Tactile Systems Technology, Inc.

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 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 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 Revers, Tactile Medical's president and chief executive officer, along with Elaine Berkmeyer, Tactile's chief financial officer. And I would now like to turn the call over to Mr. Revers. Please go ahead, sir.

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 percent 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 continued 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 headcount 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 two 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 Entrez Plus system and our ComfortEase garments. We continue to see significant commercial traction of our Entrez Plus system during the third quarter as we progress through the initial months following its full market release in March. The addition of Entrez Plus to our portfolio, the first generational update to our Entrez 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, Entrez Plus delivers the same clinically proven therapeutic benefits of our original Entrez 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 two limbs simultaneously. Patient feedback has been consistently positive throughout the initial months of commercialization, affirming that Entrez Plus represents an important enhancement to our product portfolio. The development and introduction of Entrez 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 Entrez Plus system was also designed to be part of a consistent product family with our FlexiTouch Plus, enabling Entrez 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 ComfortEase upper extremity garments, the latest addition to our FlexiTouch Plus portfolio since the introduction of our ComfortEase lower extremity garments last year. Our ComfortEase 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 ComfortEase 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 one large DME customer experiencing slowed placements of our AfloVest system. As a reminder, May 11th 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 partner 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 AFLAVEST 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 RT Magazine. This publication, which I discussed on our last call, summarized the results of a blinded, randomized study demonstrating patients' preference of AfloVest over three 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 AfloVest 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 Entrez Plus and ComfortEase garments, we continue to expand the features, awareness, and adoption of our Kiley mobile application. Since we debuted Kiley 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 Kiley 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 Kiley app, along with our EntreePlus 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 Forum. The symposium was titled Pneumatic Pump Boot Camp, Everything You Wanted to Know. It was hosted by five prominent physicians, including our recently appointed chief medical officer, Dr. Tony Gasparis. They discussed the differences between basic and advanced pneumatic compression devices and walked 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 this significant underserved segment of those suffering from lymphedema. Lastly, we enhanced our board of directors with the appointment of Dr. Vin Bell Washington. Dr. Washington currently serves as chief clinical officer for CARE at Verily, a health technology company owned by Alphabet. He brings over 30 years of experience in the healthcare 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 healthcare 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.

Thanks, Dan. Turning to review our financial results. Unless noted otherwise, all references to third quarter financial results are on a gap in year-over-year basis. Total revenue in a third quarter increased $4.3 million, or 6.6%, to $69.6 million. By product line, sales and rentals of lymphedema products, which includes our FlexiTouch and Entrez systems, increased $8.3 million, or 15.3%, to $62.5 million. And sales of our airway clearance products, which includes our AfloVest 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 non-cash intangible amortization in both periods, was 71.4% compared to 72.2%. Gap and non-gap gross margins in the third quarter of 2023 were impacted by changes in our mix related to strong growth and sales of our Entrez Plus system and lower affluent best 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 gap operating expenses was driven by a $7.1 million decrease a non-cash 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 or 5.5% increase in our growth as well as the aforementioned $7.7 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 non-cash intangible amortization and earn-out expense, as well as certain non-recurring 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 is 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 one-time adjustment for releasing our valuation allowance. This non-cash impact reflects our projected return to more consistent profitability. Net income increased $24.6 million to $22.3 million, or 94 cents 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 31st, 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 to $277 million and 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 assumes sales and rentals of our Linthedema product increase approximately 14% to 15% compared to our prior expectation of 13% to 14% increase. And sales of our airway clearance products decrease 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 reduce expectations for the fourth quarter as well, as we continue to face the headwind related to the large teammate customer that Dan discussed through May of next year. For modeling purposes for the full year 2023, we expect our gap growth margins 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 a rate of 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 to $27 million in 2023. Our adjusted EBITDA expectation assumes certain non-cash 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.

Dan Bauschman- 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 percent 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 teams focused on bringing 2023 to a strong conclusion, and by continuing to execute on the following four 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 satisfactions. Lastly, with demonstrated progress towards our multi-year 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 webcast 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 two 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's more detail in the data we posted on our site, our own demographic data of over 50,000 patients underscores that lymphedema diagnoses 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.

Thank you. If you'd 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 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. If you would like to ask additional questions, we invite you to add yourself to the queue once again by pressing star 1. And our first question will come from the line of Adam Mader with Piper Sandler. Please proceed with your question.

Hi, Dan. Hi, Elaine. This is Simran on for Adam. Thank you for taking the question. So I just kind of wanted to start off with Aflovest. It sounds like the headwind with the 1DME is expected to linger into Q4 and at least... part of the first half of 2024. Can you, this is a two-parter, can you quantify what percentage of the AlphaVest business that this particular DME comprises, or are you able to give a growth rate for AlphaVest in the quarter X, the one DME? And then two, how do we think about AlphaVest longer term in terms of the potential growth trajectory, is it still a creative tier 2025 financial target?

