Q3 2019 Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the third quarter of 2019 earnings conference call for tactile medical.
At this time, all participants have been placed and they listen only mode.
Under the company's prepared remarks, we will conduct a question answer session. Please.
Please note that this call first call is being recorded and will be available on the company's website for replay shortly.
Our most recent annual report on Form 10-K , as well as our most recent tend to ask you filed today with the Securities and Exchange Commission.
Such factors may be updated time to time in our filings with the S. E C, which are available on our website. We undertake no obligation to publicly update or revise our forward looking statements are 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 gap.
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 gap are available in the earnings press release.
<unk> Investor relations portion of our website.
I would now like to turn the call over to Mr., Jerry Matisse tacked on medical <unk> Chief Executive Officer. Please go ahead Sir.
Thank you operator, good afternoon, and welcome everyone to our third quarter of 2019 earnings call.
I'm joined on the call today by our Chief Financial Officer, Brent moment.
Let me provide a brief update on a brief outlining today's call.
I'll start with a review of our financial performance highlights during the third quarter of 2019, followed by some commentary on the primary drivers of our revenue growth.
Then I'll provide you with a brief update on some of our recent operational progress during the quarter.
Brent will then discuss our financial results in detail and review our financial guidance for 2019, which we updated and our earnings press release. This afternoon.
Then share a few closing thoughts before we open the call for questions.
We achieved another quarter of impressive sales performance in Q3 total revenue of $49.6 million representing growth of 37% year over year.
Our revenue growth was driven primarily by sales and rentals of our flexi touched plus system, which increased 34% year over year.
$44.7 million.
We also saw impressive growth in sales of our entre and actually touch systems, which increased 64% year over year to $4.9 million.
As Brent will discuss in greater detail, our third quarter 2019 revenue results were favorably impacted by our adoption of accounting standard eight S. C 842.
Each contributed three percentage points to our third quarter revenue growth.
Excluding this impact we achieved revenue growth of 34% in the quarter compared to the same period last year.
Our third quarter revenue growth benefited from several important contributors first we saw strong contributions from the investments that we continue to make in our field salespeople.
I'm pleased to report that during the third quarter, we expanded our field sales force the over 230 reps compared to over 200 reps as of the end of 2018, achieving our hiring goal for the year towards the end of the third quarter.
As I've mentioned on prior calls in today's market environment with low unemployment and strong demand for experienced sales professionals, it's been a harder to recruit talented salespeople.
Over the last year, we've taken a proactive approach to improving our recruiting hiring and onboarding processes and I believe the benefits of this approach evidenced themselves and our ability to achieve our goal of adding 30, new salespeople again this year.
Second the strong market adoption of our flexi touch plus system remains an important contributor to our growth most notably we've seen strong trends in a number of clinician referrals of flexi touched plus for bilateral therapy. Since we launched this next generation system last year.
This trend continued during the third quarter.
It's also important to note that many of these referrals have come from clinicians that have not referred our prior generation flexi touch system for their bilateral patients.
Third we continue to make progress in our efforts to expand our coverage and penetration of the highest diagnosing accounts in the U.S. lymphedema market.
And lastly, we continued to benefit from our broad in network coverage with commercial payers.
During the third quarter, we also experienced strong sales to Medicare patients.
Our performance in this channel continues to benefit from our strategy to transition entre and actually touch order processing from our field team to our internal team of specialists, which we began to pursue last year.
In addition to our strong per sales performance in the third quarter. We also achieved gross margins are 71%.
Improvement in our operating income to $3.2 million.
And adjusted EBITDA of $6.4 million.
Okay.
Turning to our operational performance during the quarter.
We continue to make progress in advancing our commercialization strategies for our flexi touch head and neck product.
In order to support our pursuit of broad based reimbursement coverage for flexi touch head and neck, we've focused on expanding our portfolio of clinical evidence with the goal of completing and submitting three clinical studies for publication this year.
Building on the publication of our first clinical study in January of 2019, we recently completed manuscripts for two new clinical studies focused on our flexi touch head and neck system.
In the process of submitting these manuscripts for publication in peer reviewed medical journals and look forward to discussing them in detail once they're published.
