NxStage Medical (NXTM) Q1 2018 Earnings Conference Call Transcript

NxStage Medical (NXTM)
Q1 2018 Earnings Conference Call
May. 9, 2018 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the NxStage Medical's first-quarter fiscal 2017 financial results conference call. [Operator instructions]. As a reminder, today's conference call is being recorded.I would now like to turn the conference over to Kristen Sheppard with NxStage Medical. Please go ahead.

Kristen Sheppard -- Vice President, Investor Relations, and Associate General Counsel

Thank you, and good morning, everyone. Welcome to NxStage Medical's first-quarter fiscal 2017 financial results call. My name is Kristen Sheppard, vice president of investor relations with NxStage. The press release containing the company's financial results for the first quarter was issued earlier this morning and is also available on our Investor Relations website.

For your convenience, an audio replay of this event will also be available on our Investor Relations website shortly after we conclude today's webcast.Before starting, I would like to inform you that today's presentation contains forecasts about our future, including financial guidance for 2017 and beyond, anticipated demand for our existing products, the timing, and features of our new product launches, market opportunities, our plans for growing our business and other forward-looking statements that do not describe a historical fact. You should not rely on any forward-looking statements as assurance of the future performance.These forecasts are subject to uncertainty and contingencies outside our complete control, including market demand, regulatory approvals and other actions, healthcare reimbursements, our customers' purchasing patterns, competition, economic conditions, litigation, information security breaches, supply constraints, medical advancements, and other factors described in the risk factors and management's discussion and analysis section of our most recent quarterly and annual financial reports. Actual future results may vary in a materially positive or negative manner from today's forecast, and we do not undertake any obligation to update today's forecast.With that, I'd like to turn the call over to our founder and CEO, Jeff Burbank. Jeff?

Jeff Burbank -- Chief Executive Officer

Thanks, Kristen, and good morning, everyone. In a few minutes, Matt will review the financial results for the quarter. Before then, I'll provide an update on recent developments in the business and our amazing product pipeline. NxStage delivered another solid quarter, with revenue increasing 9%, consistent with our expectations.

Our team is executing well across our business to advance our mission and improve the standard of renal care. Our products business continues to fire in all cylinders and make great progress across the P&L, making its 10th consecutive quarter of operating profitability.In-center was a little better than we expected for the first quarter. This is a result of good execution when faced with losing the biggest chunk of our tubing set business in 2016. We'll anniversary this event and move past these difficult comps starting in Q3.

Overall, In-center revenues look more stable now and we continue to feel good about our value proposition there.Critical care remains strong. As you know, the team really knocked it out of the park in 2016 with some really stunning performance, particularly in the first half, due to some large customer wins and higher fluid utilization. We continue to guide to 10% growth for this year, inclusive of our modest growth in Q1, which is simply math, given last year's tremendous Q1.We continue to win the majority of our head-to-head evaluations. NxStage has a great product and team, so we remain bullish on this business.

Market fundamentals within the home remain strong, as we believe our value proposition continues to resonate. We continue to work to expand access to our life-changing therapy, in what we believe is a significantly under-penetrated market.Data presented at the Annual Dialysis Conference, or ADC, earlier this year validated the significance of treatment and education programs when starting dialysis to enhance home growth. Some call this transitional care. One center's experience with transitional care resulted in 40% of its patients choosing home therapy.

We believe this approach has great potential and we're excited to see such great evidence of our early success.We're also excited about the opportunity for home dialysis and skilled nursing facility setting. At ADC, we presented an analysis that showed that Medicare spending for ambulance service to transport dialysis patients totaled over $310 million annually, or more than 1% of all Medicare spending on dialysis patients. The per diem cost for ambulance service even exceeded Medicare spending for these patients' dialysis treatments. We've always believed that on-site dialysis with the System One can deliver great clinical and quality of life benefits for these patients.This is even more impactful when considering the cost savings potential.

Our patient marketing efforts, expansion into skilled nursing, adoption of new products like Nx2me, Nocturnal, and the next-generation system, as well as international, continue to signal solid growth in the underlying demand for our therapy. There's obviously a lot of good news and underlying momentum in the home.Our long-term outlook remains very bright but I want to be a bit cautious on the revenue in the near term. We expected that home revenue would be challenging in Q1 with many of the headwinds that we shared on our last call but we didn't expect it to be as difficult as it turned out. We had nice growth in patient training but our net patient adds were below forecast, so we're off to a slower start than we anticipated.In addition, we transitioned one of our EU-based distributors to cash accounting because the receivables seemed to be aging beyond normal.

This change alone had about 1 point of impact on home's growth in Q1, bringing us to the low end of our expectations for home in Q1. While there's a pathway to our target for 15% annual home revenue growth that we'll continue to chase this year, we're now targeting a range for annual home revenue growth of between 10% and 13% for 2017.The good news is that the baseline growth we've created both domestically and internationally is leading to stronger market fundamentals that position us well for significant growth in 2018 and beyond. So that's where I see things rolling out this year. Matt will expand with more detail on the numbers shortly.Now turning to our innovative product pipeline.

