Q3 2023 Tactile Systems Technology Inc Earnings Call


Daniel L. Reuvers; President, CEO & Director; Tactile Systems Technology, Inc.

Elaine M. Birkemeyer; CFO; Tactile Systems Technology, Inc.

Malgorzata Maria Kaczor Andrew; Partner & Research Analyst; William Blair & Company L.L.C., Research Division

Ryan Benjamin Zimmerman; MD & Medical Technology Analyst; BTIG, LLC, Research Division

Simran Kaur; Research Analyst; Piper Sandler & Co., Research Division

Suraj Kalia; MD & Senior Analyst; Oppenheimer & Co. Inc., Research Division



Welcome, ladies and gentlemen, to the Third Quarter of Fiscal Year 2023 Earnings Conference Call for Tactile Medical. At this time, all participants have been placed in a listen-only mode. At the end of the company’s prepared remarks, we will conduct a question-and-answer session. Please note that this conference call is being recorded and will be available on the company’s website for replay shortly.

Before we begin, I would like to remind everyone that our remarks and responses to your questions today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties, which could cause actual results to differ materially from those indicated, including those identified in the Risk Factors section of our annual report on Form 10-K as well as our most recent 10-Q filing to be filed with the Securities and Exchange Commission. Such factors may be updated from time to time in our filings with the SEC, which are available on our website. We undertake no obligation to publicly update or revise our forward-looking statements as a result of new information, future events or otherwise.

This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website.

Today’s call will be hosted by Dan Reuvers, Tactile Medical’s President and Chief Executive Officer; along with Elaine Birkemeyer, Tactile’s Chief Financial Officer. And I would now like to turn the call over to Mr. Reuvers. Please go ahead, sir.

Daniel L. Reuvers

Thanks, operator, and welcome, everyone, to our third quarter earnings call. I’ll start with a quick agenda of what we intend to cover today. First, I’ll review our financial results at a high level and the key drivers of our performance in the quarter, along with some recent operational highlights. Elaine will then cover our financial results in greater detail as well as our 2023 financial guidance, which we updated in our earnings press release today. And then I’ll share some additional thoughts regarding our outlook and strategic priorities before we open the call for questions.

So beginning with a review of our financial performance. I was really pleased with our team’s performance in the third quarter with $69.6 million of total revenue. We posted our fourth quarter in a row of double-digit lymphedema growth and exceeded our overall revenue and profit expectations for the quarter. Our growth was driven by strong performance in our lymphedema product line with lymphedema revenue increasing 15% year-over-year to $62.5 million and exceeding our expectations for the quarter. This performance was partially offset by softer-than-expected sales of our airway clearance products, which decreased 36% year-over-year to $7.1 million.

In addition to our solid total revenue performance, we also achieved another quarter of profitability with year-over-year improvements in both our net income and adjusted EBITDA. As a result of our revenue growth and profitability improvements, we generated $4.1 million of cash flow from operations, ending the quarter with $66 million in cash as we continue to improve our balance sheet. With our Q3 financial highlights as a backdrop, I’ll now cover the primary drivers of our revenue performance in a bit more detail, beginning with our lymphedema product line. Our strong lymphedema sales growth in the third quarter continued to reflect the increasing productivity of our field sales team, which again delivered double-digit growth even as our sales head count remained consistent throughout 2023, with 246 reps at quarter end, relatively unchanged compared to the beginning of the year.

In recent quarters, our efforts to increase the productivity of our sales reps is focused on 2 major components: improving the operational efficiency of our selling organization and enhancing our portfolio through the development and introduction of new products. Our focus in recent quarters has been on reducing the time our sales reps devote to non-selling activities, freeing them to optimize time with prescribers and clinics. Specifically, our reps have historically devoted a significant portion of their time to conducting in-home patient demos and obtaining the necessary documentation to complete those orders and submit claims. With respect to the in-home patient demo process, we’ve been transitioning some of this responsibility to our patient trainers who are well equipped to introduce our therapies to patients and educate them on its use. This shift was an important contributor to our sales performance again in the third quarter, and we see additional runway to drive incremental productivity gains over the coming quarters as we seek to expand this initiative.