As we focus on building our clinical portfolio, we continue to expect head and neck sales in the low to mid single digits as a percentage of our total revenue in 2019, which is consistent with the performance we saw this quarter.
In addition to laying the groundwork for broad commercial adoption of flexi touch head and neck.
We also made important progress in our efforts to educate the medical community and increase the awareness of lymphedema and its treatment.
A new study was published in the September nine 2019 issue of the journal of vascular surgery, Venus and lymphatic disorders.
This study was a retrospective cross sectional analysis titled Lymphedema associated co Morbidities and treatment gap.
The authors analyzed de identified data from the Blue Health Intelligence Research database for 26902 patients with one per diem.
The purpose of the study was to determine both the proportion of lymphedema patients with various known lymphedema associated co morbidities and the treatment rates of patients with each co morbidity.
The claims data illustrated the breast cancer was the most frequently diagnose co morbidity associated with lymphedema and identified venous leg ulcers as the second most diagnose co morbidity.
It also identified notable treatment gaps for lymphedema patients with specific co Morbidities for example.
Only 82% of patients with venous leg ulcers as a co morbidity received any form of treatment for their lymphedema.
Compared to 94% of patients with breast cancer receiving treatment.
According to the researchers this is the largest study to date detailing the co morbidities associated with lymphedema and the lymphedema treatment rates within each co morbidity.
With this in mind. The study provides important evidence to advance the medical community is understanding of the diagnosed prevalence of lymphedema co morbidities and the treatment gap that currently exist for each.
The difference in treatment provided to each patient population was statistically significant and illustrates a treatment gap based on the disease etiology.
As part of our efforts to raise awareness of lymphedema and its treatment. Among clinicians. We also hosted two important events during the quarter.
The first event, which we referred to as our clinical Advisory Council meeting was held in Minneapolis and attended by 12 physicians, who specialized in the treatment of either vascular conditions or head and neck cancer.
The purpose of this meeting was the formally introduce tacked on medical to these physicians explains the them how our company is positioning itself to clinicians in the market and obtain their feedback on various aspects of our marketing and strategy.
The event proved to be very successful our team received important feedback on a variety of aspects, including our marketing messaging new product development strategy physician education efforts and clinical research efforts.
The response from physician attendees about this event was very positive with many coming away with increased awareness and understanding of lymphedema and specific ways to assist in raising awareness of the condition and its treatment.
Additionally, we hosted our first all day educational event focused on therapists that are interested in learning more about lymphedema and its treatment.
This event was held in des Moines, Iowa and was attended by 47 clinicians who received seven continuing education units for their participation in the event.
Feedback on the event in its programming was very positive as well and we look forward to hosting similar educational opportunities in the future.
I will conclude todays discussion on our operational highlights with a brief update on our airware static compression garment.
We expect to begin the limited market release of Airware by the end of 2019 and have made progress in securing our product supply chain to prepare for the full commercial launch in the first quarter of 2020.
Successfully incorporating airware into our product portfolio will enable us to provide future patients with an innovative solution for conservative therapy and establish awareness of tacked on medical and our pneumatic compression systems early in their treatment pathway.
Let me now turn the call over to Brent to discuss our third quarter financial results in greater detail and review, our 2019 guidance, which we updated in our press release this afternoon.
Brent.
Thanks Jerry.
Total revenue for the third quarter increased 37% to $49.6 million compared to $36.3 million for this for the quarter ended September Thirtyth 2018.
Our total revenue performance in the quarter was driven by sales and rentals of our flexi touched systems, which increased $11.4 million or 34% year over year to $44.7 million.
The increase in Flexi touch revenue was largely driven by the expansion of our salesforce, increasing physician and patient awareness of the treatment options for lymphedema broad in network coverage with insurance payers and growth in the Medicare channel.
Sales in rentals of our flexi touched systems accounted for 90% of our total revenue in the third quarter of 2019 compared to 92% in the prior year period.
Entre enacted touch sales increased $1.9 million were 64% year over year to $4.9 million in the quarter.
The performance of our Entre actually touch product category benefited from the strategic shift in 2018 to managing these orders in house and from expanded contractual coverage with insurance payers.
Third quarter revenue by payer was 72% commercial 16%, BA and 12% Medicare compared to 71%, 19% and 10% respectively last year.