We got off to a strong start with the launch of Phase 2 of our next-gen systems. We're excited about the new capabilities this brings, and early customer and patient feedback in the UK has been extremely positive, validating the benefits we expected. We're still awaiting FDA approval here in the US. With this new flexible platform, we plan to continue to add capabilities over time.We're also making great progress on PD.

Let me take a minute and remind you of the exciting aspects of our unique PD system. Our system design to reduce the weight of the supplies by 80% and a setup time by around 90%. We do this by getting rid of the premix bags of fluid and providing a lot of therapy flexibility. As we've shared previously, we're building off our success in on-site fluid systems to change how PD is done.As such, we plan to launch PD with our PureFlow on-site flow generation system.

I wanted to be clear on this point. This is the unsung hero of our home hemodialysis platform, and it has a tremendous safety and performance track record. I think we're over a quarter-billion liters of dialysis for tens of thousands of patients at this time. In addition, because we're leveraging so many core technologies with this new platform, we expect to come out of the gate with more confidence in the product and would normally be possible with this level of innovation.At this point, we've moved into the phase of integration and bringing up all the manufacturing capabilities needed at launch.

We're expanding NxStage's production capabilities, including expanding and upgrading our current concentrate manufacturing and adding PD disposables capacity as planned.For those of you that have seen and played with it, you know what I mean when I say, we believe, we're going to change the way PD is delivered. I know you've all seen a recent announcement regarding the regulatory pathway for a competitive PD technology. They don't expect to be in the market until the end of 2019 at the earliest. That's great.

Good for them and good for us.PD is a huge market opportunity and the fact that each of us sees the value of on-site PD, that's tremendous validation for NxStage's approach and it's validation of what the market needs. I also believe I can't know with certainty that we're ahead, and likely, we'll be first to market. Looks like they're choosing to go to the U.S. first.

We may or may not go there first based on what we feel is our best strategy. Based on how timelines are now rolling out, we won't launch by the end of this year as originally targeted but again, we're targeting to be there before anyone else. We continue to move our PD program forward at an impressive pace. I'm not going to provide any further information or updates on timelines other than that.

We continue to firmly believe that by keeping our regulatory timelines and pathway confidential, we're protecting a significant value opportunity. Let me be clear, we both have the opportunity to do great things for patients, bringing new technology to the market that makes PD easier and better. That's good for everyone.Up next, we remain on track with the next-generation critical care system that we're targeting to introduce in late 2018. The system is a result of the work we've been doing with DARPA.

We've developed some amazing technology with this program and we expect to delight the market in terms of flexibility, simplicity and ease-of-use, all in a surprisingly small package.We believe this will expand our market gains in the U.S. and allow us to have the feature set to successfully compete globally. I continue to believe we have the most exciting product pipeline in the industry and the team is executing at a high level to bring it to market. We'll keep our heads down, stay focused, and continue executing exactly as we've done in the past.With that brief overview, I'll turn the call over to Matt.

Matt?

Matthew W. Towse -- Chief Financial Officer

Thank you, Jeff, and good morning, everyone. Starting with the top line, total revenue for the first quarter hit the upper end of our guidance range and increased 9% to $96.8 million compared with the prior-year period. Home's first-quarter revenue increased 10% to $54.6 million, which was at the low end of our guidance range. As Jeff indicated, we expected home to be challenging in Q1 as a result of the multiple headwind factors we shared on our last call but it turned out to be more difficult than we had expected as we didn't have enough positive offsets.We had nice growth in patient training but our net patient adds were below our expectations.

In addition, we recently transitioned one of our EU-based distributors to cash-based revenue recognition. This unanticipated change alone had about 1 full point of impact on home's growth in the quarter. In total, home got off to a slower start to the year than expected.Turning to critical care, the team really knocked it out of the park in the first half of 2016, as a result of some large customer wins and higher fluid utilization. So, while critical care only increased 2% for the quarter, this is up against a very strong comp.

In our in-center segment, revenue was $15.6 million and reflects a reduction in blood tubing volumes that we discussed over a year ago. We'll begin to anniversary this event in the second half of this year. Within NxStage Kidney Care, we reported first-quarter revenue of $5.1 million. Note that services revenue will continue to fluctuate from quarter to quarter as a result of the timing of revenue recognition.And finally, inter-company eliminations totaled $1.4 million for the quarter, down from $1.7 million last year, consistent with what we said on our last call.

And turning to margins. For the first quarter, System One gross margin was 53%, which was up 1 full point over the prior-year period. Gross margin for our overall products business was also up 1 point to 48% in the first quarter, compared with 47% last year, reflecting a richer product mix as a result of strong growth in our higher-margin System One product.For the total company, gross margin for the first quarter improved to 43%, compared with 41% last year, reflecting solid performance in products and an improvement in Kidney Care's margin impact. Continuing down the P&L, the products business generated its 10th consecutive quarter of profitability, with $3.9 million in operating income.

