Q2 2020 Tactile Systems Technology Inc Earnings Call
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Good evening, ladies and gentlemen, welcome to the second quarter 2020 earnings conference call for tactile medical.
At this time, all participants have been placed so listen only mode.
The company's prepared remarks, we'll conduct a question answer session. Please note. This conference call is being recorded will be available on the company's website for replay shortly.
Before we begin I'd like to remind everyone that a remarks the responses to your questions. Today may contain forward looking statements that are based on the current expectations of management involve inherent risks or uncertainties that could cause actual results to differ materially from those indicated including those identified at the risk factor section of our annual report on form 10-K.
Well as are most recent 10-Q filings filed today what Securities Exchange Commission.
Such factors, maybe update at some time to time in our filings with the FCC, which are available at our website.
We undertake no obligation to publicly update or revise our forward looking statement.
As a result of new information further 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 long GAAP financial measures to most comparable measures calculated and presented in accordance with GAAP Orville <unk> earnings press release, any investor relations portion over website <unk>.
I would always try to conference over to Mr., Dan reverse that kind of medical President and Chief Executive Officer. Please go ahead Sir.
Thanks, operator, and good evening and welcome everyone to our second quarter 2020 earnings call I'm joined on the call today by our Chief Financial Officer Brent.
Let me provide you with a brief outline of today's call is.
As the recently appointed President and Chief Executive Officer of Tacked on medical I'll begin my remarks, with an introduction and share with you what I've been focusing on since joining the team in early June.
Well then briefly review our second quarter revenue results before shifting to a more detailed discussion of how the covert 19 pandemic has impacted our business and revenue performance throughout the quarter as well as the initiatives that our team has been focused to help mitigate these impacts and continue to serve clinicians and patients Brett.
Well they provide you with the detailed review of our second quarter financial results and discuss our balance sheet condition.
Following his remarks I'll share some color on the business trends during July and some of our near and long term strategic priorities as we enter the second half of 2020.
Well then open the call up for questions.
Before delving into the update for the quarter I'd like to take a moment to introduce myself and provide a few summary points on my background and where I focus my time since joining the team.
Joint tacked on medical on June eight over 30 years of experience in the medical device industry. The last couple of years in my career with Integra Life Sciences I. Most recently, let entegris largest business as executive Vice President President of cotton specialty surgical which generated about a billion dollars in revenue during 29.
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In that role I loved the divisions organic growth.
Through new products as well as several deals, including Entegris acquisition, the common neurosurgery business from Johnson and Johnson.
Joint integrity in 2008 and held a variety of roles at the company during my tenure, including serving as President of Entegris 200 million dollar International business.
President of in surgical instrument business.
Well My 12 years Integra provided me with experience in managing a large global business. I've also enjoyed success in my career at smaller high growth medical device companies, including working with companies in the home health care space.
I was president of a private medical device company named advance respiratory.
Which sold a home based therapy device and was ultimately acquired by Hill ROM.
Similarly, I sort of 10 years on the board arrest protect a privately held medical device company focused on selling respiratory therapy equipment for in home use which was acquired by Philips.
In addition to their focus on the treatment of patients at home or.
Both companies import business models very similar to tacked on medical.
In fact, a handful of the individuals I was fortunate enough to work with an advanced respiratory join tacked on medical when it was an early stage company.
So I've been an observer of the company's progress for many years now and I've admired the consistent track record of strong topline growth and profitability improvements.
The employees and executive team here have achieved.
Since joining the tactile team nearly two months ago I focus to considerable portion of my time on engaging and developing relationships with our employees and customers while evaluating all of the primary aspects of our market and growth strategy in order to better understand or potential business opportunities and challenges.
I've been impressed by the culture attacked all medical the passion, our our employees have for making a difference in the lives of our customers and the patients that we serve and the ability of for our organization to react and respond so quickly to changing circumstances.
Absolutely as it relates to the Corbett pandemic.
From a market growth strategy perspective, I believe the tactile remains in the early innings, a pursuing a very attractive opportunity in chronic swelling conditions, having just scratched the surface of over 5 billion dollar market opportunity for lymphedema in the United States.
One of the primary take away from my many discussions with the leadership team employees and customers in recent weeks is that we indeed or a large are largely on track.
What was incremental opportunities to further focus our efforts on the most important aspect of our strategy.
I'll share some thoughts on our near and longer term priorities later in my remarks, but first let me review our second quarter revenue performance.
Like many companies in the medical device sector.
Our second quarter financial and operating results were significantly impacted by the Kobin 19 pandemic.