As Weve previously mentioned, our total revenue growth during the third quarter benefited from the adoption of the new lease accounting standard assay 842 that became effective on January Onest 2019.
The adoption of assay, a 42 did not require us to restate any of our prior periods.
In the third quarter and the first nine months of 2019, the adoption of assay 842 benefited our total revenue growth by three percentage points and five percentage points respectively.
Beginning in 2019, we also now classify revenue from garments sold to our rental customers as rental revenue.
This garment revenue was previously classified as sales revenue.
For consistency and comparability purposes garment revenue associated with rental agreements was reclassified to rental revenue in the prior year periods.
As a reminder to assist in comparing our 2019 revenue and gross profit reporting to prior periods. We provided an unaudited supplemental schedule as an appendix to our 8-K filed on May six.
Turning to the rest of the piano.
Third quarter, gross profit increased $9.2 million or 35% to $35.4 million compared to $26.2 million last year.
Gross margin was 71% of sales in the third quarter of 2019 compared to 72% of sales in the third quarter of 2018.
The decrease in gross margin was primarily attributable to revenue mix by product and payer compared to last year and to noncash amortization expense related to the intangible assets licensed from Sun scientific.
Third quarter operating expenses increased $7.4 million or 30% to $32.2 million compared to 24.8 million last year.
The increase in operating expenses in the third quarter was primarily driven by a year over year increase of $5.1 million or 33% in sales and marketing expenses due to the continued investments in the field sales team and increased spending on marketing initiatives.
The increase in operating expenses was also impacted by higher reimbursement general and administrative expenses, which increased $2 million or 25% to $10 million compared to $8 million last year.
This increase was primarily due to increased personnel related compensation expense in our reimbursement operations payer development and corporate functions as well as increased professional fees and legal expenses.
Operating income for the third quarter of 2019 increased $1.8 million were 134% to $3.2 million compared to operating income of $1.4 million last year.
We recorded an income tax expense of $932000 for the third quarter of 2019 compared to an income tax benefit of $248000 last year.
The tax expense recognized in the third quarter of 2019 was primarily related to decrease tax benefits from share based compensation compared to the prior year period.
Net income for the third quarter of 2019 increased to $2.4 million or 12 cents per diluted share compared to net income of $1.7 million or nine cents per diluted share for the third quarter of 2018.
Weighted average shares used to compute diluted net income per share or 19.6 million and 19.5 million for the third quarters of 2019 and 2018, respectively.
Third quarter, adjusted EBITDA was $6.4 million compared to adjusted EBITDA of $4.6 million in the third quarter of 2018.
Our adjusted EBITDA margin was 12.8% in the third quarter of 2019 compared to 12.6% in the third quarter of last year.
As a reminder, we have provided a reconciliation of certain GAAP measures to non-GAAP measures in our earnings press release.
Let me now turn to review of our 2019 revenue guidance, which we updated in our earnings release. This afternoon.
We are raising the full year guidance range to account for our stronger than expected performance in the third quarter.
For 2019, we now expect total revenue in the range of $186 million to $187 million, which represents growth of 29% to 30% year over year compared to revenue of 143.8 million in 2018. This.
Revised outlook compares to our prior revenue guidance range of $182 million to $184 million or 26.5% to 28% year over year growth.
As a reminder, our 2019 total revenue guidance continues to assume that the adoption of assay 842 will benefit our full year revenue by approximately $6 million or four percentage points of growth year over year.
The line item components of our updated 2019 total revenue guidance, which calls for growth of 29% to 30% year over year includes the following assumptions.
Sales revenue will be in the range of $159 million to $160 million compared to sales revenue of $130.2 million in 2018.
As a reminder, the sales revenue guidance range includes the impact of the Reclass of garments revenue to rental revenue.
Rental revenue is expected to be approximately $27 million compared to rental revenue of $13.6 million in 2018.
The year over year increase in rental revenue for 2019 is expected to be driven by.
The impact of the adoption of assay 842, representing 44% of the increase in rental revenue for 2019.
Operational growth of approximately 35% over 2018 rental revenue representing approximately one third of the increase in rental revenue for 2019.
