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spk07: Welcome, ladies and gentlemen, to the first quarter of fiscal year 2022 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 current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including those identified in risk factor 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 the generally accepted accounting principles or GAP. We generally refer to these as non-GAAP financial measures. Reconciliation of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available on the earnings press release on the investor relations portion of our website. I would now like to turn the call over to Mr. Dan Revers, Tactile Medicals President and Chief Executive Officer. Please go ahead, sir.
spk03: Thank you, Operator. And welcome, everyone, to our first quarter earnings call. I'm joined on the line by Brent Moen, our Chief Financial Officer. I'm going to begin our prepared remarks today with an overview of our quarterly sales performance and some of the highlights that we saw during the first quarter. Brent will cover our first quarter financial results in greater detail and review our 2022 financial guidance, which we reaffirmed in our earnings release today. And I'll conclude with some additional thoughts on our outlook and key areas of focus in 2022 before we open the line for questions. So let me start by saying I was pleased with our team's ability to deliver a strong quarter amid a host of headwinds that we believe peaked in the first quarter. In the quarter, we reported total revenue growth of 12% year over year to $48 million, exceeding our expectations for growth in the mid single digits. which we communicated on our earnings call in February. Our total revenue growth was primarily driven by sales of our airway clearance products, which includes our recently acquired AfloVest product line. Airway clearance product sales contributed approximately 17 percentage points to our revenue growth in the first quarter. The stronger than anticipated sales of our airway clearance products offset a 5 percent decrease in sales and rentals of our lymphedema products. Let me provide you with a brief update on the puts and takes that we saw in our lymphedema and airway clearance categories. Beginning in our lymphedema products, as we outlined in our earnings call in February, our first quarter sales performance remained paced by the surge in COVID cases related to the Omicron variant, as well as the expected effects of the Salesforce staffing gaps we experienced during the second half of 2021. As we anticipated on our last call, the headwinds related to the Omicron variant continued through much of the first quarter. Similar to prior periods with high COVID case volumes, we saw higher rates of absenteeism at the patient, provider and staff, and even within our own Salesforce levels, along with reduced patient throughput and limitations on rep access at some of the facilities that we serve. While these headwinds ultimately limited our team's ability to engage with new accounts, we were pleased with their efforts to support our existing clinician and patient customers, despite the disruption created by this recent case surge. In terms of Salesforce staffing, remember that we navigated several challenges during the second half of 2021, which impacted our recruiting and retention efforts, including the challenging labor market and some reluctance related to vaccination and testing. During the first quarter, we continued to make progress in getting back to our target headcount, and ended the quarter with 226 field sales representatives. Given the bolus of our new field sales reps that joined since late 2021, we remain focused on getting them onboarded and trained during the second quarter, with the expectation of improving productivity as we enter the second half of 2022. We're also targeting continued expansion of our field sales headcount during the remaining months of this year to approximately 240 before the end of 2022. With respect to our airway clearance products, we were pleased to see strong initial performance in the DME channel during the first quarter, culminating in pro forma growth of 108% year over year. As a reminder, our AfloVest product line is sold through respiratory DME providers throughout the United States, supported by a small team of tactile sales specialists. The AfloVest acquisition was predicated on the belief that respiratory DME reps are uniquely positioned in the market due to their existing relationships with pulmonologists and primary care providers that treat chronic respiratory conditions, like bronchiectasis, as well as other chronic disorders that lead to retained secretions and breathing problems. The initial traction these DME reps are seeing is