Outset Medical, Inc. Q4 FY2021 Earnings Call

Good day and thank you for standing by. Welcome to the Outset Medical Fourth Quarter and Full Year 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised today's conference may be recorded. I would now like to hand the conference over to your host today, Jim Mazzola, Head of Investor Relations. Sir, please go ahead.

Okay, thank you and good afternoon everyone. Welcome to the Outset Medical fourth quarter and full year 2021 earnings call. Participating from the company today are Leslie Trigg, Chair and Chief Executive Officer; and Nabeel Ahmed, Chief Financial Officer. During the call, we will discuss our fourth quarter and 2021 operational and financial results as well as provide our outlook for 2022. After our prepared remarks, we will host a question-and-answer session. We issued a news release after the close of the market today and updated our investor presentation, both of which can be found in the Investor Relations pages at outsetmedical.com. This call is being recorded and will be archived in the Investors section of our website. I'd also like to remind you that 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. Any statements that relate to expectations or predictions of future events, market trends, results or performance are forward-looking statements. All forward-looking statements are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. 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 Outset's latest annual and quarterly reports. With that, let me now turn the call over to Leslie.

Good afternoon everyone and thank you for joining us to review our fourth quarter and full year 2021 results. Before I begin, I'd like to introduce and welcome Jim Mazzola, who recently joined us as Vice President of Investor Relations. Jim brings two decades of med-tech and life sciences experience to our team and we look forward to his contributions as we continue to grow our business. The fourth quarter capped off a truly exceptional year for Outset during which we saw record revenue growth, meaningful progress toward gross margin expansion, success with our land and expand acute strategy, and tangible growth in Hong Kong for placement, as evidenced by a tripling of our home installed base. This momentum resulted in fourth quarter total revenue of $28.2 million, representing 63% growth year-over-year and resulted in full year 2021 revenue of $102.6 million, representing 105% growth year-over-year. Our business again proved resilient as we continue to grow through COVID-19. Our success in the fourth quarter extended beyond revenue with console bookings hitting a historic high. We exited 2021 with 1,251 consoles in backlog compared to 551 in backlog exiting 2020, with a significant portion of our 2021 exit backlog consisting of consoles intended for use in the home. This backlog provides us with significant visibility and confidence in our 2022 revenue trajectory. As Nabeel will touch on in his discussion of our fiscal year 2022 revenue guidance, we are projecting another strong year ahead with good visibility to continued sales growth within acute care customers and an inflection in units deployed for home use. In addition to growing the topline, we remain confident in reaching our gross margin expansion goals, specifically our 2025 goal to achieve gross margins of approximately 50%. Turning now to a review of our success in the acute market, the fourth quarter and full year 2021 exceeded our expectations with transformational progress in terms of new sales agreements, expanding with existing customers, and console shipments. Importantly, we saw our land and expand strategy validated as customers consistently expressed interest in expanding their Tablo fleets to new sites across their network as they experienced the economic, clinical, and workflow benefits that Tablo provides. For example, one regional health system in the southeast was paying nearly $400 per treatment with an outsourced service provider prior to adopting Tablo. Following a successful Tablo implementation, the hospital benefited from a 70% reduction in per treatment costs and an estimated $6 million in savings over the past three years. The economic and operational benefits that the health system saw with Tablo resulted in an expansion to multiple additional hospitals in their network. In addition to Tablo's cost reduction benefits, we are also seeing recent adoption due to its ease of use, which has enabled some hospitals to recover from unexpected terminations of service from outsourced dialysis providers struggling with their own staffing shortages. During 2021, we achieved our goal of citing sales agreements with seven of the eight largest U.S. health systems. Our team also successfully drove a meaningful expansion of our commercial footprint across the United States, as we landed sales agreements with roughly a third of the top 100 largest regional health systems, setting us up well for ongoing expansion in 2022 and beyond. This success enabled us to more than double the size of our acute install base, while significantly expanding our backlog and setting a strong foundation for 2022. In addition to our success generating new orders, we also continue to see Tablo XT's clinical value to patients and operational workflow benefits to nurses resonating with customers. This is evidenced by another quarter of strong XT attachment rates, thanks in part to the clinical validation we received for XT through our XTEND study, which demonstrated an impressively low clotting rate of just 4% despite treatment times that averaged 23.5 hours. Our commercial success in the acute market last year taught us that Tablo solves important problems not only for the nation's largest health systems, but also for smaller hospitals with fewer than 100 beds. Given our strong traction in this segment of the market, which we had previously excluded from our TAM estimate, we now believe that our immediately addressable U.S. market opportunity for the acute setting is $300 million larger than initially projected, putting the total U.S. TAM at $2.5 billion. I'd like to add that our success in these smaller hospitals is meaningful on a very human level as well. Tablo is creating health access equity in often rural communities where patients may not have had or may be at risk of losing access to dialysis care. In states like Texas and Oklahoma, small hospitals have adopted Tablo to start offering in-patient dialysis to patients who previously would have had to travel hours away to receive care. We've also seen small hospitals use Tablo to insource dialysis in order to preserve a dialysis service line their community members otherwise would have lost. We care about patients first and are proud to serve the need wherever and whenever it exists. As we look ahead, we are only single-digit penetrated in acute care and we have a tremendous runway in terms of new customer acquisition, particularly as we're observing hospitals of all sizes seeing value in Tablo. We feel we are still just at the tip of the iceberg on the acute side. Well, as we talked about before I start choking, can you start this next step actually.