Our prior guidance range assumed operational growth of approximately 20% to 22% in 2019.
The remainder of the increase relates to the reclassification of government revenue to rental revenue that was previously reported in sales revenue.
Byproduct, our 2019 total revenue guidance range assumes sales of our flexi touched products increased approximately 28% to 29% year over year in 2019 compared to 26% to 28% growth in our prior guidance range.
And sales of our entre active touch products increased approximately 42% to 43% year over year in 2019 compared to approximately 30% growth in our prior guidance range.
In terms of the anticipated contribution of our new products, we continue to expect head and neck sales in the low to mid single digits as a percentage of total revenue.
And we continue to expect airware to be immaterial in 2019.
Lastly for full year 2019, we expect our gross margin to remain in the low 70% range.
Our adjusted EBITDA margin to be in the range of 13% to 14%.
This adjusted EBITDA range assumes stock based compensation expense of approximately $10 million approximately $1 million of expenses related to the move to our new corporate headquarters, which we completed early in Q4.
As a reminder, the $1 million of expenses is comprised of approximately $400000 of moving expenses, which will only impact our full year 2019 PNM now.
The remaining expense comes from accelerated depreciation on our current facility and the higher rent expense related to occupancy at both the previous and the new facility. This year.
For for the purpose of calculating earnings per share, we expect our fully diluted weighted average share count in 2019 to be 20 million shares.
With that I'll now turn the call back to Jerry for some closing remarks.
Gary.
Thank you Brent.
In closing.
We're proud of the impressive performance that our sales reimbursement and operations teams were able to achieved during the third quarter along with the profitability improvements that we were able to realized during the period.
We're raising our guidance accordingly, and look forward to driving revenue growth and continued profitability improvements in order to bring 2019 to a strong close.
As we exit the year, we will continue to reinforce our leadership in the more than 4 billion dollar us market opportunity for lymphedema and chronic venous insufficiency by expanding and enhancing the productivity of our field sales organization and continuing to capitalize on the strong market response.
To our flexi touch plus system.
Our high diagnosing account targeting strategy and our broad in network coverage with commercial Payors.
We will also remain focused on implementing our longer term initiatives to facilitate the widespread adoption of our latest products and educate the medical community on the role of our technologies and treating lymphedema and other chronic swelling conditions.
More broadly we're pleased by the increasing evidence that we've seen in recent years and of the increased focus in the medical community on lymphedema.
One important anecdote that I've shared to highlight this trend is the fact that the American Venus form the society of vascular medicine, and the American College of full biology have all updated their charters to include either lymphedema or lymphatic care as an area of focus.
In fact, the American college of for Biology as changed their name to the American vein and lymphatics aside.
I'm pleased to see that these societies are committed to raising awareness of lymphedema and educating their members on its treatment.
In conclusion, we remain excited about the opportunities and attractive tailwinds to our business and we're committed to delivering strong sustain and profitable growth for the remainder of 2019 and for the years to come.
I'd like to thank all of our employees for their impressive accomplishments during the third quarter as well as our shareholders and everyone on tonight's call for their interest in tact on medical.
Operator, we will now open the call for questions.
Thank you if you like to ask your question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. 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 us additional questions. We invite you to add yourself to the Q again by pressing star one.
And our first question will come from Margaret Capex or from William Blair.
Hey, good afternoon, guys. Thanks for taking my question.
First one for me is just walking through kind of the implied guidance and performance this quarter because the third quarter Flexi touch revenue really implies very strong sequential change units sold this quarter.
Also closed sales rep productivity was up nicely as well so I understand the year over year comps et cetera, but as you look at maybe those sequential indicator is it seems like there's a lot of traction.
Fundamental.
Then you look at guidance for the full year and.
And I appreciate the conservatism, but you've got a step change difference, maybe an uptake implied fourth quarter. So walk us through kind of the way that you've thought about guidance. What you saw in this period, maybe that may or may not continue going forward and then I've got to follow up.
Great. Thank you Margaret and I appreciate the question.
Our updated guidance calls for 29% to 30% growth year over year. We're on track after nine months of 36% growth, which is faster than are better than our full year growth expectations that is consistent with what weve experience each and.
Every year.