evidence that the aflovest airway clearance therapy is a natural complement to other therapies that they provide to complex respiratory patients, including oxygen, nebulizers, and non-invasive ventilation. Our integration efforts also progressed as we expected during the quarter, and our specialized airway clearance sales force continued to make progress in raising awareness, educating, and training within our DME channel. Turning to a review of some important operational highlights. During the first quarter, we continued to host virtual education events, as well as serve as sponsors at the American Venus Forum, and power lymphatics conferences. Specifically, we hosted 54 educational programs that were attended by nearly 1,600 clinician participants. And we increased our podium presence at the key society meetings, including the American Venous Foundation Congress in February, where our chief medical officer, Dr. Tom O'Donnell, and several other key opinion leaders delivered five presentations on a variety of topics related to identification, diagnosis, and management of lymphedema. In addition to these efforts, we were pleased to see an expert opinion consensus on lymphedema diagnosis and treatment published in Phlebology, the journal for venous disease, in March. It reflected a consolidated stance on the diagnosis and treatment of lymphedema among three independent professional societies, the Society of Vascular Medicine, the American Venous Forum, and the American vein in lymphatic society. Experts from these societies used the Delphi methodology and arrived at a consensus on a number of factors related to lymphedema, including two particularly notable items. First, all patients with chronic venous insufficiency, stages C3 through C6, should be considered lymphedema patients. And second, pneumatic compression should be recommended for lymphedema patients. We believe this will prove to be another persuasive tool as we engage with prescribers as well as payers, particularly in demonstrating the need for access to pneumatic compression devices for patients suffering from CVI-related lymphedema. We also made progress in our development of new solutions for our lymphedema customers. We remain on track for a limited market release later in the second quarter and a full market release in the third quarter of a new series of FlexiTouch garments intended to further enhance the patient experience. Among the improved features, our redesign favors increased patient comfort and ease of use, all focused on a better patient experience. And our work continues towards introducing a mobile app later this year. This app will enable Tactile to engage and inform patients earlier in their diagnosis and treatment journey, help them learn more about their condition and treatment options, and allow them to document their symptoms and progress ahead of their visit with a specialist, helping them arrive better informed and potentially better qualified for our therapies. We believe that both of these new solutions will provide the added benefit of helping our team to educate and train patients more effectively, as well as begin to engage with them earlier in their journey toward a definitive diagnosis and path to relief. In January, we bolstered our board of directors with the appointment of two new highly experienced members, Valerie Asbury and Brent Schaefer. Valerie is the president and CEO of LifeScan, a former Johnson & Johnson company and global leader in blood glucose monitoring for people with diabetes. She previously spent 20 years with J&J, including five years as global president of its diabetes solutions business. Brent is the former chairman and CEO of Cerner Corporation, which was acquired by Oracle in 2021. He formerly served as the chief executive officer of Philips North America as well. Their addition to our board further strengthens Tactile Medical's depth of experience in accessing and treating patients that suffer from chronic conditions, including the use of digital health tools and supporting our continued development as a company. And lastly, in February, we were pleased to announce that the Ketam lawsuit filed by a competitor had been dropped and dismissed with prejudice by a federal judge, with the plaintiff agreeing to waive the right to appeal. After defending our organization and its partners against the allegations in this case, which we always believed were meritless, we're proud to resolve this matter in its entirety without paying anything to the plaintiff, his counsel, or the government. We're proud to have rightfully defended our reputation and glad to close this chapter with it fully intact. Now let me turn it over to Brent to discuss our financial results in more detail, along with our guidance for 2022. Brent?