Yeah. 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 still... We're still very committed to those, and we don't see any change in the underlying segment. I mean, 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 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 patients 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.

Okay, very helpful. And then just for my follow-up here, I know you're not providing formal guidance for 2024 today, but, you know, the businesses 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. You know, should we expect to see pretty sustainable net income profitability just going forward from this quarter forward?

Hi, Celine. Yeah, you know, 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 $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.

Yeah, 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, you know, 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 Entree Plus, and hopefully more of the same with our ComfortEase garments, certainly point to some good continued sustainable growth as we look forward.

Great. Thank you.

And the next question comes from the line of Ryan Zimmerman with BTIG. Please proceed with your question.

Good evening. Thanks for taking the questions. I want to ask two. 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 slides that you showed, What happens if their BMI is dropped, 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, you know, can be driving lymphedema here. Are you assuming that if the people who are over 50, you know, they go away? Or there's just maybe less severe lymphedema going forward if they are taking those BMI?

Yeah, 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 we have also, 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 gonna 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 gonna 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 gonna take a long time, we think, for this to wash itself out. Some will step down. But I don't know if Elaine has a little bit, anything else you want to add?

No, and I think, you know, I think if you look at the very last slide, you know, that's what we were trying to demonstrate there is this will take some time as the existing people who have BMI greater than 40 unfortunately will 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.

Okay. Very helpful. And then the second question, just on the airway clearance dynamics, can you just elaborate on what the impact of profitability is for airway clearance? If this is a headwind for the next six months or so into May, you know, what impact or what drags 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. Thanks.

So I think, you know, we've talked about APLAVEST, you know, with accretive to, you know, a little accretive to gross margin, you know, accretive to our operating income. I think, you know, this year, you know, we've definitely, you know, seen that impact, but we're really excited that we're able to maintain our $25 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.

Yeah, 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 a series of quarters in a row about Salesforce 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 May thing, certainly it should be a good guy for us.

Thank you.

And the next question comes from the line of Margaret Kaysor with William Blair. Please proceed with your question.

Hey, good afternoon. Thanks for taking the questions. I wanted to start on the increased sales rep 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, you know, not only over the next six months or 12 months, but as we look out, you know, towards that 2025 EBITDA margin target, what other efforts can you guys put in to kind of drive that margin expansion?

Yeah, I think, you know, we could probably use a good middle reliever if you know one. That might be a reasonable interval probably for us. As we said that, you know, there's 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 in 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'll continue to play itself out over 2024. And then I think by the time we get to 2025, you know, we should certainly be in a position where we've kind of 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, 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, I think, for the next couple of years.

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

Yeah, no, Margaret, we did reduce the guidance for AppleVest, 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 GME partner. We've gotten more line of sight to what we think for the remainder of the year, and really our expectation is that Q4 is going to look you know, quite similar to Q3, maybe a little bit better, but in that same range. And that's what we reflected in the latest guidance. Okay, thank you.

And ladies and gentlemen, if you would like to ask additional questions, we invite you to add yourself to the queue again by pressing star 1. As a reminder, if you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. And the next question comes from the line of Suraj Kalia with Oppenheimer and Company. Please proceed with your question. Good afternoon, Dan. Elaine, can you hear me all right?

We can.

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

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

So, Dan, 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, blah, blah, blah. You know, it takes you, let's say, three months to basically book a sale, right? Just trying to understand how is that shaping up based on all the changes that you all are implementing.

Yeah, I don't know that the time to serve, I guess, is kind of 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 those have variables. I think what we're really focused on at this point is, especially as we continue to scale, you know, 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. You know, we brought in a new CIO back in earlier part of the year. Good, rich experience, I think, in enriching the platforms that we're going to need and and you know 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'll be good for patients because our goal is certainly to make sure that we can serve them as efficiently as possible

Got it. Elaine, was price, can you help us quantify if price was a factor in nominal growth within the three buckets, the commercial, VA, Medicare? And also, Dan, if I could, following up on the tech part of the equation, forgive me, I jumped a little late on the call. Are we seeing any shift in patient compliance with the MyKylee app? Thank you for taking my questions.

Yeah, 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. Really, the majority of the growth that we have seen throughout the year in this quarter, too, has been largely driven by shipment increases.

Yeah. And I think as far as your other question, I think it was what impact do we think Kylie is having or have we seen on patient compliance? I think this is a really interesting one because, you know, compliance has kind of 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 Kylie. We are collecting a lot of information and, 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 Kylie, 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 Kiley 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.

Thank you. Mm-hmm.

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