Our efforts to improve productivity within the back-office team included beginning to deploy new digital tools, such as optical character recognition for order input. This is consistent with our goal to introduce new technology and tools to even further improve our operational efficiency. Our sales team also continues to benefit from the introduction of new products, most notably our next-generation Entre Plus system and our Comfort use garments. We continue to see significant commercial traction of our Entre Plus system during the third quarter as we progress through the initial months following its full market release in March. The addition of Entre Plus to our portfolio, the first generational update to our Entre System since its introduction has energized our team to engage with prescribers, showcase its user-centric enhancements and work with them to identify appropriate patients.

As a reminder, Entre Plus delivers the same clinically proven therapeutic benefits of our original Entre System, while offering a host of enhanced features to improve the user experience, including new LCD-based interface, active garment deflation and the ability to treat 2 limbs simultaneously. Patient feedback has been consistently positive throughout the initial months of commercialization, affirming that Entre Plus represents an important enhancement to our product portfolio. The development and introduction of Entre Plus is part of our increased focus as an organization on the subset of our addressable patient population that qualifies for a basic pneumatic compression device.

A significant portion of patients, including most covered under Medicare, are required by their insurer to obtain and treat their lymphedema with a basic compression device before they may ultimately become eligible for an advanced pneumatic compression device like our Flexitouch. We’re pleased to provide these patients with an optimized product to address their needs while establishing brand awareness at the patient level in the process. As a reminder, our Entre Plus system was also designed to be part of a consistent product family with our Flexitouch Plus, enabling Entre Plus users to easily transition to our advanced pneumatic compression offering if their disease progression ultimately warrants it.

At the beginning of the third quarter, we also initiated the full market release of our Comforts upper extremity garments, the latest addition to our Flexitouch Plus portfolio since the introduction of our Comforts lower extremity garments last year. Our Comfort use garments are designed to make them easier to put on and take off and enhance comfort and treatment. As part of the redesign of our upper extremity garments, our team sought to expand their therapeutic coverage capabilities. Our new upper extremity garments can now accommodate bilateral upper body coverage, coverage of the axillary region, an important but historically difficult area of the body to provide effective therapy to has been enhanced as well in order to optimize the treatment of breast cancer-related lymphedema.

In our post-market patient monitoring of 260 patients, we were pleased to find that our Comfort’s upper extremity garments achieved 100% coverage of each patient’s treatment area in all cases. The feedback we’ve received from clinicians and lymphedema therapists has emphasized their appreciation for the new design of our upper extremity garments and the improved coverage and therapy they provide. In short, through our combined focus on operational efficiency and new product innovation, we’re pleased to drive 15% growth year-over-year in sales and rentals of our lymphedema products while reducing our sales and marketing expense.

Turning to our Airway Clearance product line. Our year-over-year sales performance in the third quarter continued to be impacted by the dynamic we discussed on our earnings call in August with 1 large DME customer experiencing slowed placements of our AffloVest system. As a reminder, May 11 saw the expiration of the COVID-19 public health emergency, or PHE, waiver and a return to pre public health emergency eligibility requirements. This large DME customer was one of the few we partnered with that took advantage of the relaxed eligibility requirements under the PHE waiver, transitioning their organization and referral base to the additional documentation and testing needed under the pre-public health emergency requirements has continued to pace their processing and placements of our AffloVest system this year.

Importantly, we continue to see growth in third quarter across the rest of our DME customers. Specifically, revenue from our other DME partners grew in the double digits year-over-year. We’ve also taken additional proactive steps to mitigate the impact on our Airway Clearance product line. During the third quarter, our team worked to raise awareness of a publication in the June edition of our T Magazine. This publication, which I discussed on our last call, summarized the results of a blinded, randomized study, demonstrating patients’ preference of AffloVest over 3 other high-frequency chest wall oscillation devices. We believe it provides an important resource for DME reps to feature in their discussions with prescribers facilitating their ability to convert accounts that may currently prescribe competing devices.