Growing customer and install base in the acute setting directly feeds our home expansion strategy. In 2021, we took a deliberate approach to building our early home presence, focusing first and foremost on delivering an exceptional and highly differentiated patient and caregiver experience. Our second key objective last year was to build a solid operational foundation that was ready for scale, from training to distribution and logistics to patient support anytime of the night or day. I am pleased to report that the team achieved both of these objectives, while tripling our home and clinic install base to 300 consoles, and in ways that allow us to scale in 2022 with an inflection beginning this year. After growing home revenue to mid to high single digits as a percent of total revenue in 2021, we expect our home revenue to more than double in 2022, reaching mid-teens as a percentage of 2022 revenue. To achieve this level of growth, it is also our goal to exit the year with 100 home programs in place with both health systems and specialty providers.

I'm back. Teamwork makes the dream work as they say. Thank you, Nabeel. Given that home consoles were a significant portion of our Q4 active backlog, we believe we are set up well for strong velocity and volume in 2022. Additionally, macro factors in the home setting remain overwhelmingly in our favor. As we announced on our last call, we are very pleased to have received a favorable decision for Tablo under the Tiffany program following the submission of our application in the first quarter of 2021. As a reminder, Tiffany stands for the transitional add-on payment adjustments for new and innovative equipment and supplies. Notably, CMS deemed Tablo as a substantial clinical improvement compared to the incumbent device, making it the first and only dialysis technology to benefit from this new CMS rule. The Tiffany decision and the End Stage Renal Treatment Choices or ETC model provide additional tailwinds we believe our sales teams will capitalize on in 2022. Beyond our ability to drive revenue growth and build a foundation for the future, our team continues to make impressive progress on gross margin expansion, despite macro headwinds. We reached fourth quarter non-GAAP gross margin of 12%, which was in line with our expectations. We're very proud of our teams across the business and how they've effectively managed through the macro supply chain and sector volatility during the quarter and the year. On the supply chain and manufacturing side, our ongoing cost reduction initiatives and programs continue to work for us, which helped drive sequential reduction in the cost of our console. On the cartridge side, we achieved an important milestone in late November when the FDA granted 510(k) clearance for a new Tablo cartridge. This approval enables a second source to produce Tablo cartridges in Mexico with a new contract manufacturing partner in addition to our existing manufacturing partner in Southeast Asia. This clearance is an important milestone on our roadmap to continue gross margin expansion, as we expect previously elevated transportation and shipping costs to decrease as this new primary source of cartridge production in Mexico ramps up. Both this new source and other ongoing cost-down initiatives are expected to contribute to long-term gross margin expansion. In addition to cost reduction, we believe this approval will better enable us to optimize our manufacturing process and mitigate current supply chain challenges around lead-time, capacity, and logistics. In summary, we are very proud of our performance both in the fourth quarter and full year. Outset continues to deliver strong, consistent and predictable revenue growth and gross margin expansion. In addition, we successfully achieved the key 2021 strategic initiatives we communicated at the beginning of last year — expansion within the acute setting, foundation building for expansion in the home setting, increasing manufacturing capacity and delivering cost reduction initiatives designed to enable sustainable and profitable financial growth. These accomplishments are a testament to our exceptional team and the transformative technology we're delivering to reduce the dialysis burden for patients and all those who support them. As we look to 2022, we have clarity and conviction around the growth drivers that will continue to distinguish Outset Medical, namely, expanding our acute care business from the beachhead we established last year, inflecting the trajectory of our home business, and meaningfully expanding gross margins. I remain very confident in our growth trajectory and our promise to dialysis patients and providers that better begins now. Before we turn the call over to Nabeel, I'd like to share a story from our annual sales training meeting which was held last month. As we do at every sales meeting, we invited several patients and nephrologists to speak to our group. Melvin and his wife of 46 years, Cleo, were two such individuals who had an enormous impact on our team. Melvin is a veteran with end-stage kidney disease and he served our country for 23 years in the Air Force, including on the team responsible for maintaining Air Force One. He was diagnosed in 2009 and began home dialysis in 2018 with a competitor system. Cleo told us that training was difficult and that there were "binders of information to assimilate and that it was quite overwhelming." So, when Melvin's nephrologist approached the couple with a new option in April of 2021, they were eager to try Tablo. Cleo told us, I simply cannot believe how much better Tablo is. Not only is disinfection easy, but setting up for treatment is so quick and simple to do. She said, Tablo walks you step-by-step through everything on the touch screen and you never feel like you're lost. She describes moving to Tablo as a night and day difference. Melvin said he likes all the time Tablo saves, time he and Cleo can spend doing more of the things they enjoy in retirement, including spending time with their four children and nine grandchildren. We love stories like this and look forward to sharing more of them as we continue to grow and further expand in the acute and home markets in 2022. And of course, none of the success we had last year would have been possible without the hard work and dedication to our mission carried out by everyone on the Outset team. And for that, I want to close by thanking all of our employees for their extraordinary work. With that, I'll now turn the call over to Nabeel to review our financials and provide more granularity on our expectations and key drivers for 2022.

