Q4 2023 Outset Medical Inc Earnings Call

Participants

Jim Mazzola; Investor Relations; Outset Medical Inc

Leslie Trigg; Chairman & Chief Executive Officer; Outset Medical Inc

Nabeel Ahmed; Chief Financial Officer; Outset Medical Inc

Rick Wise; Analyst; Stifel

Kristen Stewart; Analyst; CL King

Drew Ranieri; Analyst; Morgan Stanley

Shagun Singh; Analyst; RBC Capital Markets

Joshua Jennings; Analyst; TD Cowen

Presentation

Operator

Thank you for standing by, and welcome to the Outset Medical fourth-quarter 2023 earnings conference call. (Operator Instructions)
As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Jim Mazzola, Head of Investor Relations. Please go ahead, sir.

Jim Mazzola

Good afternoon, everyone, and welcome to our fourth quarter 2023 earnings call. Here with me today are Leslie Trigg, Chair and Chief Executive Officer; and Nabeel Ahmed, Chief Financial Officer. We issued a news release after the close of market today, which can be found on the Investor Relations pages of outset, medical.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 and 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 outlook 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 our public filings with the Securities and Exchange Commission, including our latest annual and quarterly reports.
With that, I'll now turn the call over to Leslie.

Leslie Trigg

Thank you, and good afternoon, everyone, and thank you for joining us. As we exit 2023, having made progress in building a strong foundation from which to serve providers, patients and investors in 2024. And in the long term, we came away from the year with clarity on areas we need to continue to strengthen and scale pride and the difference we are making for providers and patients confidence in the lead we have with Tablo from years of innovation and our investments in service and support infrastructure and conviction around the opportunity based on the vast unmet need for better dialysis outcomes in both the acute and home setting. In the fourth quarter, we delivered revenue of $30.5 million, right in line with the revised expectation we set in November to close the year at $130 million, an increase of 13% over 2022 as we have grown and build scale, particularly in the acute setting, our recurring revenue business model continues to distinguish itself, anchor our guidance for the future and support our drive to profitability.
As we look at progress in our end markets, beginning in the acute setting, our focus on enterprise selling and dialysis insourcing has continued to elevate the financial benefits and strategic importance of Tableau to provider customers. During 2023, 25% of our provider customers were newly landed and 75% were existing customers who chose to expand their Tableau use within their networks. This distribution highlights the progress we are making within this large market segment and the opportunity for continued long-term growth. The percent of new to outside customers increase in 2022 and 2023, demonstrating the network effects we have previously discussed. For example, as hospital administrators and clinicians move between facilities and health systems, they are ambassadors for Tablo and the benefits and in-sourcing program can provide. Additionally, we educated over 400 doctors last year alone. And we've amassed an extensive evidence base demonstrating the power of Tableau clinically operationally and economically. And on top of that, more than 10,000 nurses are now trained on Tableau. In terms of our footprint, we have shipped Tablo consoles to more than 700 sites in all 50 states, including top national health system where we have about 20% console penetration. And within the top 50 regional IDNs, where we are less than 10% penetrated, we estimate a huge total addressable market is roughly 40,000 consoles and as we reported in January, we have an installed base of just over 4,000 acute and subacute consoles. So we still have a lot of runway ahead of us as dialysis in-sourcing with Tableau has grown. It is no surprise to us that we saw in the fourth quarter, our Tableau Pro plus software purchased with more than 80% of the console shifts in the acute setting, demonstrating its value in the ICU. The results Tableau can deliver in the ICU are clear. When we look at customers like Covenant Health, a regional system with about 20 inpatient facilities prior to Tableau covenant patients on dialysis had an average length of stay in the ICU, the most expensive part of the hospital of over 13 days when covenant measured the ICU length of stay of patients on Tablo, it was cut to each day. These results demonstrate what's possible when providers control their own destiny. In addition, to the decrease in length of stay covenant also saw total ICU dialysis treatment costs declined substantially from 1.3 million to 240,000 and cost per treatment cut roughly in these results have become very reproducible because our team has developed over the years proprietary expertise in guiding and supporting providers through the outsource to insource transition with the essential investments behind us in creating and world-class field service, customer success and clinical support organization. We are well positioned to deliver not just an exceptional product, but an exceptional, highly differentiated change management experience. It took us years to build this infrastructure and now how we consider it one of the strongest competitive advantages we have as a company, the data backs that up as well. For example, we continually track customer satisfaction metrics, and I am pleased but not surprised. And in 2023, our customers reported a 95.4% satisfaction rate with the performance of our field service organization. This is pretty phenomenal when you consider how rapidly our installed base and treatment volume has grown and we did it while maintaining a 97% uptime across the Tablo installed base and reducing our cost to serve by nearly 25.