And by the restrictions and policies adopted to slow its spread.
For the second quarter 2020, we reported total revenue of $35.1 million, representing a decrease of 22% year over year on a reported basis and 20% on an operational basis.
Sales and rentals the bar flux, he touched plus system decreased 24% year over year, while sales in rentals of our entre system decreased 6% year over year.
As discussed on our first quarter earnings call our growth trends it slowed materially in the last two weeks of March as health care facilities and clinics restricted access to their clinicians reduce patient consultations and treatments or announced temporary closings as a result of the Cowen <unk> Co. been pandemic.
In order to better understand the impacts of these factors we began to survey our top accounts across the United States beginning in the last week March.
Our surveys in both late March and late April which included 1500, and 1800 accounts, respectively showed that roughly a third of top accounts were temporarily closed as a result of koeppen related restrictions.
In addition, while the remaining top accounts were open they indicated that they were seeing far fewer patients largely as a result of kobin related constraints.
These surveys also revealed that many of the top accounts. There were open we're adopting some degree of telehealth practices in response to the pandemic.
With this in mine our organization reacted quickly during this period to develop and implement modifications to our own practices to engage with clinicians and customers the virtual means.
Our growth continued to be challenged in April and May as we saw combined sales declined 32% year over year.
Despite this challenging start to the quarter, we were pleased to see improving trends in the latter half of may and throughout Jim as many health care facilities began to reopen lessen restrictions on access to their facilities and resume patient consultations and treatments.
We continue to survey our top accounts in May and June and we're pleased to see a steady decline in the percentage of surveyed top accounts reporting that they were closed specifically just 9% of top accounts surveyed in late June were still closed about one third as many as reported in late April.
Well, we're encouraged to see our top accounts reopening in May and June. The challenge has remained at among those open many are still operating at significantly lower rates and productivity.
We've also seen variation in the pace of recovery, depending on site of care.
As a reminder, with the exception to the V.A. The majority of our customers are based outside of the hospital setting.
At a high level, we saw a patient throughput and activity recover more quickly for our customers in vascular clinics, well our customers that operate in lymphedema clinics have been particularly disrupted by the social distancing policy policies and shelter in place restrictions.
Simply stated this was a challenging quarter, yes, the organization performed admirably and our efforts to leverage virtual education sales and service opportunities helped us navigate the environment.
June's performance showed marked improvement over April and May However, our sales in June were still down mid single digits year over year.
We believe this is the strongest indication that we remain in the early days of recovery.
Turning to a discussion of our Q2 operational highlights.
As I mentioned earlier, our sales and marketing teams have been quick to shift their processes and dedicate their efforts to engaging with customers virtual.
Helped mitigate the disruption caused by the cold mid Ninetys pandemic.
Following proactive outreach to our top accounts in late March our sales reps began communicating with our clinician customers using virtual means to provide support and assist them in serving their patients.
Throughout the second quarter, our sales reps continued to conduct product demonstrations using virtual meeting software.
We also modified and improved our process for providing virtual training and support for our new patient customers, which historically had been conducted in person.
This quick [laughter] by our team a lot us to respect the social distancing request our customers.
In addition to our efforts to support existing customers. During this period of disruption we were highly effective in engaging with potential new customers by hosting virtual events to educate the clinical community on lymphedema and the benefits of our at home therapies.
Our shift to conducting medical education programs virtually began in earnest in April when we hosted multiple education seminars focused on a variety of relevant topics that drew more than 1300 attendees.
To put this in perspective with these concentrated efforts in one month, we're able to engage more than half of the total number of attendees that we're able to reach through our medical education programs in all of 2019.
Based on this impressive response, our team continued to develop and organize virtual events in May and June some of which were hosted by tacked on medical and some in partnership with key opinion leaders.
In total the events posted in the second quarter saw participation from over 3300 attendees.
In short our virtual programs are proving to be a highly valuable method for extending our reach and educating clinicians in the future.
Shifting to a brief update on our recent progress with respect to new clinical publications.
Recall that our team has been focused in recent years on expanding the portfolio of clinical evidence for a flexi touched head and neck product to support our pursuit of expanded reimbursement coverage and ultimately more widespread adoption.
I'm pleased to share that the result of a randomized clinical trial was published in supported care in cancer last month.
Study conducted by Vanderbilt and southern Illinois universities, compared advanced NUMETA compression to standard of care and the statistically significant results included reductions in swelling and pain and improvements and the ability to swallow among head and neck cancer survivors.