Thanks, Leslie. Hello everyone. Our fourth quarter revenue grew 63% year-over-year to $28.2 million, driven primarily by increased console shipments to acute customers, higher consumable shipments, increased services to support our growing installed base, and the impact of XT upgrades. Our full year revenue was $102.6 million, an increase of 105% over the prior year. Product revenue grew 80% year-over-year to $23.7 million. Console revenue grew by 70% year-over-year to $18.1 million, driven by higher console placements and increased ASP given the availability of and demand for Tablo XT. Similar to prior quarters, we continue to see better uptake of our XT upgrade than we had initially projected. Consumable revenue was $5.6 million, an increase of 119% versus the prior year. We saw Q4 cartridge utilization in line with our expectations. Service and other revenue grew by 11% year-over-year to $4.5 million as we service the larger installed base. 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 12%, an improvement of approximately nine percentage points versus the prior year period and the sequential improvement of 60 basis points. This improvement compared to the prior year period was primarily the result of our ongoing cost reduction activities related to moving our console manufacturing production to Mexico, which have meaningfully lowered console costs while enabling increased console output. Operating expenses in the fourth quarter were $39.4 million, up $13.6 million versus the prior year period, driven primarily by headcount growth resulting from investments in our commercial organization, investments in R&D, and G&A expenses tied to operating as a public company compared to the prior quarter. Non-GAAP OpEx increased $9.1 million, primarily as a result of the investments we're making in our commercial execution and in R&D. We reported a fourth quarter GAAP net loss of $41.2 million, resulting in a net loss of 87 cents per share, compared to a net loss of $32 million or 75 cents per share for the prior year period. Non-GAAP net loss was $36.4 million or $0.77 per share compared to a non-GAAP net loss of $25.8 million or $0.60 per share for the same period in 2020. We ended the year with approximately $372.8 million of cash, cash equivalents, restricted cash, and investments. Moving on to our 2022 outlook, we project revenue for the full year 2022 to range from $142 million to $150 million, which represents approximately 38% to 46% growth over the fiscal year 2021 revenue. Our guidance is grounded in the visibility afforded by our backlog of both acute and home consoles exiting 2021 as well as our pipeline. Our revenue guidance assumes an inflection in our sales to home customers. We expect that our sales into the home will double as a proportion of our revenue in 2022 compared to 2021 with a goal in the mid-teens as a percentage of total revenue for full year 2022. For modeling purposes, we assume revenue will grow in the mid to high single digits sequentially from Q4 to Q1 and then accelerate as we move through the rest of the year. Moving to gross margin, we were very pleased with our sequential improvement in the fourth quarter and our year-over-year expansion, overcoming some of the supply chain headwinds we faced. We expect our gross margin to continue to benefit from our ongoing cost down activities on the console as well as the transition of our cartridge production to be primarily in Mexico. We have line of sight to non-GAAP gross margin expansion to the high teens for the full year 2020 to more than a 2x expansion to 2021 for your gross margins. This forecast assumes some level of continued volatility in component costs, which we believe we have mitigated against, as well as the cost of freight, which we expect to taper in the first half of the year as our new Mexico-based cartridge manufacturer ramps up. As we have said throughout the last couple of years, we are fortunate to have one of the best supply chain teams in the business and we will continue to leverage our strong balance sheet to help ensure that we have enough materials and inventory on hand to service our growing demand. Our gross margin performance through 2021 and the structural changes we've made around our console and cartridge manufacturing give us continued confidence in our long-term margin expansion trajectory, and in our path to get to roughly 50% gross margins in 2025. Now, I'd like to turn to non-GAAP OpEx. Given our strong progress to-date, the large market opportunity we see in front of us and the tailwinds we see in the home market, our intent is to continue to invest in our business to drive long-term revenue growth, ongoing gross margin expansion, and focused R&D to help ensure that our solutions remain in the leadership position. We forecast operating expenses to increase in 2022 relative to 2021 as we annualize the investments we made in 2021. Next, I want to provide some color on our expected increase in stock-based compensation expense. We transitioned to being a public company in late 2020 and did our first real set of equity grants in 2021. As a result, our non-cash stock-based compensation expense will be meaningfully higher in 2022 relative to 2021. And finally, a quick comment on CapEx. Our facility in Mexico continues to be able to support our console manufacturing needs into the foreseeable future. We intend to make some scheduled CapEx investments into this facility to expand its capacity to keep up with anticipated demand. We expect total CapEx for 2022 to be in the mid to high single-digit millions of dollars. Our progress through 2021 and our expectations for 2022 give us continued confidence on our journey towards breakeven profitability on a non-GAAP basis exiting 2024. Thank you for your time. We look forward to providing an update on our Q1 progress during our next earnings call.