spk05: Thanks, Dan. Total revenue in the first quarter increased 12% year-over-year to $48 million, compared to $42.8 million in the first quarter of 2021. Looking at our total revenue by disease state, sales of our Airway clearance products, which includes our recently acquired AfloVest product line, contributed $7.3 million for the quarter. And sales and rentals of our Lymphedema products, which includes our FlexiTouch and Entrez systems, decreased 5% year-over-year to $40.7 million. Total revenue by channel was 55% commercial, 18% Medicare, 15% durable medical equipment distributors, and 12% VA. As a reminder, durable medical equipment distributors is a new channel comprised of revenue from our acquisition of the airway clearance therapy business, which closed on September 8, 2021. These figures compare to our total revenue by channel in the first quarter of 2021, in which the commercial, Medicare, and VA channels represented 66 percent, 20 percent, and 14 percent of total revenue, respectively. Continuing down the P&L, unless noted, all references to first quarter results are on a year-over-year basis. Gross margin was 70.6 percent of sales compared to 70.7 percent last year. Non-GAAP gross margin was 71.2 percent of sales compared to 70.7 percent in the prior year. Non-GAAP gross margin excludes non-cash intangible amortization in both periods. As a reminder, we have provided reconciliations of certain GAAP to non-GAAP measures in our earnings press release. First quarter operating expenses were $48.8 million, an increase of $14.4 million, or 42 percent. The largest driver of the increase in operating expenses year over year was a $7 million increase in non-cash earn-out expense related to the acquisition of the airway clearance therapy business and non-cash intangible asset amortization. Our prior year GAAP operating expenses were not impacted by these non-cash items. The increase in operating expenses was also driven by a $5.1 million increase in sales and marketing expenses, largely due to increases in personnel-related compensation expense, including the addition of the AfloVest-related commercial expenses and travel-related expenses as we return to normalized business activities. A $2 million increase in reimbursement, general, and administrative expenses and a $300,000 increase in research and development expenses. Excluding the aforementioned non-cash expenses and litigation defense costs in both periods, our non-GAAP operating expenses increased 19 percent year-over-year in the first quarter. Operating loss was $14.9 million compared to an operating loss of $4.1 million last year. Non-GAAP operating loss was $5.4 million compared to a loss of $3.1 million last year. Income tax expense was $200,000 compared to an income tax benefit of $1.8 million last year. The difference relates to a full valuation allowance being recorded against all deferred tax assets in the current period. Net loss was $15.6 million, or 78 cents per diluted share, compared to a net loss of $2.3 million, or 12 cents per diluted share last year. Non-GAAP net loss was $8.4 million, compared to a net loss of $1.5 million last year. Weighted average shares used to compute GAAP diluted net loss per share were $19.9 million, and $19.5 million in the first quarter of 2022 and 2021, respectively. Adjusted EBITDA loss was $2.6 million compared to an adjusted EBITDA loss of $7,000 last year. As of March 31, 2022, we had $21.2 million in cash and cash equivalents and $51.3 million of outstanding borrowings compared to $28.2 million in cash and cash equivalents and $55 million of outstanding borrowings as of December 31st, 2021. Turning to a review of our 2022 outlook, which we reaffirmed in our earnings press release today, our guidance for full year 2022 total revenue remains unchanged in the range of $235 to $240 million representing growth of approximately 13% to 15% year-over-year. Our 2022 total revenue guidance reflects sales of our lymphedema products increasing approximately 6% to 8% year-over-year and sales of our airway clearance products in the range of 19.5 million to 20.5 million. For modeling purposes, We expect to generate adjusted EBITDA of approximately $14 million to $16 million in 2022. This range is based on the following assumptions for the full year. Gross margins in the low 70% range, an increase in GAAP operating expenses in the low 20% range year over year, driven primarily by a $2 to $3 million of legal expenses and certain non-cash items, including stock compensation expense of approximately $12 million, intangible amortization and estimated changes, and contingent consideration of approximately $11.5 million, and depreciation expense of approximately $2.4 million. Lastly, in the interest of transparency, we would like to provide some additional color on our revenue expectations for the second quarter, specifically we expect total revenue growth of approximately 10% to 15% year-over-year, driven by flat to 3% growth in our sales of our lymphedema products and $5 to $6 million of sales of our airway clearance products, which, as a reminder, did not impact our sales results in the second quarter of 2021. With that, I'll turn the call back to Dan for some closing remarks.