This represents the kind of evidence that we've continued to assemble to shave clinician prescribing practice and payer policy.
Lastly, I'd like to take a minute to discuss a recent decision we made with respect to our airware product.
As I mentioned earlier I spent considerable time during my initial weeks on the job with team members throughout the organization.
My deep dive into the business has included strategic meetings with our leadership team to review the company's short and longer term opportunities.
These discussions included a revaluation of all existing plans for strategic growth investments, including the plans for the air where product line.
Well, we received positive initial feedback the commercial launch was pointing to a bigger investment in direct to consumer channels.
After careful consideration, we decided to the air where commercial initiative was not aligned with our focus on a more advanced product solution, specifically, our market leading franchises in both flexi touch and entree.
Well airware had to promise to access patients earlier in their disease progression. It was apparent that our commercial plan required a level of investment both in terms of capital and time, there was unlikely to generate a compelling return over the next few years.
Given the significant commercial growth that we have a flexi touching entre we've elected to focus our investment in the or is it off for the highest potential return.
By way of reminder, the analysis of the U.S. Medical claims data that we conducted in December 29 team showed 1.3 million patients diagnosed with lymphedema in the trailing 12 month that ended in June of that same here.
When compared to the 40000 flexi touched systems that we ship last year, it's clear we have a tremendous opportunity remaining in helping patients suffering from the symptoms Olympic team up with our more advanced treatment solutions.
This is where I want our organization to be focused.
Stepping back given the unique challenges that we faced and adapting to covert 19, I'm incredibly proud of the continued progress that our teams made both financially and operationally throughout the second quarter.
Before I share some thoughts on our near term priorities and long term outlook. Let me first turn the call over to Brent to discuss our second quarter financial results in greater detail and review the comments, we shared in our press released this afternoon.
Right.
Thanks, Dan.
Total revenue in the second quarter decreased 22% on a reported basis and 20% on an operational basis to $35.1 million compared to $45.2 million in the second quarter of 2019.
As a reminder, our operational revenue growth excludes the impact of our adoption of the assay 842, accounting standard, which favorably impacted our revenue in the second quarter of 2019.
The decrease in our total revenue in the quarter was driven by a decrease of $9.8 million or 24% year over year in sales and rentals of our flexi touched systems and a decrease of approximately $250000 or 6% year over year in sales in rentals.
Our entre system.
Sales in rentals of our flexi touch systems accounted for 89% of our total revenue in the second quarter of 2020 compared to 91% in the prior year period.
Second quarter 2020 revenue by pair was 73% commercial 15%, Medicare and 12% V.A. compared to 71%, 11%, an 18% respectively and the second quarter of 2019.
Turning to the rest of the piano.
Second quarter, gross profit decreased $6.6 million or 21% to $24.9 million compared to $31.5 million last year.
Gross margin was 71% of sales in the second quarter of 2020 compared to 70% of sales and the second quarter of 2019.
The increase in gross margin was primarily attributable to sales and rental revenue mix by payer compared to last year.
Gross margin in the second quarter of 2020 was impacted by 430000 dollar noncash write off of our Airware inventory.
Excluding the impact of the noncash inventory write off in the period non-GAAP adjusted gross margin was 72% of revenue.
Second quarter operating expenses increased $4.4 million or 16% to $32.9 million compared to $28.5 million last year.
The increase in operating expenses was primarily driven by higher reimbursement general and administrative expenses, which increased $5.6 million or 63% to $14.4 million compared to 8.8 million last year.
This increase was driven by 3.6 million dollar noncash impairment charge related to our Airware long lived assets and by 2 million dollar increase in occupancy costs depreciation expense legal and professional fees.
And compensation expense in our reimbursement and corporate functions.
The increase in operating expenses was partially offset by a decrease of $1 million or 6% in sales and marketing expenses.
And to a lesser extent, a decrease of $130000 or 10% in the research and development expenses.
Loss from operations in the second quarter of 2020 was $8 million compared to income from operations of $3 million last year, excluding the 4 million dollar noncash airware inventory write off an impairment charge in the second quarter of 2020.
Our non-GAAP adjusted loss from operations was $4 million.
Income tax expense in the quarter of 2000 in the second quarter of 2020 was $5.9 million compared to $400000 in the second quarter of 2019.
The increase in income tax expense was primarily due to changes in our effective tax rate, which were attributable to a change in the projected taxable income, including proportionately lower benefits for stock based compensation as compared to the same period last year.