Turning now to the home end market, we continue to make progress building the strong foundation we are establishing for long term growth. In 2023, we deployed more than 500 Tablo consoles to home providers, growing our home base, more than 60% to more than 1,300 COUNCIL. We've talked on previous calls about our two tiered home penetration strategy, which entails partnering with Progressive mid-sized dialysis organizations and working upstream to create greater channel access for patients by expanding the universe of health care providers offering home dialysis. We saw our strategies on both fronts payoff in 2023 with the NGOs, which manage dialysis care for about 180,000 patients, which translates to our roughly 9 billion addressable market. We continued to see nice growth in the number and depth of programs offering Tableau exiting 2023, our largest home program, managed by an MDO averaged 25 patients at home on Tablo. Most home hemodialysis programs historically have had one to five patients home with the incumbent device. Furthermore, we continue to see unparalleled retention rates. Our longest tenured patient has dialyze at home now for three-and-a-half years, demonstrating Tableau's differentiated patient experience, high retention rates, not only benefit patients, but also help minimize and churn for providers in terms of our efforts to increase channel access by expanding the provider universe with new entrants. We hit some new milestones in 2023 for the first time, two of our fastest growing home dialysis providers were not previously in the home dialysis business as we've talked about in the past, the majority of patients actually start their dialysis journey in the hospital. That means hospitals, subacute providers, others at the top of the funnel have an opportunity to direct patients' home first and many of them are starting to adopt a home first mindset where the patient could exit the hospital, a long-term care facility or skilled nursing facility and go directly home without ever entering dialysis clinic. Like outset, these new market entrants see the opportunity to disrupt and improve care delivery for dialysis patients. We are pleased to announce that during the fourth quarter, we successfully secured several new sales agreements with skilled nursing facilities, including with one of the nation's largest niche providers, the partnership underscoring the growing recognition of Tablo value proposition within the post-acute sector. Furthermore, our successes throughout the year continue to position us as a trusted partner in delivering dialysis services across the care continuum. Importantly, these agreements reflect an industry trend of niche providers seeking to enhance patient care by offering in Health & Home dialysis services, which matches our commitment to innovation and meeting the evolving needs of the dialysis community.
Operationally, we made progress during Q4 and 2023, strengthening our regulatory and quality organization processes and best practices with lessons learned from our experiences and our ongoing focus on continuous improvements. This past quarter, we added our eighth five 10K clearance to implement new PCD. three silicone tubing and Tableau. As we disclosed in our filings the FDA initiated an industry-wide review of silicone tubing in 2022. With the five 10 K clearance in hand, we are proactively integrating the changes into our manufacturing process and in the coming weeks, intend to begin implementing the new PCD. three tubing in the field.
Additionally, on the regulatory submission front, we remain an interactive review with FDA on the Tableau card five 10 K submission and continue to forecast sales of Tableau apart with free filtration resuming during the second half of 2020. Our results continue to highlight the strength and potential of our recurring revenue model, which provides us with visibility into a large portion of our 2024 and longer-term financial guidance. Every Tableau in the home generates roughly $15,000 per year through its useful life. Every Tableau in the acute setting generates roughly $20,000 per year as there are more treatments performed on each device in the hospital than with a single patient. Recurring revenue is driven today by the sales of disposables for every treatment and our service contracts. These components will continue to grow as we place new Tablo consoles. As we announced last month, we exited 2023 with over 50% of our total revenue coming from recurring revenue and see even greater potential over the longer term through our software pipeline.
Finally, we congratulate our team members, Steve Williamson on his appointment to lead another public medical device company. He joined us at a key time when we were building our national sales and service organization facing him, building a team of incredibly capable and talented commercial leaders who run our sales, service and marketing organizations today, we do not currently intend to backfill that position.
Before I turn the call over to Bill for more detail on the quarter, I want to reiterate what I believe are the most important advances we made during the year. First, we achieved scale in the acute end market by demonstrating that Tablo and in-sourcing with Tableau, our strategic implements to reducing costs and retaking control of care for some of the most compromised patients.
Second, we expanded our home footprint via partnerships, both with new market entrants and existing providers who share our vision for the better patient experience that Tableau can enable is early, but we are laying a strong foundation for growth in one of the largest and most unchanged corners of health care.
Third with recurring revenue exceeding 50% of total revenue in 2023. We have proven the strength of our business model and demonstrated how we can deliver value well into the future four, we continue to expand gross margin, exceeding our guidance and demonstrating that we remain on a clear trajectory to reach our 50% milestone. At the same time, we demonstrated strong operating leverage that we expect will persist and expand in each year toward reaching our profitability goals. And finally, we widened Tableau's competitive moat across technology, regulatory and clinical evidence in ways that deepen connections with providers and patients standing by customers and helping them achieve their goals requires much more than a great product, which we certainly have with Tableau. But it also requires an experienced sales and clinical support team backed by the strength of a mature service organization, which is underpinned by software analytics, change management know-how and technical support. This is a very difficult to replicate ecosystem, and we enter 2024 in a strong competitive position from which to continue our growth.
With that, I'll turn it over to Nabeel very swiftly.