We also are adding several members to our team of dedicated DME reps in the fourth quarter, increasing our coverage of the existing DME customers as we educate and train their reps on bronchiectasis and the role of our AffloVest in its treatment. We hired a dedicated reimbursement expert as well to support our DME customers while freeing up additional bandwidth for existing reps. Looking ahead, we expect the expiration of the PHE waiver will remain an ongoing headwind to the performance of this large DME customer until they reach its anniversary in May of next year. With that said, it’s important to note that they continue to be an engaged partner. We remain pleased with the performance we’re seeing across the rest of the customer base, and we continue to expect that this return of eligibility requirements will not impact our growth long term.

Turning to a discussion of our operational highlights during the third quarter. In addition to the positive reception of Entre Plus and Comfort Ease garments, we continue to expand the features, awareness and adoption of our Kylee mobile application. Since we debuted Kylee last year, we’ve introduced additional updates to expand and enhance its capabilities. We continued this cadence during the third quarter, providing patients with the ability to set up and customize multiple treatment reminders and introducing utilization-based motivational messages to encourage and congratulate them for fulfilling their treatment regimes.

We also added new support features, making it easier for patients to directly communicate with our team. Our continued product development and raising awareness efforts culminated in the strong growth in patient adoption with over 11,000 new downloads year-to-date in 2023. From a utilization standpoint, we also saw growth in the number of user check-ins, which increased to over 110,000 year-to-date. And during the third quarter, our Kylee users also captured more than 10,000 measurements to monitor their condition and disease progression. All of this continues to enrich our database of those suffering from lymphedema as well.

By driving awareness and adoption of our Kylee app, along with our Entre Plus system, we’re developing our relationship with patients throughout their journey to diagnose and access effective treatment, enhancing our market leadership position in the lymphedema space. In addition to enhancing our patient engagement and education efforts, we continue to raise awareness at the clinician level. During the third quarter, we hosted over 30 professional education programs, which drew participation from more than 1,300 clinician attendees. Most notably, our programming included a symposium at the UIP 2023 World Congress, a leading medical conference devoted to venous and lymphatic medicine organized by the American Vein and Lymphatic Society and the American Venous form. The symposium was titled Pneumatic Pump Boot Camp, Everything You Wanted To Know.

It was hosted by 5 prominent physicians, including our recently appointed Chief Medical Officer, Dr. Tony Gasparis. They discussed the differences between basic and advanced pneumatic compression devices and walk clinician attendees through the process of identifying patients, pump selection and a better understanding of reimbursement criteria and eligibility. It ended up being a standing room-only event and was very well received by attendees. We also saw progress in patient enrollment within our randomized clinical trial of head and neck cancer survivors. We now expect to have 180 patients enrolled by year-end with the goal of reaching 200 by the end of Q1 of 2024. This represents the kind of evidence-based investment we’ve become known for and hope to use the eventual results to expand access for the significant underserved segment of those suffering from lymphedema.

And lastly, we enhanced our Board of Directors with the appointment of Dr. Bendel Washington. Dr. Washington currently serves as Chief Clinical Officer for Care at Verily, a health technology company owned by AffloVest. He brings over 30 years of experience in the health care industry to our Board, including senior leadership positions with Blue Cross Blue Shield of Louisiana and the U.S. Department of Health and Human Services. We look forward to benefiting from his extensive experience across multiple facets of the health care industry as well as his track record in helping companies to develop and enhance their clinical and digital strategies. And with that, Elaine will now review our third quarter financial results in more detail.

