So that’s been a real selling point that I think has been recognized by many provider organizations. And really this retention rate has been key. It is so much higher than other alternatives out there, and that’s really the point. The point isn’t to train as many people as you can to go home. The point is to keep as many patients as you can at home. That’s really where the economics bloom and of course, the clinical outcomes manifest themselves. And so we view U.S. Renal Care like all of our other partnerships within this MDO segment, as really critical to our own home growth. And we’re privileged to be able to be a strategic weapon in their hands as well as they try to grow home.
Operator: Thank you. One moment for the next question. And our next question is coming from Suraj Kalia of Oppenheimer. Your line is open.
Suraj Kalia: Good afternoon, Leslie, Jim, Nabeel, can you hear me all right?
Leslie Trigg: Yes.
Suraj Kalia: Perfect. Hey Leslie, a lot of commentary provided, if you could quickly, the 90-day, 90% retention rate, if I were to extrapolate those curves at the one-year time point, do you have visibility into what the retention rates are? And also specifically on workforce reduction, Leslie, was there any reduction in the sales and marketing division? Thank you.
Leslie Trigg: Sure. Yes. So let me speak to that. I’ll talk about the patient retention rate, and then I’ll go to your second question. The — yes, we do have data on the one year, and we — it is also markedly higher at one year on Tablo compared to the legacy home HemoSystem. So we’ve been really pleased at the one year retention as well. Actually, I’ll make another remark. It has been very, very stable. So not only has it been much, much higher, it’s been really stable. And Suraj, we’ve offered in the past that at one year, what we call our controllable attrition, there’s the uncontrollable attrition, which is out of our hands, unfortunately, that’s death and transplant. And then there’s what we call the controllable attrition, which is the patient’s just opting off.
They want to go back in center, let’s say, or something in their life changes. We should be able to affect that. We challenge ourselves to affect that. And so we really focus on doing a great job as an organization in the controllable attrition rate. And for us, that controllable attrition rate at 12 months has remained very stable at about 10%, despite our pretty significant growth in the denominator of patients’ home on Tablo. So those results, Suraj said differently are holding between 90 days and a year. Regarding the reduction of our team, we — the LION’s share of the people, as well as programs and CapEx and other forms of OpEx were in, as Nabeel said, the operations and the R&D area, with the remainder of those reductions spread across the organization.
When we thought about the approach here and the philosophy around reducing our spend, we really had two non-negotiables or sort of sacred house in mind. Our core tenets were, number one, we have to preserve the patient and the customer experience that is what is driving Tablo’s adoption growth. And two, we have to ensure that we continue to deliver on our gross margin expansion initiatives, which continue to pay off. So we very, very, very carefully planned our cost reduction to avoid affecting those areas.
Operator: Thank you. One moment for our next question. Our next question is coming from Stephanie Piazzola of Bank of America Securities. Your line is open.
Stephanie Piazzola: Hi, thanks for taking the question. I appreciate the color on the guidance you’ve given and how we should think about the first half versus the second half of the year, but just wanted to follow-up a little bit, I guess with Q1 coming in a little light and not changing the outlook for the second half. Is there anything getting better, maybe in the second half to offset Q1 versus previous expectations, and maybe any difference in how we should think about the low versus the high end of the guide now. Thanks.
Nabeel Ahmed: Yes. Hey, Stephanie. So with respect to Q1, again, it came in largely as we guided a little softer. Q2, we’d always expect it to be a ramping quarter for lack of a better word, again, for all the reasons that Leslie talked about in terms of getting customers reactivated with TabloCart with prefiltration. So we do expect Q2 to step up a little bit in that low-$30 million zone, as we said. Now, when we think about the back half, a couple of things. So one, we will have TabloCart with prefiltration for the full half, because we expect to be ramped and are working to be ramped in the second quarter, so that we’re fully sort of ready in the second half. And then let me talk a little bit about the second half and some more specificity.
And really, Stephanie, it’s two components. So one, we do have our recurring revenues, consumables and service off a larger installed base as we enter the second half. And if you assume kind of at even the low end of guidance that half of our 2H implied revenues come from recurring revenues, the other 50% coming from consoles is the same — roughly the same amount of console revenue as we did in 1H 2023, which was the last half year when we had TabloCart the prefiltration. Does that make sense?