Thank you. Our first question comes on line of Amit Hazan with Goldman Sachs. Your line is open, please go ahead.

Thank you very much and congratulations on the quarter and the year. I thought we could start with the macro context, which you provided some good insights on, but I want to follow up regarding the supply chain and some of the issues that have arisen that I know are on investors' minds. It seems like you have a handle on the componentry situation. Your comments imply that regarding your backlog or the units you expect to deliver in 2022, you believe you have the necessary components for those deliveries. Could you confirm this? Additionally, regarding the dialysate shortage that companies are discussing, there seems to be some confusion about the extent to which you may be impacted by it. Could you take a moment to clarify that?

Yes, Amit, absolutely. So, let me maybe start with your first part of your question on the supply chain. So, we've seen a couple of things happen over the last year. Number one, the component shortages, as I talked about, we do have one of the best supply chain teams in the business; we have leveraged our balance sheet to make sure that we have enough raw materials and components on hand, we also make sure that we've got enough Tablos on hand to service forward demand. So we are not concerned from a component perspective at all with respect to 2022. The other thing we saw, and I talked about this in my prepared remarks is the cost of freight, particularly as it related to transporting cartridges from Southeast Asia to the United States. Now, again, now that we have our Mexico-based cartridge manufacturer, they’ll be ramping up here in the first half of the year. And so, again, structurally, we've mitigated that situation and we won't have these freight costs going forward.

Yes, maybe I can jump in on the second part of that. I mean, we have been hearing about and reading about in the newspaper, the dialysate shortages as well. We certainly have gotten our fair share of calls from hospitals being put in a pretty difficult position by that. The short answer is we are open for business and anticipate being open for business well into the far future. We don't source from any of the providers that have been struggling with such shortages and we haven't missed a beat. And so if anything, it has provided us with an opportunity to help out at a really critical time since we have been able to maintain a very, very strong continuity of supply.

Good stuff. I just have one follow-up and won’t jump back in the queue. Regarding the 2022 guidance, as people are still getting to know your company and considering the backlog you reported at the end of the year, which was 550 last year, could you help us understand how that figure turned out? Specifically, how much of it and how quickly? Also, how does that inform our thinking about the 1,250? How much forward visibility does that give you? And generally speaking, regarding visibility, could you walk us through the guidance you provided, particularly the factors influencing the low and high ends you are considering for the year? That would be super helpful. Thanks so much, and congratulations again.