Elaine M. Birkemeyer

Thanks, Dan. Turning to a review of our financial results. Unless noted otherwise, all references to third quarter financial results are on a GAAP and year-over-year basis. Total revenue in the third quarter increased $4.3 million or 6.6% to $69.6 million. By product line, sales and rentals of lymphedema products, which include our Flexitouch and Entre systems, increased $8.3 million or 15.3% to $62.5 million. And sales of our Airway Clearance products, which includes our Atlas system, decreased $4 million or 35.9% to $7.1 million. Continuing down the P&L. Gross margin was 70.9% of revenue compared to 71.7%. Non-GAAP gross margin, which excludes noncash intangible amortization in both periods, was 71.4% compared to 72.2%. GAAP and non-GAAP gross margins in the third quarter of 2023 were impacted by changes in our mix related to strong growth in sales of our Entre Plus system and lower AffloVest sales along with higher labor rates and material costs.

Third quarter operating expenses decreased $7 million or 14.5% to $41.4 million. The decrease in GAAP operating expenses was driven by a $7.1 million decrease in noncash intangible asset amortization and earn-out expense, and a $0.6 million decrease in sales and marketing expenses. These items were offset partially by research and development and reimbursement, general and administrative expenses, which increased by $0.4 million and $0.2 million, respectively.

Operating income was $8 million compared to an operating loss of $1.6 million. The $9.6 million improvement in our operating income was driven by a $2.6 million, a 5.5% increase in our gross profit as well as the aforementioned $7 million or 14.5% decrease in our operating expenses. Non-GAAP operating income was $5.2 million compared to $3.9 million in the third quarter of 2022, a 34% increase year-over-year. As a reminder, our non-GAAP operating income excludes noncash intangible amortization and earnout expense as well as certain nonrecurring operating expenses in the prior year period. We have provided a detailed GAAP to non-GAAP reconciliation in our earnings press release. Other expense net was $0.4 million compared to $0.7 million last year. The decrease was primarily due to an increase in interest income. Income tax benefit was $14.7 million compared to $77,000 in the third quarter of 2022.

The year-over-year change in income tax was driven by a onetime adjustment for releasing our valuation allowance. This noncash impact reflects our projected return to more consistent profitability. Net income increased $24.6 million to $22.3 million or $0.94 per diluted share. Non-GAAP net income increased $18.4 million to $20.2 million compared to $1.9 million in the third quarter of 2022. Adjusted EBITDA increased $0.5 million to $7.7 million or 11.1% of sales compared to $7.2 million or 11% of sales last year.

Turning to the balance sheet. We’re pleased with our continued improvements here. As of quarter end, we had $66 million in cash and cash equivalents and $46.8 million of outstanding borrowings. This compares to $21.9 million in cash and $49 million of outstanding borrowings as of December 31, 2022. Shifting to a review of our 2023 outlook, which we updated in today’s press release. We now expect full year 2023 total revenue of approximately $273 million to $277 million, representing year-over-year growth of 11% to 12% compared to our prior guidance of 11% to 13%. Our 2023 total revenue guidance range now sales and rentals of our lymphedema products increased approximately 14% to 15% compared to our prior expectation of 13% to 14% increase. And sales of our Airway Clearance products decreased approximately 9% to 8% versus our prior expectation of a 0% to 5% increase.

These updated growth assumptions reflect better-than-expected sales of our lymphedema products in the third quarter. They also reflect softer sales of our airway clearance products in the third quarter and reduced expectations for the fourth quarter as well as we continue to face the headwind related to the large semi customers that Dan discussed through May of next year. For modeling purposes, for the full year 2023, we expect our GAAP gross margin to be approximately 71%, our GAAP operating expenses to be down approximately 4% year-over-year compared to our prior expectation of a flat to down 1% year-over-year. Interest expense of approximately $2.6 million compared to our prior expectation of $3.8 million. We now expect a benefit on the GAAP tax line at 112% to 139% compared to a tax expense rate of 57% previously. The change in expectation is primarily the result of the valuation allowance removal in the third quarter and a fully diluted weighted average share count of approximately 23.5 million shares.