spk03: Dan? Thanks, Brent. And we're pleased to be in a position to reaffirm our full year guidance. We expect improving growth and profitability performance in the second quarter and the second half of this year, driven by a combination of the increasing productivity of recently hired and promoted sales representatives, the moderation of COVID-related headwinds, and the commercial launch of our new ease of use garments and digital app. As a result, we expect to deliver mid to high teens total revenue growth in the second half of the year. Looking ahead, we remain focused on driving operational progress in the following four areas. First, enhancing our sales force hiring, retention, and training to fill key roles and improve productivity of our new reps. Our recently hosted national sales meeting in April, the first time in 27 months we've been able to assemble our entire team, was a solid step forward towards improving retention and engagement. Second, increasing the base of our new clinician prescribers for our lymphedema products as well as deeper penetration by educating and training their clinical teams and providing efficient support for the referrals. Third, introducing new and improved solutions, including our new FlexiTouch garments and mobile app to improve patient engagement, experience, and outcomes as well as extend our competitive lead. And finally, supporting our respiratory DME channel partners to help them integrate the AfloVest among their existing offering of complementary solutions and raise awareness among their physician and patient customers. And by continuing to execute with respect to these key areas, we expect to set the stage for sustained organic revenue growth and EBITDA margin expansion in the coming years with significant runway ahead for us as we continue to penetrate the combined multi-billion dollar annual addressable markets that we serve. Before concluding my remarks today, I'd just like to thank our employees for their continued dedication to the advocacy and treatment of underserved patients living with lymphedema, bronchiectasis, and other related chronic conditions. Tactile medical success is the direct result of their dedication to bringing relief to thousands of patients. I'd also like to thank our investors and those on today's call for their interest and support of tactile medical. Operator, we'll now open the call for questions.
spk07: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute feature function is turned off to allow your signal to reach our equipment. We do ask that you limit yourself to one question and one follow-up question. If you would like to ask additional questions, we invite you to add yourself to the queue again by pressing star 1. And our first question will come from Ryan Zimmerman with BTIG. Please proceed.
spk06: Hey, good evening. Thanks for taking the questions, Dan and Brent. I want to start with the guidance for a moment here and appreciate that you're reaffirming. If I think back to the last quarter, I think the AfloVest guidance was fairly similar to what you're telling us today, and the lymphedema products guidance was expected to increase about 6% to 8% for the year as well. Given where you're at with AfloVest and then kind of given where you're at with the lymphedema products, it would imply a pretty big increase in lymphedema in the second half of the year and somewhat of a slowdown in Aflovest in the second half of the year. So help me kind of reconcile that and kind of your thinking about the pacing of each of the product categories through the year.
spk03: Yeah, so let me take a shot at that one, and then maybe Brent will have some, he can back clean up on it a bit. Let me start with Aflovest, Ryan. First of all, we were really pleased with the fact that we had a solid first quarter of the year. I think some of it had to do with the fact that we know how important it is to keep the team together and we preserve this specialist group that we inherited from the AfloVest acquisition. I think they've demonstrated the ability to continue to engage with our DME partners. I think the other thing we saw in the first quarter, just from a positive standpoint with the AfloVest, was that this does indeed fit well within their portfolio. And as they continue to service patients with a lot of chronic respiratory needs, addressing the airway clearance gap is clearly one that we've recognized collectively there's an opportunity for. Now, that said, you know, we're just one quarter into the year, and we're, I think, a little bit cautious that we want to make sure that this wasn't just low fruit, but, you know, that there's sustainability there. That's why we've kind of continued to keep the pace of the AfloVest expectation on par for the time being. And I think as it relates to the lymphedema business, what we really guided to was no change. Basically said we're still going to be more of a second half story, but didn't really change any of our expectations. So I think we're a quarter in. We know we still have a good amount of wood to chop in the back half. We've got some new products to be introduced, trying to get our teams up and running and well-trained. So no big change there. And I think ultimately we'll probably revisit expectations once we get to the halfway point. But those are some of the variables, I think, that help shape it. I don't know, Brent, if you have anything you want to add.
spk05: Yeah, no, I think that's a good summary of what we expect for the remainder of 2022. Okay.