This reflects planned increases in R&D spending, which takes it to about 10% of revenue, as we continue to support activities associated with advancing our innovative pipeline.We expect to maintain this level of investment as we work to bring these innovations to the finish line. The strong operating performance of our products business, coupled with lower losses from Kidney Care, brought our total company net loss to $1.2 million. Included in this net loss is roughly a $950,000 income tax credit, and without getting too detailed, this relates to a fairly technical accounting item and is offset in other comprehensive income below the net loss line. Excluding this credit, net loss would have been $2.1 million, right in the middle of our guidance range.To sum up, our results in Q1 set us on a good path toward our next financial milestones, total company profitability this year and Kidney Care profitability by the end of 2018.Now, let's move to guidance for the year and the quarter.

With the strength of the overall business, we continue to expect total company revenue in the range of $400 million to $405 million in total company profitability for 2017. However, with the slower start in home than we anticipated, we are revising our annual home revenue growth target to be between 10% to 13%, down from our previous 15% target. We remained bullish and confident with the market expansion opportunities Jeff discussed earlier.And although the year isn't building in line with our original expectations, we believe, we are in great position to continue to drive long-term growth to advance our product pipeline and make further improvements within our key financial metrics. And specifically, for the second quarter, we expect revenue to be in a range of $95 million to $97 million, with a net loss in the range of $1 million to $3 million, reflecting continued operating income in our products business, offset by losses in NxStage Kidney Care.With that, I'd like to open the call to questions.

Operator, we're ready for the first question.

Questions and Answers:

Operator

[Operator instructions]. And our first question comes from Kyle Rose of Canaccord. Your line is now open.

Kyle Rose -- Canaccord Genuity -- Analyst

I just wondered if we could go back to the home number in the Q1 and then the broader guidance for 2017. Just can you put a little more color on what some of the puts and takes were as far as the headwinds regarding lower SNF build-outs? I think you commented on the last quarter as well as some OUS headwinds. Just kind of talk about what underlying traditional home U.S. metrics look like there.

And then, just kind of what changed with respect to how you're giving guidance for the rest of the year. Should we consider this conservative or is this a realistic number as we move forward?

Jeff Burbank -- Chief Executive Officer

Sure. So you know we went into Q1 with a little bit of conservatism, the range of 10% to 15%, ended up on the low end of that. Would have done a little better if it weren't for taking a distributor to cash accounting. Beyond that, it really was our patient census grew a little bit less than we had anticipated.

We did see growth there but not quite as much as we were hoping. And the time it's taken to start new SNF programs has dragged out a little bit more than we anticipated. So we've taken those, reflected those through the years, adjusted to that reality, which is what took it to the annual guidance of the 10% to 13%. We think that's prudent at this point.

Kyle Rose -- Canaccord Genuity -- Analyst

OK. And then, one more, and then, I'll hop back in the queue. I just wanted to talk, overall, on the pipeline and just wanted to see if we could get your thoughts. Obviously, you switched from a complete roll-out of the next gen to more of a phased roll-out with Phase 1, Phase 2, Phase 3.

You're pushing out the timelines on the PD side here. Just wondering if you could just talk about just the overall product development timeline when you think about back at the analyst day, when you originally set guidance, what's changed over that time period? How we should view some of these timelines as far as whether you've got the ability to include more technology or some overall step backs in the underlying there. And then, just specifically on PD, I know you're not going to give any specific color but if you could just talk about what changed over the course of the last three months or 90 days that give you a little more confidence that you're not going to hit this year-end '17 timeline?

Jeff Burbank -- Chief Executive Officer

So that was pretty broad, let me see if I can it parse it out. We laid out a very ambitious product pipeline. I think generally we're on track with that. And certainly, the contribution of that to our long-term goal of $700 million in 2020, we think we can still achieve that.

So I think the puts and takes around how that has played out are minor and compared to the value creation that we're executing against. So the next generation is going well, still a little slower than we anticipated with the review process with the FDA.We think we're very close to getting that clearance. There were no issues raised. I think we're through the substantial review but we haven't gotten the clearance yet.

The product is doing really well. The feedback's been very positive. So I think we're doing a good job there. PD, let me spend a little time on that.

You know how excited we are about the product. You've all seen it. You've seen the value we're bringing to the market. It really truly is revolutionary for what we're going to do in flexibility, ease of use for patients and the distribution model is fantastic.What we're saying is, we told you every quarter, we'd give you an update.

And if anything changed, we'd adjust it. And when we rolled out the timelines, they're a little past the end of this year, so we're giving you that update. No significant delays. It's not based on any issues or problems.

It is just a lot of tasks. It rolled up and it slipped beyond what we have told you in the past. So we feel really good about the program, continues to move forward nicely. I want to be clear, too, that's not based on any change of our view of any of the elements, including regulatory.So there are no fundamental changes, and what we believe and what we're executing is just taking a little bit longer.

And based on that, we still believe we're going to get to market first. We really feel great. We've been working on this a long time. You've heard us talk about it for a long time.