Nabeel Ahmed

Hello, everyone. Revenue for the fourth quarter was 30.5 million, in line with our pre-announcement slightly above the third quarter of 2023 and a decrease of 4.7% compared to 32 million in the fourth quarter of 2022. The change from last year was driven by a decrease in console revenue for the reasons we outlined in the third quarter and was partially offset by an increase in consumables revenue. Product revenue was 22.9 million and a decrease of 13% compared to the 26.4 million in the fourth quarter of 2022. Service and other revenue was 7.6 million, increasing 11% sequentially from the third quarter in the 35% compared to $5.6 million in the fourth quarter of 2020. Consumable revenue was 12.6 million, up 15% from the prior quarter and 58% versus the prior year. Cartridge utilization continued to perform well, highlighting the strength of our recurring revenue model. Based on our cloud data, we see console utilization in the hospital setting of around five treatments per week and home consoles of just about three per week.
Moving to gross margin and operating expenses, I will highlight our non-GAAP results. I encourage you to review the reconciliation of GAAP to non-GAAP measures, which can be found in today's earnings release.
Our fourth quarter gross margin was 26.7%, a more than 100 basis point sequential improvement from the third quarter and a 9.6 percentage point increase from 17.1% in the fourth quarter of 2020. Gross margin expanded for the 11th consecutive quarter with our mix of higher-margin recurring consumable revenue and service and other revenue representing 66% of total revenue as compared to roughly 59% in Q3 of this year. Year-over-year increase was driven by a nearly 20 percentage point expansion in product margin that was partially offset by a decline in service and other gross margin as a result of planned investments we made during the fourth quarter that we do not expect to repeat in the first quarter of 2024, including roughly $0.5 million to implement the silicon tubing updates that Leslie mentioned.
Operating expenses of $26.4 million declined 14% sequentially from the third quarter and 4% from the prior year period, driven in part by the expense reductions we outlined last quarter from Q4 of last year. The largest decrease in spending came from G&A, which declined 15%. We reported a fourth quarter non-GAAP net loss of 29.5 million, or $0.59 per share compared to a non-GAAP net loss of 34.1 million or $0.71 per share for the same period in 2020. We ended the quarter with approximately $207 million in cash, cash equivalents, short-term investments and restricted cash. In January, we added 66.5 million drawn from our term loan agreements, bringing our cash balance early in 2024 to roughly 270 million. As previously reported. Revenue for the full year 2023 increased 13% to 130.4 million from $115.4 million in 2022. As a reminder, we lapped the expertise of our pandemic-related contract with HHS this year. Excluding the impact of the HHS contract in the prior period, revenue grew close to 20%. Product revenue was 103.5 million, an increase of 11% from 2022. And service and other revenue was 26.8 million, an increase of 22% from 2022. Recurring revenue for the full year was 53%, up from 44% in 2022. Gross margin for the year reached 23.6% from 16.1% in 2020. The 750 basis point increase was ahead of our initial expectations and driven by the same factors that we believe will continue to expand gross margin to 50% and beyond. These factors, our number one console cost-down programs to the portion of higher margin products and consumables as consoles are placed in three service leverage.
Operating expenses were 161.9 million, including R&D expenses of $46.8 million, sales and marketing expenses of 83.8 million and G&A expenses of 21.4 million. Net loss was $134.2 million or $2.70 per share compared to a non-GAAP net loss of $135.8 million or $2.82 per share for 2022.
Turning to our guidance for 2024, we continue to expect revenue of 145 to 153 million growing 12% to 18% over 2023. As we have previously mentioned, we anticipate the first quarter to be roughly even with the fourth quarter revenue and then building through the year, particularly in the second half as we lap the elongation of our selling cycle. And as Leslie mentioned, we plan for Tableau carpet, prefill attrition to return to the market our guidance for non-GAAP gross margin continues to be in the low 30% range for the full year, exiting the year in the mid 30% range for the fourth quarter again, gross margin expansion is driven by console cost-down programs, recurring revenue from a larger installed base and service leverage with the cost reductions we undertook in 2023. We continue to anticipate OpEx in 2024 of 140 to 145 million. As a reminder, we recorded a charge in the fourth quarter of 2.5 million associated with the cost reductions we discussed on the November call. Finally, we expect to deliver operating leverage and to consume substantially less cash in 2024 than we did in 2023 as a result of revenue growth, gross margin expansion and reduced OpEx with the guidance we provided cash use is expected to move lower each year through our expected breakeven in 2027, giving us a long cash runway. We remain bullish on the tailwinds in our business and affirmed the longer-term guidance we provided in November we continue to expect revenue growth in the high 10s annually beginning in 2025 and gross margin continuing to expand, reaching our 50% milestone exiting 2027 with that I think we're ready for Q&A. Operator, please open the lines.