spk06: A couple follow-ups. Two for me, just briefly. One, what's kind of the state of the state on VA access at this point? I know that was an issue for you guys before. And then just the second question I'll ask it as well is, The state of the new prescriber base in terms of their contribution relative to existing prescribers, it sounds like you had picked up a lot last year. And, you know, are we seeing any meaningful contribution from that group at this point? Thanks for taking the questions.
spk03: Sure. Yeah, I think the VA access story is really not much of a change. We continue to see an awful lot of these patients seen in those outposts, the community-based outpatient centers. So we've continued to include those as part of our call point. We've certainly got a focus on some of the targeted VA centers to try and reestablish some additional growth as we progress through the year. We've got some specialists that focus on that as well as the rest of the rank and file product specialists. So we still see that there's certainly an opportunity for us to continue to grow there. But no change, I would say, in the VA posture over the last quarter from what we've been reporting. As far as new prescriber base, the good news we've said is we've certainly added more prescribers. I think the fact that we've had a little bit of a reset with the sales force from the back half of last year and into first quarter has certainly paced our ability to more deeply penetrate some of these new prescribers. But that's still the game plan and the priority as we progress through the year. And we've continued to have I think some rather cautious approach to that in Q2, but I think when we get to the back half, certainly Q3 and Q4, we do expect to continue to demonstrate additional penetration. I think that there's also some opportunities for us to continue to hopefully improve some of the shape of payer relations and policy, and I think all of those will certainly be friendlier to us as we continue to progress through the year. Thank you, guys.
spk05: Thanks, Ryan.
spk07: Our next question is from Adam Mater with Piper Sandler. Please proceed.
spk02: Hi, Dan. Hi, Brent. Congrats on the progress, and thanks for taking the questions. Just wanted to start with broader procedure environment. It's a dynamic environment. I think that's putting it mildly, so we just love some extra color or commentary around Q1 and kind of how it played out by month, as well as kind of, you know, the exit momentum that you had into Q2 and what you saw over the course of April, both on the lymphedema and Aflovesc side. I mean, I didn't hear you guys kind of talk about trends, you know, in that much detail, so just wanted to flesh that out a little bit in terms of progression, and then add a follow-up or two. Thanks.
spk03: Yeah, I think I'll start just with a little bit of Q1 and then maybe ask Brent to add something. As it relates to Q1, we started off certainly with a soft beginning of the quarter with Omicron. We continued to see what I'd say some modest positive progression through the quarter, but it was still a bit sluggish as we entered in March. So I think that's what probably got us a little on the lower side of where we expected on the lymphedema business. So, you know, that's a little bit of, I think, what we saw on that side.
spk05: Yeah, Adam, it's Brent. Just as we progress into Q2, certainly look for an uptick in performance, total revenue expectations somewhere between 10% and 15% year over year. It's split between our lymphedema products, which we expect to be flat at 3%. So, As Dan pointed out, improvement in the Omicron, but looking for, you know, continued enhancements in productivity as we progress through Q2. Obviously not getting all the way there, but really emphasizing second half of 2022 growth there. And then $5 million to $6 million of sales of our airway clearance products, which, as you know, that's AfloVest products. Uh, you know, so we have expectations that, uh, that will be, uh, that will continue to do, um, you know, perform at, at that expectation. And then, uh, as we, uh, as we improve growth, certainly profitability, um, will, uh, will pick up as well, uh, in the second half of the, uh, of, of the, of the year, but more particularly in the second quarter as well. Um, so, uh, just with the relief of some of the Omicron, uh, impacts and then, uh, the commercial launch of our new ease of use garments and digital app in the second half of the year.
spk02: That's helpful color guys. Appreciate that. And then maybe, uh, wanted to just follow up on, uh, the Salesforce and, and higher initiatives that, that you guys have. I mean, it, it sounds like if I heard correctly, you finished a Q1 with 226, uh, heads. And I think that that was maybe just shy of the two 30 number that I think he pointed to in the past. You know, how is the hiring environment today? Is it getting any better? Maybe just the level of confidence to continue to scale the sales force in a timely fashion. And then I had one last follow up for you guys. Thanks.