You've seen the product. You've seen exactly what we're going to do. It just takes a little bit to get there. We're creating tremendous value there.

So I feel really good about PD. It just slipped beyond what we told you and we want to give you that update.

Operator

Thank you. And our next question comes from Margaret Kaczor of William Blair. Your line is now open.

Margaret Kaczor -- William Blair & Company -- Analyst

Jeff, you spoke about the patient add growth coming in a little bit lower than expected. Was it similar to that 10% overall growth rate that you reported? And in the past, you guys have focused on DTP marketing, you've been a little bit more offensive and that's helped patient adds. Did those investments change maybe more recently? Or can you crank up those investments again in the future to drive that home growth a little bit higher?

Jeff Burbank -- Chief Executive Officer

So let me break it down maybe one more level. As I mentioned, the rate at which we thought we could bring on new SNF programs has been pushed out a bit, so you got to reflect that throughout the year. So that's a successful growth driver, just didn't lift us as much in the first quarter as we had anticipated. So not broken at all, just taking a little bit longer, so we had to reflect that in the guidance.Relative to not achieving as much growth as we thought, in any given quarter, we have two kinds of impacts.

It's pretty simple math. We have the number of patients trained and the number of patients dropping. There's a random nature in the drops and, unfortunately, we saw a little bit higher drop than we anticipated. The good news is, it seems to be more normalized in April, so we think we moved past that and was more of a statistical event.

So that's the first part of it.The second part of it is training rate. And we actually had trained more patients than we've ever trained in the company's history, so that's kind of good news. Net-net, though, it didn't put us where we wanted in terms of as much growth. We don't think the fundamental growth drivers are broken or anything like that but you have to reflect that number throughout the year.So we didn't get to the point we thought we would in terms of total patient numbers exiting the quarter and we reflected that in our guidance moving forward.

Don't think anything's broken, growth drivers continue to work. The team's working really hard. As I mentioned in the script, we have a mathematical pathway to 15%, I just think that's a little bit aggressive given kind of the facts that we're dealing with here, so we want to adjust to where we're coming out of Q1.

Margaret Kaczor -- William Blair & Company -- Analyst

Great. And then, just as a follow-up to that, you guys did the 10% to 13% growth. You talked about SNF being maybe a little bit pushed out versus what you expect. Have you taken SNFs out of guidance? How conservative is that 10% to 13% at this point relative to what you guys have seen this past quarter?

Jeff Burbank -- Chief Executive Officer

No, we haven't taken SNFs out. We also, I guess, would give you a little bit of color. We think the growth rate will increase throughout the year, as a result of some success that we're having. We're very close to our customers in this area, in the area of SNFs, so we know a lot of what's going on and it's just taken a little bit longer to set up new centers and expand that but there's a lot of activity and a lot of encouraging signals.

It seems just to be timing at this point.

Matthew W. Towse -- Chief Financial Officer

Margaret, it generally just pushed some of the SNF ramps out a couple of quarters, so that's what we're seeing there.

Margaret Kaczor -- William Blair & Company -- Analyst

OK. Great. And then, in terms of just to keep plugging away on the home guidance, that 10% to 13% and the change in the accounting for one of the EU-based distributors, how important is that distributor? Will this change anything in terms of them being able to purchase more or lesser investments in you guys as a distributor? And did it have an effect on the home guidance for the full year as well?

Jeff Burbank -- Chief Executive Officer

So we took most of the impact of that in the first quarter, we can't predict, we have some ranges around that and a range of scenarios that we built around that but when you get out to your year guidance, you do a number of different scenarios and you don't assume that they all go bad and you don't assume that they all go well, so it's some composite of that. I mean, we essentially took the revenue out. So in a sense, they'd be 1% of our total revenue, which you offset with your growth, that was in Q1.Matt, do you want to add anything to that?

Matthew W. Towse -- Chief Financial Officer

No, as Jeff said, it's a component of a number of scenarios we run. So we'll see how the year goes. All our distributors are important, to your earlier question, as is all distributor for us, it's just the timing of the revenue is really what's changing here.

Margaret Kaczor -- William Blair & Company -- Analyst

Great. I'm going to stick one more and then jump back in the queue but in terms of Phase 3 for home hemodialysis, how far along are you guys in the redesign of that? And then, in terms of PD, I've got to try one more time but in terms of what is taking maybe a little bit longer, is it the engineering? Is it regulatory? And you guys have clearly looked at the regulatory path in a number of different ways. To whatever extent you can give us your confidence or clarity from your discussions with the FDA would be helpful. Thank you.

Jeff Burbank -- Chief Executive Officer

So, on Phase 3, the program continues to move forward. We're still going through our evaluation to figure out exactly what we want to do and exactly what time it'll take to do that. The product looks really, really great. Very excited about what the team has done there and the capabilities that we've developed.