So if you look back at the implied Q4 growth in both 2017 and 18, you will see very similar expectations set and in fact, we're expecting even better growth of 15% to 18% in the fourth quarter.
We don't give quarterly guidance, but our expectations really have not changed since we gave guidance in Q2, we've just seen a terrific Q3 performance and past that growth on.
In this.
Updated guidance for 2019.
Got it.
No I understood and part of the Genesis of the question is historically I think the fourth quarter on a sequential basis for the last few years has been in the low thirtys, whereas I think right now maybe imply.
29, Percentish range, and so little bit of the difference, but I understand the cadence in the process.
So the other thing was this is kind of maybe a little Miller for US this quarter Q hosted two events.
And so I wanted to follow up on that.
Yes, the one event that you focused on for therapists.
Have you been able to see anything.
Terms of those questions that attended better identify patients with once the demo within their practice.
Change in prescription patterns.
As we think about the ROI of those investments.
Why shouldn't we assume that should actually be a pretty nicely for growth as.
As we go into next year and maybe smart.
Yes, again, thanks Thats excellent question.
Certainly the expectation in our providing this education for therapists.
Specifically is the get them to better understand the treatment options available for the patients that they're seeing with lymphedema, we do see.
An improvement or an uptick in their interest in hone therapies and more specifically in their interest in our home therapy. So we do expect over time to see them get comfortable with and get some experience with our products.
I'd say the uptake curve is such that it takes some time for them to get comfortable with how we service the patient and.
They obviously want to see results of patients before they start giving us more of those patients. So while the uptake tends to be slow after these education type events.
It gives us an opportunity to teach new customers. What we can do and then they take the opportunity to learn themselves on their own patients how well we perform so we do see this as a way to expand our business and are excited about doing more of these in the future.
Okay.
I'll sneak one more and just because it kind of gets into that same topic, but.
Flexi touch plus it seems like you're still saying a lot of growth because the ASM from that and has that kind of been a same dynamic where maybe took a few quarters.
You.
Start on the bilateral patients maybe from some of the clinicians that didn't have as much variance in so your state same kind of incremental traction or relatively steady. Thank you guys. Congrats on the quarter.
Thanks, Margaret I think flexi touch plus has proven to be a.
Terrific contributor to our growth throughout 2019, and we expect that to continue going forward the benefits and feature set of that product are such that we believe that we are in a in the driver's seat in terms of of art versus our competitors with those.
Features and we are seeing that play out in more and more clinicians, giving us business around their bilateral patients, maybe even who didnt give us business of those bilateral patients before.
So we've had a good result from the launch of the Flexi touch plus system and expect that to continue.
Going forward.
And once again, ladies and gentlemen, we ask that you stick with one main question and one follow up question and if you have any others to simply rejoining the queue by pressing star one. Our next question its line of J.P. Mckim from Piper Jaffray.
Hi, it's Adam on for JP, Congrats on the quarter and thanks for taking the question.
Hoping to ask a question about next year, recognizing you're not going to give guidance on todays call but.
Appears to be a lot of levers for top line growth going forward that could impact 2020 with.
Loss.
Maybe some international expansion.
Others, just hoping you could help us.
Same up at a high level some of the different puts and takes as we start to look ahead to next year and then at a follow up.
Hey, Adam its Brent I'd be happy to provide you a little bit of contacts on that you're absolutely right. We're not providing guidance for 2020, but we do feel fortunate given the growth drivers that we're experiencing it thus far throughout the year.
Some of those growth drivers really are based on the sales head count that we've got now so now as Jerry mentioned in his prepared remarks.
I have over 230 sales reps in the field that certainly is.
Nice tailwind for us it's the flexi.
Flexi touch plus adoption that Jerry I, just mentioned and addressing markets questions, but also the further penetration on the high diagnosing facilities that that we've talked about and then you know just being the in network provider for you know over 90% of the us in.
Relation so certainly we believe that those growth drivers will continue into 2020, and so certainly we're bullish on where that goes and Adam just to reiterate I mean, you can think about us in terms of.
Guidance as a 20% plus topline grower.
And then as you go through our debt on down the PNM now, 70% gross margins and then adjusted EBITDA continuing to grow through with that leverage.
I appreciate the color. Thanks, and then for my follow up just on.