We continue to expect to generate adjusted EBITDA of approximately $25 million to $27 million in 2023. Our adjusted EBITDA expectation assumes certain noncash items, including stock compensation expense of approximately $7.7 million compared to $9.8 million previously. Intangible amortization and changes in fair value of contingent consideration of approximately $100,000 to $150,000 compared to our prior expectation of approximately $5.8 million. the depreciation expense of approximately $2.8 million compared to approximately $2.5 million previously. With that, I’ll turn the call back to Dan for closing remarks.

Daniel L. Reuvers

Thanks, Elaine. Stepping back, we’re pleased to have delivered solid financial performance in the third quarter with revenue growth in our lymphedema business of 15% year-over-year, record operating profit and expanded cash flow from operations. Our financial results demonstrate the improved productivity of our sales team as well as our enhanced operational efficiencies overall. In Q4, our team is focused on bringing 2023 to a strong conclusion and by continuing to execute on the following 4 strategic initiatives for this year, improve the productivity of our lymphedema field sales team, expand airway clearance therapy through broadened DME relationships, introduce new products and innovations to address the lifestyle needs of our patients, improving digital functionality and optimizing therapy and finally, enhancing our operational efficiency to reduce our cost to serve while maintaining strong patient satisfaction.

Lastly, with demonstrated progress towards our multiyear strategic and financial goals, along with an enhanced balance sheet, we remain confident in our ability to deliver sustainable long-term growth and value creation as we continue to expand our market share by empowering patients to care for themselves at home. And before we open the call for questions, I’d like to briefly address the subject of GLP-1 medications for weight loss and our perspective on its potential impact on those suffering from lymphedema. This afternoon, we posted information on the Events and Webcasts section of the Investor page of our website. While the information we assembled is intended to provide some additional context, it’s clear that rich third-party data on this topic is scant. That said, I wanted to call out a few of the key points from the information we assembled on our slides. I’ll start with a reminder that the data points to a universe of approximately 20 million Americans suffering from lymphedema. The evidence also indicates that lymphedema can be either congenital or more often the consequence of comorbidities, including cancer, venous disease, trauma and obesity, among others.

However, tying the incidence rate to body mass index, or BMI, is difficult from the currently published data. Thus, we attempted to frame the patient base in 2 ways. First, we broke down the lymphedema community into segments based on the available literature, but perhaps more importantly, and relevant was the second view we assembled, which breaks down our own patient data, arguably the largest source within this patient population. In fact, we broke down our year-to-date patients of over 50,000 based on BMI, among other things. Literature suggests that obesity plays a more significant role in the development of lymphedema once BMI exceeds 40 and can be the primary cause only when BMI exceeds 50.

Once we isolated cancer survivorship as the primary cause within our own database, we found that only 8% of our current patients had a BMI over 50 and an additional 16% above 40. While there is more detail in the data we posted on our site, our own demographic data of over 50,000 patients underscores that lymphedema diagnosis and those seeking care to treat it is far from limited to the severely obese. And even if these weight loss drugs deliver the promise that we all hope for, the consequence of lymphedema is expected to remain for millions of patients, a reality that continues to energize our mission to reveal and treat patients with underserved chronic conditions.

I’d like to thank everyone on the Tactile team for their efforts this past quarter and to our customers, suppliers, shareholders as well for helping to support our mission. With that, operator, we’ll now open the line for questions.

Question and Answer Session


(Operator Instructions) And our first question will come from the line of Adam Maeder with Piper Sandler.

Simran Kaur

This is Simran on for Adam. I just wanted to start off with AffloVest. It sounds like the headwind with the 1 DME is expected to linger into Q4 and at least part of the first half of 2024. This is a 2-parter. Can you quantify what percentage of the AffloVest business that this particular DME comprises or are you able to give a growth rate for AffloVest in the quarter ex the 1 DME? And then two, how do we think about AffloVest longer term in terms of the potential growth trajectory? Is it still accretive to your 2025 financial target?