So don't have a full answer for you there but the work continues and it's going well.In terms of PD, I'm going to try to hit this as many times as I can, there are no significant issues, no significant problems, no change in the steps that we thought it would take to go to market, including what we're presuming to be regulatory pathways. It's just a massive program that has multiple critical pathways with a lot of concurrent activity, and when you add all that up, some things take a little bit longer, so it pushes your timelines a bit.Nothing is broken. Great product. Executing well.

The amount of innovation in that product and the amount of effort it takes to bring an entirely new platform that includes not just the cycle and a disposable but also the concentrate and, most importantly, the water treatment system, which is actually where we have a core competency. We've done more water treatment that we believe anybody. Not even believe, I'm confident we've done more water treatment that's required for this technology to be successful than anybody on the planet, in a diversity of environments all around the world in patients' homes. So this is a competency we have.

We have a lot of capability here and we're not seeing problems. We're just a tough program to execute and we're doing as well as anybody can, I think. And still, we're going to be first.

Operator

And our next question comes from Matthew O'Brien of Piper Jaffray.

Matthew O'Brien -- Piper Jaffray -- Analyst

Just to talk a little bit more, Jeff, on HHD side for starters. First, on the increase in the drop rate, that kind of flies in the face of Nx2me and the benefits you get from that technology, so I'm curious as to why the drop rate wouldn't lift? And then, just add, the $700 million number for 2020 relies a lot on HHD growth going forward, and so I'm just curious as to why you're sticking with that outlook for the overall business, just given, I guess, what we're seeing here in the start of 2017?

Jeff Burbank -- Chief Executive Officer

Matt, you always ask three or four questions at once.

Matthew O'Brien -- Piper Jaffray -- Analyst

Right. So drop rate and then $700 million?

Jeff Burbank -- Chief Executive Officer

Drop rate. First of all, you implied that it was high to Nx2me, that it should get better. Nx2me continues to improve that drop rate. It's not rolled out as deeply as it needed to impact that on a broader scale.

We had great progress in the roll-out in the first half of this year, so we're seeing broader and broader adoption but it's not an influence in that dropout number. As we've analyzed the dropouts, it really seems to be a stack of the numbers, not a systematic problem, because we're seeing it normalize as we're coming into the second quarter. So I really think that's part of it. The other thing we're watching, quite honestly, is transitional care, which is a huge success for us but it also will statistically have a little bit higher dropout rate because you're putting every new patient on it.

So there may be an influence there. We're watching that really carefully. Net-net, it'll drive more patients to home therapy but it may influence that particular factor in the near term. So we don't see anything to be concerned about in dropout.

We just see it as kind of an unfortunate stacking of math at this point. Now I think you then we went to reaffirming of the $700 million. Yes, home is a great contributor to that. We believe we have a lot of things that you know about, some that you don't know about that are in the pipeline, that we can really have a good shot at that.

We have other levers we can pull, so in the composite of the business, we think we can hang onto the $700 million.

Matthew O'Brien -- Piper Jaffray -- Analyst

And then, flipping over, and I'll ask two questions again in one here but on PD, I'm just curious as to the vagueness on timing in terms of, hey, we're going to be first, because your competitors said end of 2019, and so everybody will immediately start thinking, OK, maybe they're talking late 2018, early 2019. So I'm curious as to why the vagueness there? And then, your competitor also came out and said that FDA is opined to their pathway. Do you have a similar type of a response from the agency at this point as far as how you're going through your approval process?

Jeff Burbank -- Chief Executive Officer

Yes, so this has gotten even more competitive than I had anticipated when we started the program five years ago and we said we weren't going to tell you about all the details. So I'm pleased and actually proud of the way we've been conducting ourselves through this. I wouldn't go where you're going. Let me maybe nuance the words a little bit.

We said, our interpretation is that they were going to the U.S. first and they laid out that timeline. We believe we could be competitive with that timeline. We may or may not choose the U.S.

as the first market. We believe we're not going to hit the end of the year. Flipped a bit.So you're jumping to, I think, a very negative interpretation of a very successful program here that's making great progress. That's not what we're communicating.

And again, I'm not going to say anything. I can't wait until I can say anything. It's one of the hardest things for me and I know it's one of the hardest things for you guys but this isn't uncommon in a competitive market. I mean, in consumer electronics, nobody knows anything about product cycles and plans.

So we just think that's the right way to handle it at this point. I understand the stress we put into the system but there are other stresses, too, and we think it's an opportunity to conduct ourselves in this manner.

Operator

And our next question comes from Raj Denhoy of Jefferies.

Raj Denhoy -- Jefferies -- Analyst

I wonder if I could maybe just ask some clarification questions on a few things. Getting to Matt's question on PD timing, I hate to come back to it again but it's been such an important aspect of the story. You guys had talked pretty confidently about the end of 2017 and now you're unwilling to sort of endorse any sort of timelines but yet you're telling us in your prepared remarks that it's just sort of some manufacturing issues and things that are just pushing it out a little bit, and so, I guess, we're just trying to parse out what a short delay means, right? Should we be thinking '18? Should be we thinking '19? Any help there I think would be great.

Jeff Burbank -- Chief Executive Officer

Yes, so trying to think the best way to get everybody on board. We've been working on this program for years. You mentioned a manufacturing problem, absolutely not.