Salesforce hiring you mentioned, you're now at more than 230 sales reps at the end of Q3.
I was hoping just gets more color on that how much of that was adds versus lower turnover churn.
We continue to higher in Q4 and.
And then obviously, it's a competitive market for Mantech reps just level of confidence that you can continue to add.
Call. It 30 to 40 reps next year and their Roberts. Thanks for taking the question yes.
Good question and thank you we did in Q3 with over 230 in the field I would say that so the combination of both.
Improved hiring and reduced turnover.
Keep in mind that increase of 45.
People in the field since the end of the third quarter of 2018.
So achieving this full year hiring goal. Despite the points you brought up about being a challenging hiring environment is something we're particularly proud of.
We certainly would have loved to have had these guys are these folks on earlier.
In the year, but they are on now and were.
Continuing to bring them up to speed and onboarding them into.
The tacked on medical way, so we think it bodes well for our ability to continue to higher which would be our strategy next year, we will continue to expand our sales organization.
At about the same pace, we did this year.
And our next question its line of Chris Petco from Guggenheim.
Okay.
Yes. Thanks.
Jerry It looks like this was a strong quarter for you guys in the commercial and Medicare channels, but I know the slower V.A. growth, it's going to get little attention just give us your latest thoughts on that segment of the business that you're seeing anything notable there.
Thats driving that moderation in your growth rate.
Absolutely Chris Thanks for the question and welcome to the call.
Year to date, the VA is up 19% in the third quarter. It was up 13.
So growth was definitely softer as a trend than the rest of the year.
We see but it's still growing as the is the point.
We still see a couple items that are impacting growth in the third quarter.
We had a full quarter of the impact of us getting on the federal supply schedule in September of last year. So this quarter the lower price showed up.
For the full quarter, whereas last year was.
It was.
Lesser impact we have seen an impact in our VA business in Texas.
And those two were kind of familiar with or have you had expected I'd say, we also saw some softer demand in the wound clinics in the V.A. this quarter.
We're watching this particular site of V.A. referrals. It appears that it's more based on what the prescribers are.
Allowed the prescribed.
But again.
Growth in the V a channel.
Of.
Double digits, something were particularly happy with.
And we're delighted with how fast the commercial business is growing.
Outpacing even our overall company growth for the quarter.
Thanks, that's helpful and then Brent I just wanted to follow up on the question about 2020. Appreciate you guys aren't giving formal guidance today, but there is one unique dynamic you're going to be dealing with as you anniversary. The accounting change. So just review the impact that you expect that to have year over year in 2020, just to make sure that runs on the same.
Page there thanks.
Yeah, No certainly we'll do that Chris I appreciate the question.
So yeah just to level set.
Our rental revenue actually is comprised of two components.
There is a piece that will continue and that's the 842 component that I referenced in my call but.
The question that Chris is brought up relates to rental agreements that were in place as of December 30, Onest 2018.
That revenue that trickles into 2019 will not repeat itself in 2020. So if you think about it that that amount of revenue.
It will expire in 2019 is $5 million so just to.
Illustrate what that might mean, Chris is our guidance for rental revenue was $27 million for the full year 2019.
The impact of what you're talking about the revenue that won't repeat itself in 2020 $5 million. So baseline $22 million in 2019, and you can think about adding you know our 20% plus growth rate on to that $22 million that that just.
Gives you a little bit a framework for how you might think about it.
And our next question is from line of Jason Mills from Canaccord Genuity.
Great. Thanks, Jerry brick seeking the question I wanted to continue to push on 2020 so.
I understand you're not going to be quantitative, but perhaps we could just talking about the puts and takes a little bit more so year to date. We're in the mid 30 run rate in the mid 30% range and the fourth quarter guidance is quite a bit different you went over a couple other things that drive that Jerry but as you think about 2020.
The.
How do you how do you view yourself do you view the company.
Isn't position, while the guidance may not reflected position to challenge the growth that you've done frankly, the last two to three years or do you feel like a lot of larger numbers you search to some extent.
I meant him in the business and you feel more like.
The fourth quarter guidance or something there about would be.
More how you think about the business in 2020.
Hey, Jason Thanks for the question first off we don't guide quarterly so we have we have historically.