Net loss for the second quarter of 2020 was $13.9 million or a negative 72 cents per diluted share compared to net income of $2.8 million or 14 cents per diluted share for the second quarter of 2019.
Weighted average shares used to compute diluted net loss and net income per share or 19 point Threemillion and 19.6 million for the second quarters of 2020 and 2019, respectively.
Second quarter adjusted EBITDA loss was approximately $750000 compared to adjusted EBITDA income of 6.3 million in the second quarter of 2019.
As a reminder, we've provided a reconciliation of certain GAAP measures to non-GAAP measures in our earnings press release.
At June Thirtyth, 2020, cash cash equivalents and marketable securities were $37.4 million compared to $45.2 million at December 31st 2019.
We had no outstanding borrowings on our 10 million dollar revolving credit facility at quarter end.
We continue to believe that our balance sheet and financial condition leaves us well position to fund our operating strategy and meet our working capital and capital expenditure requirements. During the coded 19 pandemic.
With this in mind, we expect to continue investing in our commercial organization to enhance our future growth profile.
Lastly, as a reminder, on April six we withdrew our financial outlook for the full year 2020, due to the rapidly evolving environment and the continued uncertainties associated with the Kobin 19 pandemic.
As we mentioned in our earnings release. This afternoon, given the considerable uncertainty surrounding the magnitude and duration of the continuing impacts of cobot 19, we're not in a position to reliably estimate its future impact on our operations and financial results and.
We've not provided an updated full year 2020 financial outlook at this time.
With that I'll turn the call back to Dan for some closing remarks fan.
Thanks, Brian.
Well, we're not providing formal financial guidance, we thought it would be helpful to share. Some additional color on recent business trends in July to help investors better understand the current operating environment.
As I mentioned earlier, despite the challenging operating environment. We were pleased by the improvements that we saw as we progressed through the second quarter. Our sales force his ability to access accounts has recovered significantly with many health care facilities eating formal restrictions on rep access, which helped our efforts to continue to add new.
[music] flexi touch accounts in second quarter.
As discussed our sales force also continued to make progress in engaging with existing accounts virtually.
We're particularly encouraged with how the year over year changes in sales for Jim was materially stronger than in April and may, albeit still down mid single digits year over year.
While the business trends have improved significantly as we progressed through the second quarter the trends through July support our belief that we remain in the early stages of recovery.
In late July we conducted a survey of nearly 1900 of our top accounts, which showed that approximately 92% were open in some capacity.
Well this represents a roughly 40% increase in the number of open accounts compared to the survey we conducted in April this represents only a modest improvement compared to the results from our survey in late June.
It's equally important to note that the vast majority of account survey have indicated that their patient throughput remains well below normal specifically only about 22% of the accounts that were open in late July survey reported that they were operating without any constraints.
This appears to be largely related to the impact of health and safety protocols adopted by clinics in response to Kobin.
Some accounts for example of reported that they are using fewer exam rooms, due to social distancing and requiring extra time to clean and turnover. These rooms accounts have also frequently mentioned extended periods between patient consultations, citing the time it takes for the patient to get more park car to the exam room.
Versus the waiting room, where they were typically staged.
Our clinic customers are in various stages of the recovery process, depending on their geographic region insight of care.
We continue to see the privately owned practices based on the outpatient setting specialty vascular clinics are the furthest along in this recovery process.
We've heard that many of these clinics are committing to longer hours or additional days limiting vacation time and continuing to be more resourceful in terms of their approach to seeing patients.
On the other hand hospitals and health systems tend to be at relatively earlier stages in the recovery process and typically have more kobin related restrictions governing their approach to interacting with patients and sales reps.
This has been particularly impactful in the BA where patients have largely been redirected from 170 VA hospital centers to their more than 700 community based outpatient clinics.
The feedback from surveys of accounts in July reflected they still uneven impact across regions.
The order trends in July provide further support that were in the early days of recovery.
Orders for July represent declines of roughly mid single digits year over year consistent with the year over year decline we saw in June.
In summary, we're encouraged by the notable improvements in business trends, we've seen since April however, we remain cautiously optimistic about our prospects for recovery during the second half of the year.
Although we expect hope it will continue to impact our financial and operating result, we're fortunate to be well positioned as an organization with a focus on enabling clinicians to provide treatment for patients at home a customer base that operates largely in the outpatient setting.
Back office, that's demonstrated the ability to remotely and efficiently support our customers and a strong balance sheet to help us whether this pandemic.
As I think about my key priorities for the organization. The near term focus is clearly to ensure that tacked on medical is positioned to return to our prior track record of growth as quickly as possible as the impacts of the pandemic subside.