Raj Denhoy -- Jefferies -- Analyst

Sorry, I shouldn't have implied it was the problem but just some --

Jeff Burbank -- Chief Executive Officer

We want to make sure we don't leave that one hanging. We have not seen any significant issues in the program. We were on track for the end of this year. As we rolled it up this quarter, we slipped and it's just stacking a whole bunch of different work pathways and activities that have to occur, and it's taken us a little bit longer.

So the program is not broken. There's no risk. We're making great progress. You've seen the technology, many of you.

You've seen how mature it was a while ago, let alone where it is today. You know that the elements that are most risky are the elements that we have the most experience and confidence in, which I believe are the water treatment.We've got a great opportunity and I know why it's so intense. It's because the value creation around PD is unbelievable. And we're crashing against each other because we're trying to maintain that value and get a competitive advantage in how we're executing this program, while you guys know the nature of the value creation and how unbelievable of an opportunity it is for NxStage but we're not going to let go of what we think is the best way to execute this value creation within a very competitive market.

So I know we're not meeting your needs but I'm telling you, we are meeting your needs because you want us focused on managing this program to create the best strategic value we can, and I really think we're doing that and I'm sorry that it's frustrating our investors and our analysts but guys, this is what you pay us to do and we spent a lot of time thinking about this and I've been in this market for a lot of years and I know how to manage within this market. We brought a lot of innovative technology here and I'm trying to do the best job I can for you guys. So I'm going to get defensive about this because I spent an ordinate time with my team and my board and everybody around this to try to manage it in the most effective way. We have a phenomenal product that we're working incredibly hard to get to market to create an unbelievable opportunity for the company and our investors.

Raj Denhoy -- Jefferies -- Analyst

OK. That's helpful. Just to maybe put a finer point on this. So the expectation now should be that we really shouldn't have any expectation in terms of the timing of date from you and maybe we'll just take that off the table in terms of getting clarity on that.

Is that the way we should be thinking about it?

Jeff Burbank -- Chief Executive Officer

I think you've got a couple bookends that I think are meaningful and important to pay attention to. One is you have a competitor that's given a timeline and we believe we can beat that timeline. So you have that aspect. You know we were targeted at the end of the year and it slipped a bit from that.

So you have that. And you know that we're not changing our revenue expectation for 2020. So you have that. So, guys, this isn't an impactful shift.

There is nothing that changed here that should have a significant or even a moderate impact on the value proposition for NxStage. We're just giving you updates on the details.

Raj Denhoy -- Jefferies -- Analyst

OK. Fair enough. And maybe just a clarification question on the SNF opportunity as well. When you say that some of the programs are taking a bit longer to ramp up, is that on a state basis? Are you seeing perhaps a fewer number of states allowing SNF dialysis to occur? Or is it really more on a center-by-center basis? Do you expect you're gonna see, I think the number you gave us last quarter was for 10 to 12 new states allow SNF dialysis this year?

Jeff Burbank -- Chief Executive Officer

Yes, so relative to states, I think we're on track with the expansion of states where there's enough clarity that business models can progress. I think what we're talking about is a center-by-center process where the providers that do skilled nursing dialysis have to have agreements in place for the skilled nursing center and set up those programs, and I think that's what we're focused on as it's taking a little longer going center by center and starting those up. Matt?

Matthew W. Towse -- Chief Financial Officer

I think we have a couple of exciting SNF programs in the future. And yes, the delays are what Jeff said. Certification is another issue that our customers are working through but the state geographies haven't changed and the opportunity hasn't changed.

Jeff Burbank -- Chief Executive Officer

Yes. And let me clarify what I think. Matt, you can correct if I'm wrong but when you say certifications, you have to be an ESRD provider, have an ESRD provider number, and some of these are companies that don't have that provider number yet, so it takes a little while to get through the state certifications, as you remember it did for us when we were starting up Kidney Care. Some of those drag out a little bit too.

So there's really the three elements. One is going very well, which is the expansion of the states where SNF can be doing. That's going well. Certification of new dialysis providers always takes a little bit longer, so there's a little bit of delay there, and then we've seen a little bit of delay on starting new programs in specific skilled nursing facilities.

Hopefully, that clarifies it.

Operator

And our next question comes from Danielle Antalffy of Leerink Partners.

Danielle Antalffy -- Leerink Partners -- Analyst

Jeff, sorry to do this to you but I'm going to ask some PD questions. So the first question I have is your competition came out and said the U.S. in 2019, I just want to clarify, when you say you're going to be first, do you mean first to the U.S. market or do you mean first to an as yet undetermined market?

Jeff Burbank -- Chief Executive Officer

So, Danielle, I'm not sure where we're going to choose to go first, I don't want to box us in on that but I would say that we believe we can beat that timeline based on what we know today in the U.S. if we choose to go to the U.S.

Danielle Antalffy -- Leerink Partners -- Analyst

OK. Got it. So you think that you could be first to ... OK. I think I understand.