spk03: Yeah. So we did end up at 226. And keep in mind, that's a snapshot in time. So, you know, we are consistent. We always report where we sit at the end of the quarter. If you ask us a week ahead or a week later, it could be a different number. As you can imagine, it moves a little bit, and it's dynamic. I think the key point for us was when we exited, just to recall, Q3, the end of September, we had 200 salespeople, and we said that, you know, we had a good amount of work ahead of us to try and get that number back up. We wanted to get upward near 230 towards the end of Q1, and we got within four heads. And that's a net increase of 26 over the course of the last couple of quarters. So, you know, we feel good about the fact that we've been able to attract some really good talent. I think some of the ads that we've made have been really particularly good ads for us coming from good profiles. Some of that's been promotion, but as we had alluded to, I think, before, some of it's coming from the outside as well. And then we were able to assemble all of our sales force just a couple weeks ago in Las Vegas where we had a national sales meeting. The first one, it used to be an annual event. This is the first one we've had in three years due to Omicron or rather COVID. So it was a really encouraging and I think engaging opportunity to get this group together. We feel like it was going to be a good investment that's certainly going to bring some restored energy to our group, and I think that the enthusiasm they showed for some of the things that we covered in training, as well as some of these new garments that we'll be introducing, there was a lot of good energy as we left that, and we think we'll continue to see some of the benefits of that.
spk02: That's great to hear, Dan, and great color. And maybe just one last one for me, if it's a housekeeping question. I'm not sure if I heard it in the prepared remarks, but just on supply chain environment, is there anything notable or worth calling out from a tactile standpoint, items that have been particularly challenging to procure, just anything to flag for the street. Thanks again for taking the questions.
spk05: Adam, it's Brent. I'll start and then if Dan wants to clean up any of this, certainly. You know, I think it all centers around gross margin, and we reaffirmed that we expect gross margins to be in the low 70%, and we reaffirmed our top-line revenue. So I think that's suffice to say that, you know, we have been pretty successful at specifically our operations team doing a great job to stay ahead of and mitigate any potential issues that are out there. And so I think we feel like we're in a good spot relative to our supply chain.
spk03: Yeah, I would just add a couple items on that one too, Adam. First, let me just do a shout out to our ops team because I think they've done a fantastic job. We have certainly not been immune to some of the issues that you've alluded to that a lot of companies are talking about. So we've seen plenty of increase in things like freight and spot buys and labor and things like that, but I think our team has done a really good job of finding offsets. The other one I would just add as it relates to AfloVest, and it's a little bit about what kind of tempered our update as far as guidance, but we are in the final stages now of the integration of AfloVest. Before this past quarter, we basically brought virtually everything in with the final exception of taking direct control of the supply chain upstream as well as final assembly, and we're going to be completing that during the second quarter. That said, we have a really good supplier that we inherited, but they've got some capacity constraints. They're fully capable of delivering product to our original forecast, but as we see potential opportunity for growth Um, not only this year, but well into the future, keep in mind, this is a, this is a big opportunity and one that, um, you know, we didn't enter into as a hobbyist. We're in the midst of working on trying to, um, stand up a secondary source. Uh, I think right now we continue to believe that that's probably likely about the end of the year. Um, but, um, you know, that's a, that's a work in progress as well. Okay. Thanks for the extra color. You bet.
spk07: Our next question is from Siraj Kalaya with Oppenheimer. Please proceed.
spk03: Hey, Siraj.
spk01: So, Dan, three questions all on the lymphedema side, if I may. The second F-22, or BRIN for that matter, the second F-22 step-up required in lymphedema to reach guidance, what segments within lymphedema are you all expecting to contribute more and why? I.e., commercial, Medicare, VA, how should we think about these three buckets within lymphedema?
