. We also have trained well over 10,000 nurses, well over 1,000 physicians. And there's competitive advantage in that as well, with over 70 abstracts and 15 manuscripts to substantiate, again, both the operational, the clinical, and the economic benefits of the technology and the care delivery model insourcing that it enables. So with that, I'm going to turn attention a little bit to the home space. Home has had an immense amount of potential for a very long time. Probably not. It's had a lot more potential than penetration. And why is that?
First and foremost, we've had reimbursement challenges. Medicare pays for dialysis three times a week, only three times a week. The incumbent system, the only system for 15+ years that was approved by the FDA for home, typically required patients to dialyze five or six times per week. There was a discord there. Providers were having to pay for the supplies of five or six times a week dialysis, but only getting reimbursed for three. We thought a lot about that in the design of Tablo. Two is education. Most nephrologists and patients have only been educated about one thing for the last 40 years, and that's in-center conventional dialysis clinic therapy. There's been an educational barrier that still needs to be overcome. Third, technology.
Until the clearance of Tablo in 2020 by the FDA, there had only ever been one device cleared for home. And that had occurred roughly 15 years prior. So there was a huge opportunity to deliver a less intimidating, easier to learn, easier to manage device in the home. And here are some of the things that we built into Tablo that we believe have really opened up access, patient adoption, and also driven much longer retention in the home. Tablo's retention at the 90-day mark and the one-year mark is meaningfully higher than the incumbent device. And we think it's because of the following three reasons. One, we intentionally designed Tablo to enable treatment three times a week in the home. That aligns perfectly well, not coincidentally, with what Medicare pays for.
But it also aligns, most importantly, with the concept of why patients would want to dialyze in the home to begin with, which is getting their time back. Nobody, and I mean nobody, wants to spend more time dialyzing. Nobody wants to dialyze five or six times a week if they don't have to. And so we were able to develop in Tablo a technology that could deliver the same clinical efficacy in a three-times-a-week format. So that's part one. Part two is training. Nobody wants to spend 100 hours learning anything. No one. And that proved over time, that 15-year period with that first device, I think the data speaks for itself. Not enough people were willing to put 100 hours of work into learning something that was really complicated, required a lot of mental math, a lot of memorization.
Oh, by the way, they had to bring their caregiver along with them. It was too much. We were able to design, again, through the use of software and sensors, a lot of automation. It's a big touchscreen with the steps. There's no mental math. There's no memorization. Tablo tells the patient what to do every single time. And that's resulted in a meaningful reduction in the learning time of Tablo. Typically, we see patients learning Tablo and all of the clinical care that goes around it in the home in about eight to 10 sessions. And lastly, I'll go back to time. The incumbent device required patients to spend about eight to nine hours pre-making the dialysate, purifying the water, and making that dialysate in a second separate machine that you can see there on the bottom on the right.
They had to do that eight or nine-hour process a couple of times per week. We made all that go away by enabling real-time purification of water and real-time production of dialysate. And so we set out to give people their time back. We set out to really open up the envelope of who can learn and who can be successful in home. And as we look forward here into the market, we started our entry point with mid-size dialysis organizations. Together, those MDOs, as they're known, manage roughly 180,000 patients in the United States, which underpins that TAM of almost $9 billion. More recently, a second channel has opened up for us that we're really excited about: skilled nursing facilities and other post-acute providers. I talked a few minutes ago about the economic value proposition for SNFs.
There are roughly 80,000 people on dialysis who call a skilled nursing facility their home. That is their residence. They're actually billed to CMS as home patients. There is a vast opportunity, not unlike insourcing in the acute space, to insource dialysis in the skilled nursing facility space. Instead of the SNFs having to pay the transportation costs for transporting their patients three times a week to and from a dialysis clinic, which, by the way, eats up most of a day, SNFs have the opportunity to offer dialysis on-site.