Certainly, Amit. There are three key points to discuss. First, we started 2021 with a backlog of 551 consoles, which we noted was primarily focused on the first half of 2021. This backlog was expected to be deployed mainly in that period, contributing significantly to our growth during the first half of the year. Now, looking ahead to 2022, we entered with a backlog of 1,251 consoles. This backlog signifies a binding agreement with our customers for orders, and we coordinate with them to establish shipping dates. The situation with the 550 consoles from 2021 is quite different from our 2022 backlog. Given the current backlog of 1,251 consoles and the insights from our pipeline, we feel confident in our guidance of $142 million to $150 million. This confidence is backed by visibility provided by our backlog. Regarding our guidance range, it accounts for the fact that COVID has not significantly hindered us; in fact, we've managed to grow during this period. Additionally, nursing shortages have generally worked in our favor, allowing us to step in when existing providers faced staffing issues. With three and a half quarters remaining in 2022, we are optimistic about our guidance range, bolstered by the visibility from our backlog and pipeline.

Thank you.

Thank you. And our next question comes from line of Josh Jennings with Cowen. Your line is open, please go ahead.

Hi, good evening. I want to echo Amit's congratulations on a strong year. I have two questions regarding the home opportunity. It seems like you are gaining significant momentum, and I appreciated the guidance you provided. I would like to understand where Tablo is succeeding. Is it primarily new patient starts in home use, or are there competitive switch-ins? Additionally, is the PD burnout patient opportunity playing a role in this momentum? How do you plan to approach the PD patients who are experiencing burnout and are already on some form of home dialysis? My second question is about the pandemic. In 2021, we observed a trend of more end-stage renal disease patients opting for home hemodialysis due to the risks associated with visiting clinics. Thank you for addressing my questions.

Yes, sure. Thanks for your question. I'll start by saying that we are seeing Tablo attract both new and existing patients in the competitive home hemodialysis market. It’s difficult to provide a precise breakdown since different providers have various strategies, but generally, most of them are adopting Tablo to expand their home patient population. They find Tablo's ease of use, time savings, and reduced supply needs appealing, which encourages more patients to consider home dialysis. While some of our current home patients have previously used other technologies, the majority are new to home dialysis, as providers aim to grow their home populations. Regarding the transition from peritoneal dialysis (PD), I believe we're still in the early stages. We've always seen the shift from PD to home hemodialysis on Tablo as a significant opportunity for patients to remain at home. I expect that we will invest more in patient education and transition programs in the coming years. For now, our main focus is helping providers grow their home hemodialysis populations. As for the impact of the pandemic, qualitatively, it has certainly influenced patients. Anecdotally, many patients have mentioned that the pandemic has made them consider home dialysis more seriously. However, we do not yet have concrete data regarding the numbers or speed of this trend. Nonetheless, it is frequently a topic in my conversations with patients about their choices.

That's super helpful. Thanks for the answers, Leslie.

And our next question comes from a line of Suraj Kalia with Oppenheimer & Co. Your line is open, please go ahead.

Hi, Leslie, Nabeel. Can you hear me all right?

Yes.

Perfect. Congratulations on the quarter. Leslie, I have a couple of questions. Nabeel, let me start with you. It seems that the commentary suggests a home hemo contribution of around $20 million to $22 million for fiscal year 2022. If I perform a quick calculation, it looks like we could expect just over 500 home hemo patients for fiscal year 2022, compared to about 175 in fiscal year 2021. Is my calculation off?

Suraj, I don’t want to comment on the specific number and that’s not something we want to guide to. However, we did mention that our home revenues were more than double, reaching mid-teens as a percentage of 2022 revenue. Your calculations align with that statement. We will provide our installed base annually and will do the same next year when we report Q4 2022 results. Your math aligns.

Fair enough. Hey Leslie I'll throw one your way and hop back in queue. When and look at the bell curve of distribution, especially in the acute centers and the 1,250 consoles and backlog. To the extent that you can help us understand how the bell curve looks like you because you did have some pretty big contract from some concentrated users. And I'm curious how you're seeing the bell curve, is it widening? Is it narrowing? Any idea about recurring revenue from acute centers would be greatly appreciated? Folks, thank you for taking my questions.

Yes, I'm happy to help. I believe that when you refer to the bell curve, you might be talking about the installed base, facilities, and customer expansion. My first comment is that in 2021, the expansion was both extensive and thorough. So, if I understand your bell curve analogy correctly, then yes, the bell curve is indeed widening.

Suraj, let me address that. Looking at our utilization in the fourth quarter, it's important to note that we focus on trailing 12-month utilization as it helps eliminate noise. We analyze utilization across our portfolio, and things are progressing as expected. As we continue to grow, our new facilities will initially have lower utilization rates, while the more established facilities typically exceed our targeted midpoint utilization. In a growing environment, everything balances out. Overall, from a utilization standpoint, we are on track with our expectations across the portfolio, both in acute care and home consoles. Does that answer your question?