So you would have the ability to be first in the U.S. if you chose to go --

Jeff Burbank -- Chief Executive Officer

Let me go at it in a different way, Danielle. Maybe this is more helpful. We believe our development program is farther ahead, is more advanced than our competitors'. We think we're at the later stages of product development and further along in the process steps, if you will.

So no matter where we decide to go, we think our program is ahead of their program and the steps you have to do to get it into the marketplace. Maybe that's --

Danielle Antalffy -- Leerink Partners -- Analyst

OK. Got it. And that encompasses both U.S. and OUS because U.S.

regulatory --

Jeff Burbank -- Chief Executive Officer

The activities required to get into a market are specific to the market. So some markets add additional time, they may require clinical trials, they may require different types of testing, those types of things. Those add-ons are for the specific market but we think our program is ahead of their program.

Danielle Antalffy -- Leerink Partners -- Analyst

Got it. OK. Just a follow-up on that point and this is probably more a question for Matt, just from a clinical-trial perspective. As we think about R&D, I mean, because there's not a lot of visibility in exactly what has to go into this PD program, how do we think about R&D growth over the next year or two as you may or may not have to execute clinical trials?

Matthew W. Towse -- Chief Financial Officer

Sure. As I said in the prepared remarks, and you'll see in the Q1 results, R&D did pick up from 8% to 10% of revenue. We're expecting that level of R&D investment over the next year and we'll come back to you on 2018 and beyond on R&D there. Over time, we do expect it to tick back down and get in line with 8%, which we've had historically for R&D.

Danielle Antalffy -- Leerink Partners -- Analyst

OK. Great. And then, the last question on PD, so you've talked a lot, Jeff, about PureFlow, and utilizing, leveraging that technology makes a ton of sense to me. Is it the water treatment that you think is the most critical piece there? Or is it testing the drug in, i.e.

the dialysis in the human body, and have you gotten verification from FDA that they agree with your take on that?

Jeff Burbank -- Chief Executive Officer

I like how you drove around the block and came from a different angle. That was elegant. Let me tell you just from our home hemodialysis experience because we've had, at this point, six or seven or eight failed attempts to compete with us with alternative technology programs, and I believe it's not the blood-handling module that stymied people. It's the water-treatment dialysate prep and how you do that and the economics and reliability and safety of that is what has been the challenge for others that have not succeeded in their programs, including a number of the competitors we're currently talking about.

So that's been one of our areas that have allowed us to succeed in home hemodialysis. I believe it will turn out to be one of the more difficult things in peritoneal dialysis.So we go in with what I think is one of the most important assets in executing that program. We thought that years ago. And that was even before we had a quarter-billion of liter experience of making dialyzates in homes around the world with patients, which you're not talking about sophisticated hospital environment with trained medical professionals, we're talking about an environment that has cats and dogs and patients and kids, and no predictable source of water that we have to produce pharmaceutical-grade-type water that is utilized day in and day out in these environments.

We've done that successfully time and time again. That's been one of the unbelievable accomplishments of NxStage, so yes, I believe our capabilities and experience there are paramount to predicting our success in PD, and I don't think there's anyone in the planet that replicates that success.

Operator

[Operator instructions]. And our next question comes from Chris Cooley of Stephens.

Chris Cooley -- Stephens -- Analyst

Maybe I can take a little bit different tactic and misdirection here. In maintaining guidance for the full year in terms of your total top line, help us think about the other components of the business and where you think that incremental strength will come from as we play through the calendar year, realizing that you're still shooting for 15% home growth but obviously, with census and other changes here, it's now guided lower to 10% to 13%. Then I do have couple follow-ups.

Matthew W. Towse -- Chief Financial Officer

Sure, Chris. So for the year, yes, with the home guidance at 10% to 13%, and our total revenue guidance maintaining at $400 million to $405 million, we'll see some upside from our last guidance would be in a bit in in-center, a bit in Kidney Care. So we're going better in In-Center than we previously projected, and Kidney Care is trending nicely right now, so those lines will help that. And as far as over the year goes, yes, we do expect to have higher growth in the latter half of the year in home, which sets us up for solid growth rates going into '18 and beyond for home.

Does that answer your question, Chris?

Chris Cooley -- Stephens -- Analyst

It does. And then, Jeff, on the PD front, just so I'm not the only that doesn't ask about it.

Jeff Burbank -- Chief Executive Officer

Everybody's got a plus point on the board.

Chris Cooley -- Stephens -- Analyst

Yes. Maybe though from a different tack, just when you think about it competitively, understanding that you are extremely confident in the ability to kind of change the game with your system once cleared, what type of market lead do you think is required? Obviously, you've entrenched incumbents in that space right now, and to meaningfully move the needle on new patient adds coming in each year, just trying to think about what kind of market positioning you need to optimally commercialize that device?

Jeff Burbank -- Chief Executive Officer

Chris, that's really a very helpful question actually, because my experience in this industry is a market launch lead really doesn't amount to much. It's all about the product and what does the product do and how reliable it is and how cost-effective it is. It's really about the product. So I know everybody's trying to make this about us versus them.