Daniel L. Reuvers

Yes. So we haven’t broken out what the distributor was responsible for. But quite clearly, it’s a meaningful portion. The entire reduction for the full year is associated with that distributor. So some of their base number came down, and then obviously, the growth didn’t materialize. And that’s what really represented the reduction. As far as the future implications, yes, we do think that we’re probably going to have to lap May to get back into kind of the more predictable growth trajectory with them. In the meantime, we’re really pleased that the balance of the field, the rest of our DME customers have continued to grow. And we really don’t think it has any impact on our longer-term targets. We’re still very committed to those, and we don’t see any change in the underlying segment. This is one I think that I’ve shared, I’ve had an interest in for years in this segment of treating pulmonary patients. And we continue to believe that the TAM is every bit as large as it was. And I think we’ve talked about 500,000 patients with bronchiectasis and more than 4 million that have gone undiagnosed, and we continue to stay very focused on that and see it as a long-term growth contributor to the business.

Simran Kaur

Okay. Very helpful. And then just for my follow-up here. I know you’re not providing formal guidance for 2024 today, but the business has showed pretty impressive P&L leverage over the past couple of quarters. So just help us think about, a, how durable this metric is going forward? Should we expect to see a pretty sustainable net income profitability just going forward from this quarter forward.

Elaine M. Birkemeyer

It’s Elaine. Yes, we’re not providing 2024, but we are continuing to focus on the 2025 targets that we put out at the beginning of the year. Again, that was the $350 million in revenue, $50 million of adjusted EBITDA, which would be a little bit over a 14% adjusted EBITDA margin. We still feel good about our path in achieving that. And I think the profitability we’re demonstrating this year is, I think, showing good progress in that direction.

Daniel L. Reuvers

And I would just add too, I think, to Elaine’s point is as it relates to the durability, particularly some of the growth that we’ve seen on the lymphedema side. I think this is reflective of a more stable environment that we’ve probably not been in since 2023 over the course of the last few years. We think the sales productivity gains that are contributing to some of this has some additional runway as we haven’t completed all of the demos that have not all shifted over to our trainers. So we still see an opportunity to continue to expand that capacity with our sales team. And I think the strong reception we’re seeing to some of our new products, namely Entre Plus and hopefully more of the same with our Comfort Ease garments, certainly point to some good continued sustainable growth as we look forward.


The next question comes from the line of Ryan Zimmerman with BTIG.

Ryan Benjamin Zimmerman

I want to ask 2. First, I appreciate you guys giving some context on the GLP-1 debate and the patient population. But I just want to understand it. So assuming — I think it’s about 24% of your patients have BMIs over 40 just based on the slide that you showed. What happens if their BMIs drop, assuming they are taking a GLP-1, for example, are you assuming that those patients go away completely? Because it sounds like obesity is maybe one factor in what can be driving lymphedema here. Are you assuming that if the people who are over 50, they go away or there’s just maybe less severe lymphedema going forward if they are taking those drugs?

Daniel L. Reuvers

Yes. It’s a really good question, Ryan. And there’s a lot of variables that we’re all trying to anticipate. But I think that a few things that we’ve learned. One is if a patient has done enough damage to their venous and lymphatics, meaning they’re well above a BMI of 50. It’s unlikely that their lymphedema will recover even if they lose the weight. I think the other is our understanding is that current users of these drugs might lose 15% to 25% of their body weight. But if you’ve got a BMI over 50, you’re still going to be north of 30% and probably potentially north of 40%, depending on how high you start, which still doesn’t take you out of the universe of likely developing or having lymphedema. I think it’s going to be a long time before these patients start to show any potential impact in large part because even if these drugs help patients avoid becoming these over 50 BMIs, the existing universe of those patients are unlikely to recover and see their lymphedema get resolved without ongoing treatment. So it’s going to take a long time, we think, for this to wash itself out. Some will step down. But I don’t know if Elaine has anything else you want to add.

Elaine M. Birkemeyer

No. And I think if you look at the very last slide, that’s what we were trying to demonstrate there. This will take some time as the existing people who have BMI greater than 40, unfortunately, we’ll likely not see a reduction of their lymphedema and it’s really preventing people to take that place in the time to come in the future.