That gives them an incremental new revenue stream, which most SNFs are looking for, and a cost avoidance opportunity, getting rid of what is easily $500,000-$1 million of expense per year, in addition to ensuring that the patients receive the services that they need and for which they are in the SNF to begin with. So we're really excited about this second channel into the home. So zooming back out, big picture, our commercial strategy is focused on these two end markets: acute and home. Each of the end markets, we have two channels that we're pursuing. In the acute, it's critical care, acute care hospitals, of which there are 3,500, plus now an incremental 1,000 critical care hospitals. The value proposition is cost reduction, clinical and operating efficiencies.
Same book, different chapter for the rehabs and the long-term acute care facilities, cost reduction, and for them, also new patient referrals and incremental revenue streams. And then in the home, as I mentioned, our mid-size dialysis organizations, where we're still seeing very, very good patient growth through those entities, and now a new second channel, the skilled nursing facility, with a very, very strong economic value proposition as well. We serve all four channels in the two end markets with one sales organization and one field service team. This is a very capital-efficient model. It is one capital sales team bifurcated only between national accounts and regional IDN accounts, but one capital sales team, one clinical sales team, and one field service and support team underpinning our penetration and our expansion across all end markets.
As I mentioned, we spent a lot of time in 2024 retooling our capital sales team, up-leveling our sales process, changing the way we manage our pipeline to make sure that we are entering 2025 really ready and well-positioned to reignite growth and take advantage of the opportunity that we have in front of us for additional scale and expansion. The revenue model that we enjoy is a really unique one. It is the classic kind of razor-razor blade, if you will, where we sell the console, and then we see an annuity revenue stream in the home, about $15,000 per console per year. And in the acutes, $20,000 or more per console per year. Utilization in the acutes is higher, which is what accounts for that delta between $15,000 and $20,000. In the acute space, you're treating numerous patients on a console.
In the home space, for example, in a residence at least, it's a one-patient, one-machine model. In the SNFs, however, it is multiple patients per console, which is another thing we like about that environment. So today, our recurring revenue, this greater than 60% recurring revenue base, is being fueled by consumables and service revenue. In the future, we anticipate incremental layers of recurring revenue around Tablo through new software offerings and through new EMR interoperability offerings. Tablo actually is the first device in the acute space to be fully integrated and connected with Epic and Cerner. So we've done the hard technology work, and the company is now poised commercially to take advantage of it. I'll close with I mentioned some of the recent news around Outset, and I'll close by touching on that.
We did enter with a new and improved balance sheet as we entered the new year here with $169 million equity financing, which we announced on January the 6th with a really marquee blue- chip roster of long-only mutual funds, healthcare sector specialists that we were very, very proud of. We also addressed our debt. We were carrying $200 million of debt. We decided to repay $100 million of that $200 million and then refinance the remaining $100 million with a new credit partner in order to push out the maturity of that debt. That original $200 million, we were starting to repay principal in late 2026, and now we have pushed that out to 2030. And lastly, we entered the year as a result of all of these steps with a really materially strengthened balance sheet.
We're entering the year with roughly $210 million in cash, which provides the company with a very, very long operating runway to and well beyond through cash flow breakeven, and so as we think about the year ahead, very focused on reigniting growth, very focused on continuing to expand gross margin, and very, very focused on using every lever at our disposal to accelerate our progress and our path to profitability. Most importantly, 2025 will be another year of significant patient impact. Dialysis patients in this space really have been served up good enough for way too long. Our singular goal is great because great is the experience all of us in this room would want for ourselves and for our families.
And we will not rest a day, a week, an hour until we have delivered nothing short of profound and very permanent change for the patients who deserve it. So with that, I thank you very much, and we'll turn it over to questions. Nabeel, do you want to jump up in case there's any financial questions? Okay .
On the margin expansion side, can you talk a little bit more about the progress you've made and what we should expect in 2025 and beyond?
Yeah, thanks for the question. So gross margin expansion has been something we're really proud of in the past. And you have seen us expand gross margin sequentially every year. And indeed, in Q3, we reported sort of a 10 percentage point gross margin expansion year on year. The levers for margin expansion are, number one, pull-through of high-margin recurring consumable revenues. Number two, service leverage as the install base grows, and we don't need to grow our field service team at the same rates. And number three, our console cost-down programs where we've reduced the bill of materials cost of our console over time. And it's those same things we've done in the past that we'll continue to do moving forward and that give us conviction in, again, this linear expansion of gross margins to 50% and then beyond.