Question and Answer Session

Operator

Rick Wise, Stifel.

Rick Wise

On hire everybody, maybe immediately you laid out very clearly all the progress, and it feels like in the end, it's steady as she goes, is making progress kind of period. And it feels like the setup for this year is a positive one for talk about some of the most important incremental drivers. And I hate to ask where might there be some upside. I imagine Tableau card coming earlier, but things like the skilled, for example, the skilled new, a contracts that skilled nursing accounts help us think about the implications of that and any new product launches? What's not in the guidance, the measured tempered guidance you're giving us now?

Leslie Trigg

Sure. Hi, Greg. Good to hear from you. And yes, we do feel that we're really well set up for 2024. We know this is a year of execution for us.
And accordingly, we are focused on delivering against the goals we've set out for the year and and feel that we're very, very well positioned to do exactly that. And I think to answer your question, certainly the return of Tableau card post FDA clearance and is expected to be a positive catalyst at 0.1 0.2. We are experiencing early wins in this new segment of the post-acute space. As a reminder, when we entered the post-acute space, we decided to focus first on long-term acute care facilities, and we have facilities and had a lot of success there. We've mentioned in the past that were contracted now with our capital is being used by all 10 of the largest 10 of post-acute providers in the LTAC. in the rehab space. And so we have the opportunity to start to turn our attention to kind of the third leg of that growth stool, which is the skilled nursing facilities. The nice part about that is that we can penetrate that market with our exact same sales force and our exact same field service team. So we can do so with a lot of operating leverage behind it so I would say that the early wins in our in the skilled nursing facilities are expected to be an additional catalyst for growth in 2024.
From a third, I would say, continued gross margin expansion. We've obviously had and strong gross margin gains in 2023. We expect another year of very consistent expansion on this, and our team has made eight or 900 basis points improvements look easy, it's not hands. So I want to call to call attention to that and compliment our teams across the organization for making that happen, but we do have very high confidence in our ability to meet and exceed expectations on the gross margin front.
And maybe lastly, think of four key takeaways with recurring revenue now over 50% of our total revenue. It gives us a very strong basis off of which to grow with a lot of visibility.

Rick Wise

So those are probably the four growth vectors and catalysts that we look forward to through calendar year 24 per group from just on the the Tableau card progress, and I apologize, you're probably sick of answering the question, but any any incremental updates on your engagement with the agency? Are they asking questions again, the second half sounds like a reasonable projection to me, but could it happen earlier any additional perspective there? Thank you.