It's really about what assets does NxStage go in with what capabilities do they have, what is the experience of the product, what will be the reliability based on how good they've executed in the past. It's really going to be about the product. At the end of the day, you can't make patients use something that's unreliable or hard to use.You can't build a business model around it and that's why this industry is so much a show-me industry, nobody believes anybody can do anything until they validate that it could be done. Part of the reason why our adoption curves are so conservative is that people really want to make sure it does what you say it does because they've been so disappointed so many times in this industry, that at the end of the day, that's really all that matters.

So we don't look at it like we're competing against somebody. We look at it as we're trying to produce the product that we think that can be successful in this industry, and that's why we're so excited because we've got a lot of experience in home use, a lot of experience in all the different environmental and human influences that go on in that environment and we're capitalizing that to apply it to new therapy so we think we go in with just a tremendous pool set to pull off what we're trying to do. I don't ever underestimate Baxter because they have a tremendous experience in PD.They're going to be a formidable competitor. I think there's plenty of opportunity for us and for everyone and exceedingly a huge opportunity for NxStage within that because we don't need as much to be successful.

Everything new is upside for us, so we're really excited about what we can do here but it's really about the product, and you guys can make it something different than that and you can talk about timelines and regulatory pathways but it doesn't matter in the end. What matters is, what's cleared? Does it work? Is it reliable? Is it safe? Patients, can they learn it easily? Can they use it easily? And that's what we're maniacally focused on.

Operator

And our next question comes from Suraj Kalia of Northland Securities.

Suraj Kalia -- Northland Securities -- Analyst

So, Jeff, I appreciate the verbal gymnastics here. I mean, I can empathize you're trying to protect some secrets and, at the same time, walk us through this whole process, and I can appreciate that. So, Jeff, let me rephrase the PD thing. We know it's going to be either by [indiscernible] acetate, liquid concentrate, clinical trials, you guys have been working on it for a few years now.

Jeff, help us understand. At this stage, it is almost inconceivable to me that you have not anticipated everything that could go wrong. Trying to understand, at this stage, why the way commentary ... I know it's a different flavor of other questions but --

Jeff Burbank -- Chief Executive Officer

I'm not sure what the question is yet, Suraj.

Suraj Kalia -- Northland Securities -- Analyst

I mean, why the secrecy? I'm still confused. Why at this stage, after so many years? It is confusing, I believe, to all of us.

Jeff Burbank -- Chief Executive Officer

Well, we have different products. We have multiple factors that go into creating barriers to entry, and I believe we have a better ability to manage that when we haven't shared every step, that I think we can create blind spots and opportunities for us in the market by not disclosing those. So we've done that in the past. It served us extremely well in hemodialysis and we're going to run the plays that we scored with in the past.

Suraj Kalia -- Northland Securities -- Analyst

OK. And Jeff, you mentioned about water purification as the unsung key role vis-à-vis NxStage and the market in general. I agree. Jeff, the feedback in Europe from the Vivia system, at least on their water purification, also continues to be positive.

Do you think that would eventually, that is the key ace in the hole for you guys vis-à-vis PD? I'm just trying to put your comments about PureFlow and how your leadership position on that and expertise stacks up. Just trying to tie it together and see if that's really what we're talking about here where others could have a hiccup? Thank you for taking my questions.

Jeff Burbank -- Chief Executive Officer

So Suraj, are you still on? Because I didn't get your context of Vivia. Are you still there? No. OK. So without clarification on that, Vivia was a product that Joe didn't feel factored, didn't feel like it was a platform that they could move forward successfully in this market, so they killed it.

I'd contrast it to we have a product in the market that's growing and doing well. I think a key aspect of that is how we designed the water treatment, the safety, the build and the economic reliability and all those things. And I think a lot of that benefit transfers into PD. So I think we've derisked one of the highest-risk elements of PD through our experience.

That was intentional, and it's worked out quite well for us. It also gives us a tremendous volume of experience to bring to the regulatory process as we go through. So I hope that answers your questions, Suraj, I appreciate the question. I think we're all wrapped up at this point.

Thanks, everybody, for your attention. We'll work hard to bring the fantastic PD products to market and continue to grow the home hemodialysis market. We appreciate your attention and we'll talk to you next quarter.

Operator

[Operator signoff]

Duration: 55 minutes

Call Participants:

Kristen Sheppard -- Vice President, Investor Relations, and Associate General Counsel

Jeff Burbank -- Chief Executive Officer

Matthew W. Towse -- Chief Financial Officer

Kyle Rose -- Canaccord Genuity -- Analyst

Margaret Kaczor -- William Blair & Company -- Analyst

Matthew O'Brien -- Piper Jaffray -- Analyst

Raj Denhoy -- Jefferies -- Analyst

Danielle Antalffy -- Leerink Partners -- Analyst

Chris Cooley -- Stephens -- Analyst

Suraj Kalia -- Northland Securities -- Analyst

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