Fair enough, Nabeel and Leslie, thank you.

Thank you. And our next question comes from a line of Rick Wise with Stifel. Your line is open, please go ahead.

Good afternoon everyone. I want to extend my congratulations on a fantastic quarter. Leslie, congratulations on your new title and on bringing one of the top investor relations professionals on board. That's a great move. Turning to a question about acute, with the single-digit penetration and the land and expand strategy, could you elaborate on your comments? What's the agenda for 2022? Is it more focused on signing large new systems, or should we anticipate something different? Or is this year primarily about expanding to enhance growth in Tablo adoption? Thank you for clarifying that, Leslie.

Yes, sure. Thanks. Thank you, Rick and thank you for the compliment, that's very, very kind of you. Well, I guess I would say it sort of started down this road was with Suraj's question, which is, if you looked at sort of the bell curve from a customer concentration standpoint, the spread is getting wider. So, we are proliferating Tablo usage not only with new customers, and also with new facilities within those existing customer networks. Tablo today is now used in almost every state in the country, including Alaska and Hawaii, something we're really proud of. But I think I use the verbiage tip of the iceberg because when you look at the performance in 2021, which was great, and we're very proud of it, also on an opportunity set of $2.5 billion, there's a lot of runway there to go. And so said differently, the runway that exists, exists both in new customer acquisition. Now, there are a lot of hospitals that could benefit from Tablo, as well as expansion within the customer, both the regional health systems and also certainly in those national health systems where we have failed agreements, but are still somewhat in the process of implementing and installing Tablo at more and more of their hospital facility. So, both deep and wide to answer your question.

Got you. And my home-related question, just responding to your use of the word inflection, strong language. What's giving you so much confidence now? I mean, obviously, the numbers look good. It's still very early on, but here too, can you discuss next steps and logistics? And again, this time next year, I guess, have you doubled the number of home programs? Is that what we're looking for? Or no, it's focused more narrowly and drive patience and sort of get more competence in your logistics and team and everything? Again, how are we thinking about priorities there?

Yes, I'm glad to address that. I’ve mentioned in previous calls that I have consistently believed in doing things well rather than quickly, regardless of the market. This is particularly important in the home care sector, where the relationship between the device company and the patient is highly personal. As we entered 2022, we thoroughly reviewed our preparations for scaling that took place in 2021 and decided we are ready. We are set to grow both effectively and swiftly. This represents a shift in our approach and the momentum we believe we can achieve in the home market this year. Additionally, the efforts from Tiffany's and the ETC have increased the urgency for progressive providers to expand their home populations, which has positively influenced our optimistic outlook for 2022. Looking ahead a year from now, we aim to report that Tablo is being widely utilized, with around 100 home programs operational across the country. We want to share our high retention rates, which demonstrate significant differentiation, and we intend to convey that we are prepared to accelerate our growth further into 2023. This is the focus of our reporting for the same time next year.

Got you. And just one last question for Nabeel. Nabeel, could you provide some insight on the quarterly revenue flow throughout the year? Additionally, could you shed some light on the gross margin as well? It seems like you're aiming for higher teens as you approach the fourth quarter. However, will we see a steady increase? Will there be a sharper jump from the fourth quarter to the first quarter? Or could there be a slower start due to program costs or volume increases? How should we think about that flow? Thank you so much.

Certainly, Rick. Regarding gross margin, there are a few key points to consider. Firstly, the factors contributing to our margin expansion include our cost reduction initiatives in the console segment, which were beneficial in 2021 and will continue into 2022. We are focusing on suppliers, components, and redesigning individual parts to lower costs. Secondly, our Mexico-based cartridge manufacturing is ramping up, and you can expect this increase primarily in the first half of the year, where production will grow significantly. Taking all these factors into account, we anticipate gross margins to expand sequentially throughout the year from the levels we saw in Q4. Specifically, from the 12% we just reported, we expect to see growth. Additionally, we project that for the entire year of 2022, our gross margins will be in the high teens.

Got you. Possibly suggesting you end up later in the year a little higher. Thank you so much, Nabeel.

Thank you. And this does conclude today's question-and-answer session. And I would like to turn the conference back over to Leslie for any further remarks.

Thanks operator and thank you all for joining today. Have a great afternoon or evening depending on what time zone you're in. Thanks again.

This concludes today's conference call. Thank you for participating. Everyone, have a great day.