Thank you, and another question from me. I know you haven't guided for 2025 yet, but would you talk about some of the headwinds and tailwinds you've seen so far for 2025 and for a longer term as well?
Yeah, maybe let me start that. And sort of the way we think about growth and guidance and sort of the business model in any year, we start with our recurring revenues. So roughly $80 million of our revenues for 2024 are these recurring consumable and service revenues. Those revenues will grow just given the increase in our install base year on year. And so if you, as a thought exercise, assume that console revenue is flat in 2025, again, just as a thought exercise, total revenues will have grown because of the growth in recurring revenues. And so there's this foundation for us that allows the top line to grow. Anything you'd add?
I think qualitatively, maybe as we think about kind of tailwinds for 2025, we talked about a lot of the commercial changes that we had made in the salesforce and the process and pipeline management. We will see a lot of those new reps kind of fully tenured in the first part of 2025. That aligns. We typically see about a nine to 12-month sales cycle, closer to 12 months for those bigger enterprise-wide deals. And so we have and still continue to view the tenurization of those sales reps that we hired in 2024 kind of coming into full tenure in 2025. That's kind of one tailwind. I think the second is the pipeline itself. We are entering 2025 with a larger pipeline than we have ever had in the history of the company, number one.
Number two, I would call it a higher quality pipeline. As we put this new sales process in place, the team went back and meticulously and sort of painstakingly went through every single deal in the pipeline. This is in the middle of 2024 against the test of the new sales process. In many, if not most cases, those deals were staged backwards. They were staged back more conservatively. So over the intervening six months of 2024 and now the first part of 2025, that bolus of deals has continued to progress and mature again with our new salesforce and our new process. So I view that as a meaningful tailwind as well. Lastly, the complexion of the pipeline has changed. Over 60% of our pipeline now is characterized by deals that are individually over a million dollars.
And the majority of our deals entering the year are already staged in the last four steps of the sales process. And that's a position that this company has not enjoyed in the past.
Got it. Thank you.
Yeah.
Anything from the audience? Okay, maybe one last question from me. You talked about your sales transformation, and can you share a little bit more about the timeline of it and when do you expect to complete it?
Yeah, so the changes themselves have all been long since implemented in 2024. We said on our Q3 earnings call in November that we expected we saw some benefit in Q3, some early benefit, and we expected to see benefit in Q4 as well, which we did as we pre-announced a good quarter here last week. I think we're in rinse and repeat mode. Whenever you introduce a lot of change, and especially big, big changes in process and a new level of kind of inspection rigor, it takes time. And so what we're looking for are another couple of quarters of consistent execution across the country with that new sales process and approach to pipeline management. But we do expect that to be kind of fully behind us in the first part of 2025.
Thank you.
Yeah.
Hey, just a little less familiar with your supply chain, wondering as you guys are going into 2025, how are you thinking about any potential tariff or just more broad supply chain issues?
Yeah, so we do manufacture our console and a number of our cartridges in Mexico. And let me sort of break that apart a little bit. On the cartridge side, which is the consumable, which we sell large volumes of, again, run rate to over a million a year, we have a second source supplier in Southeast Asia, not in China. And so that we could ramp that supplier up, for example, if there was a situation that we would need to do so. On the console side, a couple of things. Number one, we have a large amount of inventory we're sitting on. Indeed, one of our plans is to burn down that inventory, which means that to the extent there is any tariff impact, it would be mitigated such that any impact in 2025 would not be material, which gives us time.
Number two, we currently avail of exemptions through USMCA and other sort of laws. And we believe that there are avenues, given that we are sort of a pretty lifesaving medical device, that we could continue to avail of such exemptions and that we're pursuing. But again, number one, on the cartridge, we have a second source, and on the console, we have a lot of time to figure this out and don't expect impact in 2025 to be material. Anything you'd add?
No.
Okay?
Great. Thanks again.
Thank you.