spk03: Yeah, I think maybe that's a little tough one to answer because we don't forecast by payer. We focus on end-user segments. So, you know, the primary call points we expect to demonstrate growth or contribute to that, Suraj, would be some combination of the oncology patients as well as the lower extremity lymphedema patients or those flebolymphedema or CVI related. That's clearly the biggest market, continues to represent probably two-thirds of the opportunity. So, you know, expecting a mix that's probably something that looks akin to that would probably be reasonable.
spk01: Got it. Dan, on the Liberty Miss side, how many reps are tenured, and where does the annual productivity stand exiting Q1?
spk04: So, Suraj, can you repeat the question? What's the number of reps we have?
spk01: No, the tenured reps, where are we in terms of productivity trying to ascertain how many are fully tenured at five, full levels and versus, you know, how much capacity is remaining in the remaining onboarded reps?
spk05: Yeah, I'll take a shot at Suraj. So as Dan pointed out earlier, you know, we've had net ads of 26 heads since our Q3 period. So probably suffice to say that, you know, more than 26 have left the organization. And so I would tell you that from a 10-year perspective, we're not as far along as we would like to be. And I think that's what we've been talking about in terms of ramping up productivity in the second half, or particularly in the second quarter, but starting to see the benefits in the second half of 2022. And so the new ads that we brought in, I think we had talked also about in Q3 and Q4 that Not all of them. Our historical kind of hiring methodology is to bring them in as associate product specialists. We've expanded that now to bring in reps at not only associate product specialists, but also the product specialists in order to ramp productivity faster than it historically has. And so we have expectations that what historically has taken roughly a year to get to productivity is going to be something less than that as we push through 2022. Got it.
spk01: One last one, a subpart, Brent and Dan, and I'll hop back in the queue. Are there any dynamics of the commercial segment that you would characterize as sort of one-time or unique to reflect the perceived growth rate of the commercial side? And, Brent, if I may just push you on the last point you made Maybe let me ask you a little differently. How many reps are, let's say, productivity levels between a million or over a million? Gentlemen, thank you for taking my questions.
spk05: On the payer side, I can talk a little bit about that, Suraj. In terms of the commercial piece, this is no different than what we've experienced, one, seasonally, and two, from a COVID perspective. So As you might expect, with the highest co-pays early in the period, that certainly has an impact on our ability to really capitalize on the commercial opportunity on that. And then further handicapped by the fact that we experienced a pretty sizable COVID Omicron flare-up. And then the other piece is when you experience that, then you also have the the reactions that you get from the large institutional slash hospitals. So they really limit access when you have flare-ups like that, and that's the piece that historically prescribed the majority of the FlexiTouch. So I think as we push back into the Q2 and in the later half of 2022, you'll see that commercial or business rebound a little bit more, both from seasonality and then also the relieving of some of those COVID symptoms.
spk03: Yeah, and I think as far as the productivity, it's hard to give you a useful number simply because we've got, you know, you could have two reps. One is a solo rep and one may have an associate that's helping support them. They could have an SS. Rather than try and give you one number that's really a, consolidated number that probably isn't as useful. I think the one thing I would concede for sure is that our overall productivity, Suraj, is not where we need it in the first quarter. And that's what we've been talking about is as we've retooled the sales group, we've filled out some of these roles in the back half last year, the first part of this year. I do think that it feels like we've turned a corner. I think that we're feeling as if we've got our sales force more engaged at this point. I think the focus will be for now on training, and I think that's why the national sales meeting came at such an opportune time. We not only had an opportunity to assemble and kind of get the group energized, but there was a lot of didactic content that was represented there as well. And then, you know, we've got a host of different ongoing follow-up training events coming up. So between the NSM, general training, and frankly, some additional seat time, those are the things that point to our confidence on why we believe second half's stronger. And, you know, I think the last one I would just add is this is not a unique story for us, right? The back half always is much more heavily weighted than the first half. The device gets less expensive as the year progresses and co-pays go down. So it's a phenomenon we're quite used to. But I think that with the introduction of new products, which is yet another energizer and I think a really good thing for patients, along with some additional seat time and I think some emerging stability in the sales force, we still feel real good about that.