Leslie Trigg

Of course. Sure. No, I'm not sick of answering the questions at all. It's a varied set of reasonable and expected question of the engagements as the answer is the engagement continues to be very collaborative and very constructive. We are in their active review setting answer that part of your question, and we are in the process of questions and answers and and more questions and more answers is following the path that all of our other eight submissions and clearances have followed over the last number of years. And so net-net, it's progressing exactly as we had expected it to there is there's always the chance that the reserve review finishes earlier than expected, but I think we still feel confident in the guidance that we've given around the second half return to us to Tableau parts.

Rick Wise

Thank you so much. Thank you.

Operator

Shagun Singh, RBC Capital Markets.

Hi, this is David on for Sue and thanks for taking my question on. So largely, what trends are you seeing for Tableau console uptake pending Tableau cart with pre filtration approval? Is there something that the company can do to drive more sales more meaningfully in the interim including on the marketing front? And then I have a follow-up.

Leslie Trigg

Yes, sure. Well, I really like the distribution of our growth in 2023, and I would expect it to follow a similar pattern in 2024. And what I mean by that is a catalyst always for us remains new customer wins, and we had a nice number of those in 2020 for new customers that decided to in-source with Tableau for the first time. At the same time, we always have our eye on expansion. Why? Because a hospital or health system would not perpetuate its use of Tablo within other new hospitals inside of its network. If the technology and the experience around it, we're not delivering on its promises to lower cost and and deliver operational and clinical benefits. And I think the expansion numbers that we saw in 23 than we expected, 24 proved that it is. And so I guess I would say how does it get accelerated? And I'll talk maybe a little bit more about the network effect or maybe a better word for it is kind of its flywheel. And we have demonstrated that these cost reduction and clinical benefits are reproducible as more and more hospitals have publish their experience, shared their experiences publicly in their data. We talked about Covenant Health in the script here just a minute ago as an example of that. And what we do see now as our reference base continues to grow and as health system executives move around and clinicians around the world. And the investor ship around Tableau is continuing to grow quite substantially plus now that we've trained, as I mentioned, over 10,000 nurses, we're seeing sort of a flywheel effect developing within the nursing community as well as a lot of support for the benefit to Tablo provides that.

And thanks for that.
Color on the bill, what are the factors that could potentially get you to deliver on at or above the top end of your guidance in 24?

Leslie Trigg

Yes. In have a So guidance, as you as you may remember from the last time from our November call, we have assumed at the midpoint of guidance that we are placing roughly the same 1,400 consoles round numbers as we placed in 2023 and 2022 were also assuming again within guidance here at the midpoint that are say that capital spending doesn't change, meaning its impact on our sales cycle doesn't change. And so as we think about moving anywhere through our guidance range, it really depends the number one on the number of consoles we place and that could be either as a result of getting Tableau cards earlier or it could just be leasing underlying demand in both our large end markets. We've also seen in the past overperformance come from ASP. and also from more treatment sales than we have modeled. So we can see upside in a variety of ways.

Thank you. Thank you.

Operator

Kristen Stewart, CL King.

Kristen Stewart

Thanks for taking my question. Do you hear me okay?
Yes, perfect. Okay.
Apart, how much could you just provide some color on the cost reductions that you guys are taking the initiatives across the Company and what gives you confidence that you can get the cash burn down in 2024?

Nabeel Ahmed

Yes.
Hey, Kristen. So the expense reduction initiatives are the ones we announced in our last call. As well. And what we did is we really took a look at all of our spending and anchored around two pillars. So one thing we wanted to protect was our commercial ability to execute into our guidance range and beyond. As we think about, you know, our long range horizon here should meaning out through 2027 and beyond. So we wanted to preserve our ability to sort of be able to perform on the top line. And then we wanted to make sure that we preserved R&D capability both to continue to drive cost down on our console and to find software, which we've long talked about as kind of where we think the future is going to be. So once we have these two pillars. We sort of went through everything else in our P&L and just made sure that we were spending at an appropriate level given our expected rate of growth that resulted in our taking out roughly $25 million worth of OpEx in round numbers and allows us to last in 2023, we just printed about 162 million of OpEx non-GAAP. And our guidance for 2024 is about one 40 to 1 $45 million. So that's kind of the exercise we went through now from a cash perspective, we burned just under $120 million in 2023, and our expectation is to burn significantly less than that, about $100 million in 2024 and then to burn incrementally less each year moving forward as we have revenue growth, gross margin expansion and OpEx leverage of this new lower base?
Yes, we're taking it.
Great.

Kristen Stewart

Thanks, Chris, and thank you.