This means continuing to lean into virtual engagement and train. So that we can continue to develop the market and grow our prescriber base as we move into the second half of the year.
It also means continuing to leverage our balance sheet to retain an attractive key talent to our organization.
Most notably we remain committed to our annual goal of expanding our sales force by approximately 20 reps to more than 260 reps by the end the year compared to more than 240 at the end of 2019.
Longer term, we remain uniquely positioned to drive strong sustainable and profitable growth as we continue our market leadership and penetration of the $5 billion plus market opportunity for lymphedema in the United States.
With this in mind will continue to invest in areas, including clinical evidence and clinical education.
Key components to developing this market.
As a probably remember the tack on medical team I'd like to close today by thanking all of our employees for their exceptional effort and dedication in the second quarter of 2020.
And the resourcefulness and helping us navigate challenging circumstances presented by the corporate 19 pandemic.
Our team remain energized, knowing we're making a difference in so many lives and I'd also like to thank our customers and shareholders for their support and those on the call. This evening for their interest in tact on medical.
Operator, we'll now open the call for questions.
Thanks will now be conducting a question answer session. We ask you. Please ask one question and one follow up.
Got you place and the question you. Please press star 100 telephone keypad.
A confirmation total indicate your line is another question Q.
The press Star Q, if you'd like what are your question from the Q for participants using speaker equipment, maybe necessary to pick up your handset before pressing star one once again, that's one question and one follow up one moment when we pull for questions.
First question to me coming from writing gentlemen from BTG. Your line is not a lot.
Thank you. Thank you Dan Brian call the commentary or color on your trends I guess two questions for me the first.
In terms of surveys are conducted.
Did you get an indication around when those clinics that specifically the 23% you referred to.
When they would expect normalized operations is that fourth quarter. This year is that something out into 21, just any color around the expectation for more normalize operations I think would be helpful. And then I'll just ask my second follow up question now.
As you think about the investment Airware that you know you're stepping back on where do you intend to redeploy those resources is there something specifically that your honing in on Dan as you know surveyed and kind of landscape the company's since joining thanks for taking questions.
Sure. Thanks for the questions right.
So first just this as far as normalized operations I think it's a it's still a little difficult to predict I think until we see the the impacts of the co bid a pandemic.
Many of the constraints will probably continue we've seen probably the most as I've kind of alluded to in the comments were the most resourcefulness probably led by.
Private vascular clinics and keep in mind, that's grown to be a pretty meaningful part of our business. So that that's probably led the charge back. We're seeing continued improvements in the throughput of some of the lymphedema clinics, where I think they probably had the most severe.
Action just because of the.
Intimate interaction that with a therapist.
And you know overall those improvements have continued but but I think that they probably will have to struggle with those over the course of the balance of the year. They're the most ambitious practices continues I think find better ways.
To be resourceful, the throughput so there being some.
Some of the things, we mentioned about extending office hours extending days in clinic.
Working Saturdays limiting vacations I think those are the things that we would expect to continue to occur to try and see better throughput happening, but you know some of the things about call. It a patient up from a the parking lot those those.
Hey, there's I think we'll probably continue for some period of time, the V.A. has probably been the most.
Significant as far as some of their changes redirecting patients out of the hospitals centers and into the regional outpatient centers. So those are the moves that I think overtime. We continue to find those sites as well keep my 700 be a call points.
As opposed to 170 hospitals.
Has required more work for our sales force. This is a thousand points of light instead of a couple of satellites. So you know the good news is we're finding where they are but it's taken a little bit of adapting I think as far as the Airware question is concerned.
You know airware has the opportunity.
To be I think a a very useful product for patients in the early stages of their disease.
It's truly a consumer product, however, and when we think about where we want to continue to invest.
You know it really continues to be in the place where we put so much of our best So we have a very large salesforce as you know and we also have a back office that we've invested in.
Which is a unique part of our direct to the.
To the prescriber kind of market.
I wanted to make sure we're leveraging those big investments, we've made as opposed to start to dilute our energies into building a different kind of competency. So consumer products. Good one I'm not sure. It's the fit for us nor do I think that it leverages, where we build our competencies in some of our differentiating value. So.
Where we continue to put our investment is going to continue to be in that space.
Good to try and grow that out and I think because the market opportunity still has so much runway ahead of us we didn't want to be distracted.
Thank you.
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Your next question today coming from Matthew O'brien from Piper family. Your line is now alive.