Ryan Benjamin Zimmerman

Okay. Very helpful. And then the second question, just on the Airway Clearance finance. Can you just elaborate on what the impact of profitability is for airway clearance. If this is a headwind for the next 6 months or so into May, what impact or what drag does that have on the adjusted EBITDA margin line. What impact and drag does it have on the gross margin line? Any color there would be helpful.

Elaine M. Birkemeyer

So I think we’ve talked about AffloVest was accretive to a little crores margin accretive to our operating income. I think this year, we’ve definitely seen that impact, but we’re really excited that we’re able to maintain our $25 million to $27 million guidance in adjusted EBITDA despite that. Again, really strong focus on our OpEx. And I think we’ll be able to continue to do that as we go forward. And again, reiterating our 2025 target of growing to a 14% adjusted EBITDA margin.

Daniel L. Reuvers

Yes, I would just add, Ryan, I think I agree with Elaine’s comments. And I think that if we would have done better on that segment, no doubt would have done even better, I think, on the adjusted EBITDA line. That said, I think the ongoing progress we’ve been able to demonstrate now for a series of quarters in a row about sales force productivity expansions, operational efficiencies, all of those have led us to really solid profitability contributions from the lymphedema business. So it allowed us to maintain our full year adjusted EBITDA target even knowing that we saw a step down in Q3 and predictably in Q4 on that segment. So I think as we get back on the train again next year, once we lap this mating, certainly, it should be a good guide for us.


And the next question comes from the line of Malgorzata Kaczor with William Blair.

Malgorzata Maria Kaczor Andrew

I wanted to start on the increased sales productivity, which obviously was quite impressive. You had referenced that there’s still going to be some improvements from here. I don’t know, I watch baseball. So is this like the third inning of that process? Is it the eighth inning, close to the end of the game or not? And then as we think about that and other efforts, not only over the next 6 months or 12 months, but as we look out towards that 2025 EBITDA margin target, what other efforts can you guys put in to drive that margin path?

Daniel L. Reuvers

Yes. I think we could probably use a good middle lever, if you know one, that might be a reasonable interval probably for us. As we said that there’s lots. I mean, tens of thousands of in-home patient demos we hosted in the last 12 months. So being able to start liberating more of those from the reps so they can optimize their time and clinic. I think it’s clearly having an impact. We are not doing the majority of them with our trainers yet, but clearly, they’re making a big impact. I think the opportunity for us to continue with that progression will take us through 2024. We’re trying to be careful about it. But I think it will continue to play itself out over 2024.

And then I think by the time we get to ’25, we should certainly be in a position where we’ve shifted some of those tasks to the extent that they still have to exist. That all depends on payer policy, of course. And I think that the other piece, Margaret, that we still think there’s opportunities for us, certainly as we get to 2025 is the impact of some ongoing investment in tech. We have a handful of things that we’re working on to examine how we can deploy technology to make the processing of orders more efficient, and that includes trying to introduce and find ways to bring easier ways for us to work with our prescribers as well as an easier process for our internal team. And maybe just as importantly, those folks caught in the middle, which is the sales team. So if we can make some of those advances in 2024, I think they should be able to demonstrate some contribution. And I think those are the kinds of things that give us good enthusiasm for the next couple of years.

Malgorzata Maria Kaczor Andrew

Okay. That’s helpful. And then I’ve hit on low vest a little bit. And I think part of the question is, what’s your comfort level at this point because we’ve maybe been surprised a couple of quarters in a row now to the downside. Are you trying to take another even more conservative stab at Q4? Or should we just continue to assume some sequential weakness, until we get into May and then hopefully, things start to pick up on a sequential or year-over-year basis, however you want to look at?