Implored folks to think of us as a 20 plus percent topline grower and that's what we're willing to give for 2020 guidance today.
As I think about the puts and takes though we've just closed a very strong quarter normalized growth in the quarter or 34%.
Impressive operating leverage.
We've increased our guidance by the full amount we overachieved in the third quarter, and we're making really strong progress on operating metrics. We've got 230 in the field. That's what we wanted to have this year. We're we've we're seeing good.
Uptake of those folks expanding the awareness of lymphedema and expanding our base of clinical evidence.
We don't see any reason that we would run into any obstacles to continue to deliver on that.
2000, our 20 plus percent revenue growth.
Our expectations for Q4 have not changed since we gave guidance in Q2, we're not backing down at all we're simply passing on what's happened in the third quarter two our annual guidance.
That makes perfect sense. Thank you, Jerry and someone that tends to since I agree with that I.
Thank you anticipate.
Questions from those that tend not to agree with that so thank you for that additional color I think that helps quite a little bit.
I guess the second question.
Taking a step back to 20000 feet. When you went public you were run rating sort of developing the market you are still the franchise clearly developing in the market for treatment of lymphedema, but when you went public your run rating under 100 million now your run rate in over 200 million.
A testament to the success of the franchise in the Salesforce you're building the clinical evidence et cetera.
Yes. The question is.
As you are getting bigger and you're becoming.
More you're on the radar screens.
Of these insurers.
What you've been successful and penetrating getting and network. What are you seeing and hearing with respect to that constituency as it relates to your therapy.
Not only on how much more they're spending on it but perhaps you could talk about how much they're talking about the cost savings associated with your with your therapy in the cost effective is therefore to continue to drive penetration of a market that I think it's still under 15% penetrated but perhaps you could comment.
On where you think you are now with respect to penetration in this market. Thank you very much.
Yes, no that's a good thats a good set of questions, Jason I guess I'd start by saying as we look forward the thing that excites us most about the opportunity is the fact that we know there were a million patients diagnosed last year with lymphedema and we put about 40000 systems.
On them in the last 12 months.
So to your point single digit penetration of a very.
Large market opportunity.
In terms of the.
Dealing directly with the payer audience I.
Im certainly glad that we have a strong body of clinical evidence behind us that allows us to go have these conversations in a way that's based on science not necessarily hyperbole.
So we are able to get in front of payer medical directors on a regular basis and show them. The evidence that you cited one that the product works in their patient population. So we have strong efficacy data to that we have developed a base of.
Of economic evidence around the product that shows if this patient population uses our flexi touch product they stand to save money for the patient and for the payer and I think thats one of the reasons that even though we are coming up on the radar screen of payer.
Others that we are able to continue getting paid at a very high rate from these payers very high approval percentage from these payers.
And ladies and gentlemen, as a reminder, if you like to ask your question you can signal by pressing star one on your telephone keypad.
Do you remember if you're using a speaker phone to please make sure. Your mute function is turned off to a lot of your signal to reach our equipment.
Our next question Mr line of Surajit Calia from Oppenheimer.
Good afternoon, no Jerry good afternoon, Brent Congrats on a nice quarter.
Thank you Sir ash.
So.
My questions have been asked Jerry So I'll just stick with one.
3% net contribution from assay 42.
If we split it into the three segments commercial the in Medicare.
Excluding the impact of SC. Each 42 can you give us what's the growth rate would have been year over year and the reason I ask because.
Yes to certain extent I confess about myself.
It's gets a little muddled up because the denominator isn't accounted for but the numerator is.
I would love to get on <unk> on an apples to apples basis, if I remove the 3%.
Within these three buckets, how would growth look on a year of what you'll basis. Thank you for taking my questions.
So Raj hides Brent I'd be happy to give you a little context on assay at 42, So assay 842 only impacts the commercial.
Channel of our business it has no impact in Medicare or the BA So.
What you would be looking at is.
First commercial growth rate for.
Third quarter 2019 at 38% a portion of that.
That 38% growth driver right there would be a would be the assay 842 impact on that number.
Ladies and gentlemen that does conclude our conference for today. Thank you for your participation.
Thank you.
Okay.
What happens.