Afternoon. Thanks for taking my questions just a follow up on Ryan's question, I guess I'm, a little bit surprised there hasn't been more recovery in July and I don't know if there's more outbreaks that you're in countering, but why hasn't how I haven't things improve more in July a few centers are opening up more and and working more hours et cetera, and then part of the VA.
Goes when do you think are.
Are they going to get back to those 170 centers later this year or is that can be more established into these community hospitals for the remainder of the year in likely going to be a revenue headwind.
I'm going to do any more color. Thanks.
Sure. Thanks for the questions Matt Yeah. So first of all just as it relates to July.
I think we're pretty encouraged frankly that you know we've seen June and now July back within single digits of prior year when you think about.
The majority of these largest prescribers that weve been surveying.
Have continued to say that they are seeing restrictions or limits in their throughput.
That's really the I think thats, primarily the key for us.
So frankly, I think as we look at where we work in.
Late March April and even May were actually pretty encouraged by the fact that we've seen ourselves close the gap this much.
And I think as far as the VA is concerned.
You know we can still find these patients is just a lot more places how long it will be before the VA and by some of these patients back to the to the main V.A. centers as their primary source to meet with there.
Finishes its a little hard to predict and not always does the V.A. behave nationally many times they'll adopt different practices. Thus far it's been pretty sweeping that they've kind of redirected folks to these outpatient community clinics I think on the good front.
As we've seen patients that baby haven't been going to some of their natural.
Sites and they're going in even into primary care.
You know we continue to to invest in the education that we talked about and by expanding the prescriber base, even though volumes are down because of throughput. Our goal is to continue to be in a good position. So when recovery is complete you know we've we've made the the prescriber base larger.
Okay. That's helpful. Thank you and then as far as the these patients go I mean, there they're not the demons going to continue to progress do you have a sense of the building backlog where that stands how you can service that group and then specifically in the back half of the year. The consensus is look.
Flat performance in Q3 international growth pretty meaningful growth in Q4 are those are those targets attainable or are we a little bit too aggressive as you think about things have moved through the back half. Thank you.
Yeah, I think that you know first of all when you think about where we've been in April and May down as much as 30%.
Yeah, we feel good about the trends so far but as we said I think we're still in the early stages.
We're not prepared to give guidance, but but I think that you know as we.
So finished up July we saw ourselves down mid single digits.
So I think you know as you continue to kind of run that out.
We're hoping to see some progressive improvements over the course of this quarter and then throughout the balance of the year.
Okay, and just real quick as your prescriber base grown or not.
We have added new prescribers.
In the second quarter, but those larger prescribers that we had developed.
Obviously were prescribing fewer patients just because of the throughput in the patients that they're seeing on a regular basis. So they clearly have offset each other but we'd like to think that did our universe of prescribers has certainly gotten larger as a result, as our ongoing education.
Got it thank you so much.
HM.
Thank you and that's question today is coming from Margaret Kayser from William Blair. Your line is a lot.
Hi, good afternoon, guys. Thanks for taking the questions.
So no surprises I keep pushing on June July.
But yeah I do think of June July is there any kind of a risk but this is they catch up of patients and maybe weren't tree in April and May and then is there basically close to treat these patients in the home that's helping you maybe and as one to the mechanics, maybe do reopened.
Yes that creates another headwind or do you think that such as more sustainable and something for vascular surgeons are finally single I'm, saying you know what I should just push most my patients into a link.
Yes, so I think thanks for the question Margaret I think good questions about are we seeing ourselves developing a backlog.
Ultimately you know these patients are going to need care and the the issues that they're struggling with they're not going to go away Olympic team has a lifelong consequence so.
We do believe that the pool of patients has certainly not wendell over the last couple of months and fewer of those patients have been able to see their primary care or specialists to get a prescription. We've also seen that there has been a lot more disruption in.
Access to lymphedema clinics, where they would historically go for.
For lymphedema massage therapy. So ultimately you know I think there's an opportunity for us to see certainly healthy growth. Once we can get a get beyond some of the limitations right. Now this patient throughput continues to be a very real issue I think there. We're gonna have to continue to get through but I think.
The the large patient base I'm still is remains really appealing. The one thing that we've also have heard from anecdotally from some lymphedema clinics is some during this have actually look to flexi touch sooner than they normally would have simply.
Because of the reluctance to invite patients in for physical therapy rather.
Electing to to look to flexi touch sooner if that's a trend we could continue that would certainly be good for us and I think good for our patients.
Hey, Margaret brand.