Elaine M. Birkemeyer

Yes, Maggie, we did reduce the guidance for AffloVest and it really was taking into consideration what we saw in Q3 and what we’re anticipating for Q4. Q3 was our first full quarter really being able to fully see the impact with the large DME partner. We’ve got more line of sight to what we think for the remainder of the year. And our expectation is that Q4 is going to look quite similar to Q3, maybe a little bit better, but in that same range. And that’s what we reflected in the latest guidance.


(Operator Instructions) And the next question comes from the line of Suraj Kalia with Oppenheimer & Company.

Suraj Kalia

So then I would ask a very high-level question. Since the time you have come on board then, how would you characterize the time to patient acquisition within these key buckets? And as we stand today, what are the main structural factors you think are changing somewhat positively or somewhat negatively?

Daniel L. Reuvers

I’m not sure I understand the question, Suraj. When you say time to acquisition, can you be more specific?

Suraj Kalia

So then, I guess what I’m trying to understand is you have a certain list of docs, you have a certain amount of patients out there. From the point that you identify a patient, you’ve identified Suraj having lymphedema, et cetera, it takes you, let’s say, 3 months to basically book a sale. Just trying to understand how is that shaping up based on all the changes that you are implementing?

Daniel L. Reuvers

Yes. I don’t know that the time to serve, I guess, is what you’re asking from the time we get a referral at the top of the funnel until the time we ship the product. I don’t know that there’s been a dramatic change over the time I’ve been here. And it can ebb and flow a little bit also based on payer requirements. So some payers, from time to time, will add some requirements that are more rigorous. Some will be more relaxed. And I think all of those have variables. I think what we’re really focused on at this point is especially as we continue to scale. Certainly, we’re a bigger business than we were a few years ago. And as we continue to scale, making sure that we’ve got scalable infrastructure and tech that I think can more efficiently help us process orders.

We brought in a new CIO back in earlier part of the year. Good rich experience, I think, enriching the platforms that we’re going to need. And I think we still see some good runway there. Ultimately, I would be optimistic about the impact it’s going to have on how long it’s going to take us to process an order and how much of it can be electronic versus manual. And the more we can reduce those handoffs and automate some of those things. I think it will be good for patients because our goal is certainly to make sure that we can serve them as efficiently as possible.

Suraj Kalia

Got it. Elaine, can you help us quantify if price was a factor in nominal growth within the 3 buckets, the commercial VA, Medicare? And also, Dan, if I could, following up on your the tech part of the equation. Forgive me, I jumped a little later on the call. Are we seeing any shift in patient compliance with the Kylee app?

Elaine M. Birkemeyer

Yes. So I think we had talked about at the beginning of the year that there were some price increases that hasn’t changed throughout the year. And so it’s been fairly consistent. The majority of the growth that we have seen throughout the year in this quarter to have been largely driven by shipment increases.

Daniel L. Reuvers

Yes. And I think as far as your other question, I think it was what impact do we think Kylee is having or have we seen on patient compliance. I think this is a really interesting one because compliance has been a bit of a black box for all of us. We’ve followed up with patients with phone calls and more what I’d call manual efforts over the years, but it’s certainly less pure as we continue to deploy highly. We are collecting a lot of information. And I don’t know that it’s so much about compliance improvements because we think that certainly the outcomes that we’ve been able to demonstrate imply that our patients have regularly used the therapies that we’ve delivered. But Kylee, I think, is one of the really important opportunities for us among all the other benefits for the patient for us to continue to collect a lot of really rich data.

Even responding to questions about the GLP-1 impact, I think we’ve got a database just based on our leadership and our girth in number of patients served over the years that allows us to know more about this constituent. So I think Kylee will continue to enrich that. We’re getting a lot more information than we had before about the progression of their measurements as they record those. We can even capture photos. We’re being able to collect information about their usage patterns. And I think to your point, over time, that database becomes really helpful and important as we continue to choose how we deploy new products, what opportunities we have to better serve these patients.


We are currently seeing no remaining questions at this time. That does conclude our conference for today. Thank you for your participation.

Daniel L. Reuvers

Thanks, operator.



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