Operator

Drew Ranieri, Morgan Stanley.

Drew Ranieri

Hi, Leslie, I know Bill, that you're taking a question maybe for Leslie, just your comments about the whole market. You mentioned one of the MDOs, Xavier averaging about 25 patients on their own with Tableau. And you mentioned that historical reference of like one to five patients on and common devices. Just maybe help us bridge what the characteristics are of that MDO that's now out to like 25, 25 patients. And there's such a significant population at of home patients still out there, what's really going to get the market to make more progress in getting patients from and center to the home over the next 12, 24 months? Kind of how are you thinking about that? And thanks for taking the question.

Leslie Trigg

Sorry.
Yes, keeping us in Asia, we and so I guess one comment. First and foremost, we have we really were excited by the examples that we have amongst the home programs of getting into, I'll call it the elevations of a home patient census that have never been seen before. We do have we are, as I said, our highest home program. It has been averaging 25 patients. That's not a ceiling. And one of the things that the most excited about and are curious about is how much higher above 25 can we go and I think it's quite a bit higher. That is because our training time on Tablo really irrespective of patient demographic is materially faster than the incumbent devices. So we're just enabling patients to get home more quickly. And again, our retention rates, the retention rate is absolutely critical here and we have had a markedly higher retention rate, both short term within 90 days and longer term at 12 months. And that helps tremendously what our goal is to get patients home and enable them to stay home. And I think our team is that our technology has done a really good job of doing that.
Yes. On your second part of your question was how do we reach for even against higher shelves? If you will of the number of patients home. I think it is twofold with the existing dialysis providers. It is growing the number of patients per home program. We're really focused on going deep with the programs that we have, which we're starting to see and the part to keeping that retention rate high and then adding more patients at the top of the funnel, as we talked about in the prepared remarks, by creating more new market entrants that are sending patients home, we are seeing movement there. We're seeing new market entrants get into the business of home dialysis who are kind of motivated by and attracted to the economics of home. And also, they're starting to think about the journey to home. How do we get patients into the home where to date, how how, how how and where they train, how are they supported their thinking about all those questions in really sort of different and creative ways, all of which I think will contribute to have greater patient flow of direct to the home with a with a home first mindset. So as with all things that are transformative a transformation of market. This stake is not certainly not going to happen overnight. We've always expected it to grow at a steadily linear fashion. But I do think all the right work is being done now, which we expect to feed a high double digit double digit growth rate our far into the future for us on the on the home and the acute side for them?

Nabeel Ahmed

Yes.
Does that answer your questions?
Operator?
I think we can go to the next question.

Operator

(Operator Instructions) Shagun Singh, RBC Capital Markets.

Shagun Singh

I'm he Leslie, thank you for squeezing me in. I was just wondering if you can talk a little bit about what the Street is missing about the Outset Medical story.
And given where the stock is at, is there any change in strategy or anything you're looking to do differently?
Thank you for taking the follow-up.

Leslie Trigg

Sure. Happy to.
Well, I think that as I look take a step back and look at the of the story, I see a couple of things. Number one, I see a market with very high barriers to success. We have now scaled to a point where we have scaled the high barrier and raised it for others of those who are already in the market and those who might be attempting to enter it. And too, I see a business that is predicated on a very high percentage of recurring revenue, which provides visibility, durability and that percentage of recurring revenue will only continue to to get greater in the future.
I also see a market with incumbent provider out of competitors that are providing services and products that health systems and patients are increasingly frustrated by and which are driving them to actively seek new solutions. And I think that the last point I'll make is that this is about much more than a technology. It is about the ecosystem that we've built around Tableau that I spoke to in the prepared remarks. We have become in a proprietary way exceptional at guiding optimal health system customers. Through the change management process, we've become exceptional in moving and supporting patients in the home. We've become exceptional in our field service organization, our clinical support organization and our ability to educate and train physicians and nurses. And so and perhaps if anything being underappreciated, maybe it is the recurring revenue element of the story, the impressive retention rate in the home and the strong gross margin gains that we've already made with a very, very clear road map now both to this next milestone to 50% gross margins and a very clear roadmap, two, a profitable business in addition to a high-growth one, just any change in strategy or the business as usual, our strategy remains exactly the same. I think we are in the early innings of both acute and home. We're very proud of the roughly 10 or 11% total penetration we have on the acute side, but that leaves 90% to go hand. So I think our strategy of focusing on what we call kind of land and expand both landing new customers adopting in-sourcing with Tableau and delivering a product and team experience that motivates existing customers to expand within their network continues to pay dividends.
And then on the home front, I think the strategy remains resident at the mid-sized dialysis organizations continuing to deepen the patient census and volume in our existing programs and are similarly landing new market entrants at the top of the funnel who are very motivated to enter this business and provide patients with additional channels of access and through which to go home.
So I think when we look at our growth and as I look, for example, at 60% growth, just on the on the home console front in 2023, we feel very confident in the components and the commercial strategy at large moving through 2024.