I I would just had one thing Margaret and I think it goes back to you know some of the surveying results that we had seen right. So if you. If you remember back in late April roughly about a third of the facilities that we were surveying were closed you know now and into June and into July.
That number is decreased pretty dramatically. So you know the despite the fact that patient throughput.
Is being impacted a I think you're seeing some of the trends in June and July really starting to favor the open facilities during those periods. So.
That's just an added kind of comment to what Dan or sorry talking about.
Yep.
No one and frankly, a lot of the company is we're talking to we're saying Gee, maybe down 10% relative to pre cobot levels. You guys are kind of in this mid single digit year over year decline. So on the margin you are doing better and it's something I guess, what I'm trying to figure out is how much of that is kind of market related no in and how sustainable.
It is that so maybe just a follow up.
Those talks about 3300 folks even gets virtually in the second quarter.
Seems to me that I think that's more than all of 2019.
So can you talk to what Todd I could have had on your scripts and account opening on why that shouldn't have a bigger impact in the second.
Yeah, I think that certainly the virtual attempts to engage with customers has been I think of really resourceful move internally.
And you're right. The 3300 is well above what the company did all of last year in a single quarter. So we really do think this could be among the keys to continue to drive the business.
I think that.
Overall.
We continue to come back to the size of the market and it's less about.
A pent up demand and more about continued to educate so it's going to be an important part for us we did in bite in more prescribers as I mentioned, so we saw a bigger pool of prescribing account.
I have sort of.
Ironically in the second quarter in spite of the fact that we're off 20%. So those that were prescribing as I said the bigger ones just their number of patients prescribed in a given month were down but yeah. That's that's part of what we would certainly expect is as a as throughput improves and a bigger university.
Prescribers, that's all part of the recipe.
Okay. Thanks.
Thank you and that's question today is coming from Chris Pasquale from Guggenheim. Your line is not a lot.
Thanks, a couple of questions first one Dan I'm, just curious overall strategy for how you access more of those 1.3 million patients.
And the thought process with Airware was that establishing a presence earlier the funnel might be helpful. So thats not part of the solution than what is do you need more evidence do you need a different sales strategy changes the technology itself, but to get your thoughts on sort of high level. What are what you do to penetrate that more.
Sure Chris It's a really good question.
You know the companies that we compete with for the most part go through Dnbi. So we're in kind of a unique position, we're a leader, but we can't depend on other folks doing the heavy lifting for us and I think very much we're still in a market development stage.
With the population is big and the penetration as small so airware I think was a really interesting one the concept of lets intervene early.
You know and and capture the patient. So we they can we can progress together if their disease progresses.
With more involved interventions like flexi touch.
I think what we're finding is.
Our salesforce when they find those patients are typically already at a specialist level and they've gone through a sequence of tried and failed less involved compression therapy.
So many of them have already been introduced to something else in the meantime, we could certainly pursue that but as I said I think it's I think it's a good amount of resources that I'd, rather us invest elsewhere and the answer of elsewhere is my opinion, it's really about evidenced in education.
And you know we need to certain if you look back at the company. Our R&D spend has been under 3% I think last year clinical evidence comes out of that bucket as well so for us.
The precious dollars to invest I want to see them go into clinical evidence to support flexi touch and its efficacy along with some of the emerging applications. So head and neck. We believe is a really material opportunity where the only player in that space with the solution.
That that looks like ours. So the fact that we just published we're going to published in RCT on a segment of those patients. We think is an important part of that market development getting payer policy to continue to be favorable for these patients that need these treatments typically the.
Hands on good evidence and good education. So those are the two places that I would say be fair to expect us to continue to invest.
That's helpful. Thanks.
And then when I hear you say that you want to leverage the sales force in the back office capabilities. The company has built up it sounds to me like you'd like to fill out the back with other products that would sell through the same channels is that a priority for you.
So I'm still in the midst of I would say kind of getting my sea legs as it relates to our strategy going forward, but certainly a good amount of work in a in the second half a 2020 my first two full quarters. That's a focus is to take a look at what our strategic plan looks like and in.
Kind of what our portfolio might look like as we go forward. So.
More to come on that in time, but.
Yeah, I think if we were so fortunate the things that leverage the places where we've already made big bets those would certainly be good fits.
Thanks.
Thank you next question to me is coming from Sicilia approval from Canaccord Genuity.
Great. Thank you for taking your questions I, I guess and wanted to start off I'm, just touching back on head and neck opportunity with the data in hand, no and I just like your take on what you're thinking about near term in terms of just really driving further awareness really around this.