Stephanie Piazzola: Yes. Thank you.
Nabeel Ahmed: And then Stephanie, and then sort of — okay, so that’s part one. And then, as you think about moving through the guidance range, we’ve always had the same performance levers, right? So we can place more consoles in both our large home or acute end markets. We have ASP; we have Tablo PRO+ penetration or sales. And of course, we have TabloCart sales, both to our existing installed base and to new customers. So those are kind of how we think about guidance in the back half.
Leslie Trigg: I can add just a few points that came to mind while you’re talking. I think in addition to TabloCart, which is the big — again, the big propellant heading into the second half. But I will also reiterate, we did see very significant pipeline expansion in Q1. And we have talked before about our sales cycle being in the 9 to 12 months. Some deals come in earlier than nine months and other deals go a bit longer than 12 months. But generally speaking, it’s 9 to 12 months. So with this significant pipeline expansion, I think I mentioned, I want to reiterate it, a higher percentage than ever of our deals in the pipeline are over $1 million in size each, and over half are from potential new customers. So this pipeline is looking a little different to us in a very, very good way.
And so that’s another kind of tailwind for Q — excuse me, second half. And then, of course, the third tailwind, which is related, is that lapping of the sales cycle from Q3, Q4 of 2023 coming online in that second half of 2024. So that’s how I think about the three tailwinds, kind of propelling us to this growth trajectory through the back half of this year.
Jim Mazzola: Okay. Thanks, Stephanie. Next question, operator?
Operator: Thank you. And the next question is coming from Joshua Jennings of TD Cowen. Your line is open.
Joshua Jennings: Hi, thanks for taking the question. I was hoping to just get an update on the Tablo enhancements that have been brought forward over the past 12 months to 18 months. It sounds like the CTO departed as part of the restructuring. Imagine there’s a deep bench there. But any plans to replace that head of that group and then anything we should be looking for in terms of technology enhancers on the Tablo system as we move through this year?
Leslie Trigg: Yes, sure. Hi Josh, happy to answer that. One of our, if not our CTO’s greatest gift and legacy to Outset is the team that he put in place here, and he’s leaving us with we have an absolutely stellar Vice President of Software, very, very deep bench strength on cyber and data analytics and EMR operability. As we noted in the script, we have spent the last any number of years making very significant enhancements and investments in all dimensions of software, data, data transmission, cyber and EMR interoperability. And now is our moment to harvest those investments. And, as I said, kind of really maximize the Tablo that we have today. We do have an advantage in this market, which is we are light years ahead. We have a very, very meaningful technology advantage both hardware and software.
And I know this has been pointed out to us by investors and shareholders that, hey, you guys have an incredible, incredible lead. Should you just be maybe taking a pause and really selling and marketing what you have? And I think that there’s a lot of merit to that, and we reflected on that a lot. We will never stop being sort of the imaginative, ambitious people that we are. I can’t change the personality of the organization. However, we do have an advantage in the lead that we already have both software and hardware. It will be our focus for the — over the course of this LRP period to make the best use of that. But no, we are not going to stop dreaming. And as I mentioned, we are just going to probably more pace investments in the future, better aligned to the timeline at which they might pay off, which is probably, maybe toward the end of the LRP period or beyond.
Hopefully that helped.
Joshua Jennings: Definitely. And just thinking about the evolution of the Tablo system and as think about the LRP and what are the pricing assumptions both on the capital and on some of the disposables? Should we be thinking about price increases year-over-year, or is stable pricing the name of the game within that LRP guidance? Thanks a lot.
Nabeel Ahmed: Yes. Josh, I mean, we’ve — so look, we’ve always talked about Tablo, about our ability to protect our pricing on the low end and then offering these value-added accessories, including Tablo PRO+. And now back with TabloCart with prefiltration. So again, that’s how we think about pricing broadly now and over the LRP period.
Jim Mazzola: Okay. Thanks, Josh. Operator, any further questions for us?
Operator: At this time, there are no more questions in the queue. I’d like to go ahead and turn the call back over to Leslie for closing remarks.
Leslie Trigg: Great. Well, I would like to thank everybody again for joining us this afternoon, and wish everybody a very good evening. Thank you.
Operator: This concludes today’s conference call. Thank you for joining. You may all disconnect.