spk01: Thank you.
spk07: As a reminder, just star one on your telephone keypad if you would like to ask a question. Our next question is from Margaret Kaeser with William Blair. Please proceed.
spk00: Hey, guys. This is Maggie Bowie on for Margaret today. I wanted to ask one on AfloVest just a little bit differently. So it obviously came in stronger than expected this quarter. So can you talk about what drove that dynamic and just kind of give us a breakdown of that and what you're seeing into April?
spk03: Yeah, I mean, ultimately what drove it is the same reason that we were founded as an appealing asset for us in the first place, Maggie, is remember there's thousands, like 4,000 respiratory DME reps out there. So when we explored the opportunity, this was still what I'd call an emerging product within the portfolio of some of the respiratory DMEs. Our diligence continued to point to the fact that If you think about a complex respiratory patient a little bit like a puzzle, there's NIV, there's O2, there's nebulizers, there's PEP devices, and there was one glaring missing piece in the middle, and it was the ability to provide effective airway clearance therapy. So I think what we're seeing is that these respiratory DME reps are recognizing that these same complex patients that they already are serving and the same referral sources that they're serving are this fits very well. And by introducing more active dialogue about trying to call out and help docs recognize which patients can benefit, we're seeing an attach rate that we're pleased with. So I think those are some of the characteristics. As we've said, this is a really big market. And with thousands of respiratory DME reps, we're still in the early days when you think about you know, what kind of penetration we even had in Q1. So, it was a good way for us to get off in Q1, and, you know, we still have some work to do.
spk00: Got it. Thanks. And then I just want to ask, you know, for your Coraline Sedema business, you've got the new garments you're launching as well as the mobile app. So, What type of momentum can that drive within the core lymphedema business, and then how can we see that translate into growth specifically in the back half of the year? Thanks for taking our question.
spk03: Yeah, fair question, Maggie. So just to give you a little bit more precision on timing, we've got a limited market release for the new garments this quarter. Back half of this quarter is our limited market release, and we expect a full market release in early Q3. So, like any new product, typically it doesn't turn on like a light switch, but we're optimistic that by introducing this in early Q3 that it can have an impact as early as Q4. So, and that's been built into some of our expectations. It's also what gives us a better feeling as we would have developed hopefully some of that momentum that we can carry into the new year. But that's basically what that one looks like. Lots of nice features in this one. It's a much lighter weight garment. It's easier for patients to put on. It employs zippers and things like that. The digital app will follow shortly thereafter. It's got limited market release in early Q3 and full market release probably by the end of Q3. And that one, we believe, probably will pay more dividends when we get into 2023. but ultimately it's an opportunity for us to engage with patients earlier. If you've seen our iceberg slide that we point to a lot that kind of shows that the majority of the lymphedema patients remain under-recognized and under-diagnosed, having an app that they can better educate themselves about their condition, that they can track symptoms for, ultimately would hopefully allow them to when they see their specialist, be better qualified. They'll have already met some of the tried lesser kinds of interventions already, and they'll have documented that. They can take pictures of the progressions of their limb. All of those things, we think, can help engage patients earlier in their journey. And then there's other features that we're optimistic we'll be able to get some value from as well, not the least of which is easier ways for the patient to do some self-administered training, lots of little video vignettes, and a host of other features in there as well. And that's kind of step one. There's a fairly extended digital roadmap journey that we've kind of laid out internally as well.
spk00: Great. Thank you.
spk07: We are currently seeing no remaining questions at this time. That does conclude our conference for today. Thank you for your participation.
spk03: Thank you. Thank you, everyone.
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