Question, but adoption the head of reimbursement over the next several quarters.
Yeah. Thanks, Thanks for the question Cecilia I'm the head neck opportunities I said I think is a is it really provocative one for us because we're a unique player in that in in that spot.
It was really important for us in June to see this a randomized RCT that was completed by Vanderbilt and Southern Illinois University published in supportive care in cancer.
The the game plan is to continue to develop the evidence necessary to position ourselves. So we can go make a.
I think a compelling case to the payer community and this was an important piece of that puzzle. So.
Not the only component we have other evidenced that that we've been able to assemble not the least of which was in March we had 205 patients.
In a retrospective analysis.
That is that was published in head and neck and it it spoke to improvements in swallowing and less pain better breathing. So we're I think we're building the body of evidence that is going to be important for us to be able to convince payers that this is a wise investment and it's a good efficacious solution for that.
These patients.
In the balance of this year, we'll continue to kind of build out that.
That arsenal and into 2021.
Next year.
Well certainly be one of the important things for us on our to do list in two is to get a more favorable coverage policies. So we can really you know fulfill the opportunity in that space.
Great. Thank you and I guess, if I could just mature also to that'd be a opportunity and just your ability to reach some of those outpatient clinics today, but really how that impacts your view on what the V.A. as a percent of your overall business can really represent longer term.
Yes, so I think the of the V.A.
Represents a good opportunity because you know those those there's a lot of patients with co morbidities that happened to fit into that.
To that coverage area. So it will continue to be an important place for us I think that the likelihood it will become a bigger than it has been in the high teens percentage of revenue.
Probably unlikely I think it's a you know we get back to.
To normal times, and our ability interact with our patient some customers at the VA, that's probably a healthy penetration level for us. So I think we would like to continue to see ourselves get back there, but percentage wise that's.
That's probably a good target for us.
Great. Thank you.
Thank you as a reminder, that star one to be place and the question Q.
Our next question today is coming from survives Kaleo from Oppenheimer. Your line is that a lot.
Good afternoon, Dan could definitely Brent can you hear me all right.
Yeah, Hi, Soroush I start so Dan appreciate your commentary and I guess, let me start out in print. Please correct me if I'm wrong, you mentioned, 30% of accounts were closed in April nine and that went to 9% in June.
Should we look upon these numbers within the context, if you had three business categories commercial Medicare NVH, obviously looking within the context of Q2, but also your commentary seems somewhat cautious maybe you can parse through this visit in the context of hit three business segments help us from a from a housekeeping in a modeling perspective moving.
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Yeah I think.
Just to give you a little bit of colors Raj.
So there were 1900 accounts, we talked about not necessarily specifically bike room I.
I think if you you know if you'd kind of listen to the up to the commentary as it relates to the different categories.
Probably fair to assume that.
You know we've seen more of those that were closed initially yeah.
In lymphedema clinics that in vascular.
I think a lot of that had to do with just the physical interaction between them.
So that was probably the biggest one and then as you know as we come back to.
You know, it's a pretty small number now that's not that's no longer open so to your point, that's a very encouraging signs of recovery I think the throughput continues to be the issue. So when you still have so many of the open accounts that are telling us, they're just not able to see as many pace.
Once in a day with some of the the you know the.
Cobot imposed restrictions and protocols that they've adopted.
Thats the one that we're watching closely because I think it'll probably be the biggest reflection of full recovery.
Got it and then forgive me if I I didnt connect the dots on how should we think about same store sales versus new stores moving forward.
I believe you.
Commentary about it's not too one of the earlier question about it's not about pent up demand maybe you can.
Thread the needle here and help us understand moving forward how should we look upon new store versus same store. Thank you for taking my questions gentlemen.
Sure Yeah, I think you know when we talk about new store. The biggest driver. We have is clinical education, we have a large salesforce as you know, but clinical education is the the best way for us to invite more.
Emissions into the level of awareness and just to take the broader grew back.
Remember that most of the physicians that are prescribing for us we're not trained on lymphedema when they went through medical school. This is at best.
Passing comment they don't spend a bunch of time identifying this so the clinical education piece is paramount for us at this stage in a market development and ultimately I think that.
This is where you know if it's a much more recognized treatment.
The backlog continues to build this is one where you know we have the opportunity to continue to help.
Positions unearthed the patients that have lymphedema and many of them benefit from some of the education events that we host because they know what they're looking for so I think that that will continue to be an important part.
Thank you that does conclude today's question answer session and that does conclude our conference call for today, we thank you for your participation.
Thanks.