Shagun Singh

Thank you so much.

Operator

(Operator Instructions) Joshua Jennings, TD Cowen.

Joshua Jennings

Hi, good afternoon and thanks for taking the questions. I was hoping to just ask about the competitive counter marking that was ongoing in 2023. And where that stands today, I believe is most impactful in some ICU settings and comparison freeing up the Tablo XT is not appropriate for all care settings or just the dynamic between CRT. versus some of the on-label treatment types for for Tableau. Is that died down? Or has your team been able to counteract that effectively? Where does that stand?

Leslie Trigg

Yes, sure. And I hear from you, Joe.
Well, in short, our team has done a really, really good job. And in responding to that, we were caught a little flat-footed, as we've noted and And Q3, Q4, but not sell anymore. And I would also add that we have not necessarily seen any new competitive activity since then we exist now in a competitive market. It's not a surprise when we have taken as much market share and grown as fast as we have. So I would expect to see competitive activity and out and we're more ready for today than we ever have been in the past. And I would say that the other thing that we're on fortified by is the technology itself on Tableau is the only device in the market that can deliver on dialysis therapy, any where between zero and 24 hours, I think its utility and its value in the ICU is further supported by a statistic that new Bill gave, which is that 80% of our console sales last quarter had the Tableau Pro plus software attached to it and which is a feature in the 24-hour feature that you would only use in the ICU. And so I think that speaks to the value clinical value that Tableau delivers in the ICU. And none of that is change as a result of the of the warning letter, the competitive activity around it, which is which is the good news.

Joshua Jennings

And then just one follow-up on the home opportunity. I think you've called out just this stat, about 40% of the U.S. dialysis population have a Medicare Advantage and that payers ultimately may they may drive more patients to the home to secure an economic benefit.
Can you just has there been any actions by payers to date? Or do you expect that in 2024 or how could that evolve? Maybe just And remind us of how economically beneficial home is for for these payers?
Thanks a lot.

Leslie Trigg

Of course.
I'm happy to well, maybe I'll take a half step back and say thank you to all of the structural tailwinds and kind of more foundational growth drivers for home are all still firmly intact. The As a reminder, the IETC. model from CMS is in place and providing increasing benefits or increasing incentives, I should say, between now and 2027 so that that model we believe will continue to incent providers of all types to send more patients home quickly. We do still see private patient preferences being influenced in a positive way toward home as a result of COVID, having patients are more confident sort of forward leaning toward home than ever. And that's also aided by, I think, kind of the normalization of the hospital, the home environment and movement. And then the third big structural tailwind is one that you cited on?
Yes, we do continue to see data that roughly 40% of the dialysis population is already signed up for Medicare advantage of these payers prior to Medicare Advantage eligibility for dialysis patients used to be able to transition their commercial patients over to Medicare at month 30 and now that's no longer the case.
So they will be supporting other dialysis members and effectively in perpetuity.
And so we do expect to see increasing involvement amongst the Medicare Advantage providers to urge their partners to move more patients into the home. I'll say, as I said a couple of minutes ago, I think transformation at this level in any market rarely happens overnight. And so I would not necessarily expect to have results to report back to you on that next quarter per se. But in almost every conversation we are having with payers. It involves a discussion around how do we move more patients home. We believe that the cost of care is lower and that the quality of care is higher in the home. So the conviction and the belief and the motivation is certainly already present.

Joshua Jennings

Great.
Thanks so much and thank you.

Operator

This does conclude the question and answer session of today's program. I'd like to hand the program back to Leslie Trigg for any further remarks.

Leslie Trigg

Thank you, and thanks to all of you for joining today. We look forward to our next update on our first-quarter call, and hope you all have a great evening.

Operator

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.