Q4 2022 Tactile Systems Technology Inc Earnings Call
Welcome, ladies and gentlemen to the fourth quarter and fiscal year 2022 earnings conference call for tactile medical at this time all participants have been placed in a listen only mode. At the end of the company's prepared remarks, we will conduct a question and answer session.
Please note that this conference call is being recorded and will be available on the company's website for replay shortly.
Before we begin I would like to remind everyone that our remarks and responses to your question. Today may contain forward looking statements that are based on the current expectations of management and involved inherent risks and uncertainties, which could cause actual results to differ materially from those indicated including those identified in the risk factors section.
<unk> of our annual report on Form 10-K to be filed with the Securities and Exchange Commission shot 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.
I would now like to turn the call over to Mr. Dan Weaver, tactile Medical's, President and Chief Executive Officer. Please go ahead Sir.
Thank you operator, and welcome everyone to our fourth quarter and full year 2022 earnings call I'm joined on the line by our Chief Financial Officer, Brent Moen.
I'll start off today's remarks, with a high level overview of our financial performance in the fourth quarter and the factors that drove our better than expected performance.
And I'll share an update on some of the important operational highlights during the quarter and in recent months.
Brent will review our financial results in greater detail, along with financial guidance for 2023, which we introduced in our earnings press release today.
And then I will conclude by sharing some additional thoughts on our strategic priorities for 2023, and our outlook for this year and the years to come before we begin the Q&A session.
With that let's begin with a review of our Q4 financial performance.
In the fourth quarter, we grew our total revenue by 20% year over year to $73 $9 million.
Our total revenue performance was well above our expectations for the quarter, enabling us to exceed the high end of the updated fiscal year guidance range that we shared in our third quarter earnings press release.
Looking at the composition of our total revenue growth for the quarter, we were especially pleased to see significant contributions from sales of both our lymphedema and airway clearance products revenue.
Revenue from our lymphedema products increased 14% year over year to $65.8 million and sales of our airway clearance products increased 90% year over year to $8 $1 million.
We complemented our revenue performance in the fourth quarter with strong year over year improvements in our profitability with several hundred basis points of GAAP and non-GAAP operating margin expansion.
Generating five and $6 million of net income on a GAAP and non-GAAP basis, respectively compared to net losses in their prior year periods, and delivering 100 basis points of adjusted EBITDA expansion year over year.
From a cash perspective, we generated $3 $8 million of free cash flow, which helped fund our $5 million milestone payment in the period related to the absolute best acquisition.
In terms of the factors that contributed to our fourth quarter revenue performance with respect to our lymphedema product line. We ended 2022 with 250 sales representatives consistent with our head count at the beginning of the fourth quarter, which speaks to the improved level of retention and engagement. We've seen in comparison to some of the challenging quarters, we experienced.
In the second half of 2021.
Our fourth quarter Lymphedema revenue performance reflects the productivity of our sales team during the quarters as the bolus of reps that we hired and trained since late 2021 continue to contribute more meaningfully.
From a macro level clinic throughput continued to stabilize and we saw pockets of VA centers resume seeing patients.
At the same time, our reps made notable progress during the quarter in engaging with accounts, including those accounts that were previously unrepresented in 2021.
Our comfort ease lower extremity garments and Kylie digital application, which were both launched in July continued to serve our sales team well and these efforts providing them with new solutions to discuss when revisiting accounts.
We saw strong sales of our lymphedema systems for use on the lower extremities throughout the quarter, reflecting the success of our team and the positive market response to our comfort east garments.
Additionally, we were pleased to see that CMS discontinued their policy that required suppliers to include certificates of medical necessity for all pneumatic compression device claims beginning January one 2023.
The upcoming change provided our reps with another reason to engage with and educate prescribers during the fourth quarter.
Turning to our airway clearance product line.
Our team of respiratory specialists continue to work with our existing base of D. M E channel partners, helping to educate and support their reps we continued.
To experience solid demand for our Aflow vest airway clearance therapy from the Dnb distributors.
The D M distributors continued to expand the availability of Aflow verse, two additional branches and their reps had been successful in identifying patients eligible for airway clearance therapy among their existing customers that they serve.
We believe that the demand we're seeing continues to reflect the increasing awareness and adoption by previously underserved patients who would have otherwise been left unidentified and untreated.
For these patients are aflow vest airway clearance therapy provides them with an at home solution, that's clinically proven to reduce the risk of recurring pulmonary fact infections and pneumonia.
While we were pleased to see nearly double our airway clearance revenue on a year over year basis in the first full quarter. Following the anniversary of our App law Best acquisition. Our sales performance continued to be paced by the supply constraints that we've discussed on our recent earnings calls.
With that said our operations team has made notable progress in working to expand <unk> production capacity by establishing our second supplier and securing our supply chain our.
Our sales performance in 2022 has us excited about the future prospects for this product line and as we enter 2023, we're now squarely focused on developing and supporting demand.
Shifting to a review of our operational progress in the fourth quarter from a new product standpoint, we continue to be pleased with the response, we've seen from prescribers trainers in patients following the full market release of our comfort ease lower extremity garments and our Kylie mobile application.
The feedback we've received on comfort east garments from trainers and patients continues to underscore that the product's design features improving ease of use comfort and fit have substantially enhance the patient experience.
Especially for the large portion of our patients with bilateral lymphedema in the lower extremities with limited mobility.
He'd back from our patients highlights an appreciation for the flexible and breathable materials used in the company's garments, which are designed to make the garment more comfortable to wear and easier to apply while continuing to deliver best in class treatment.
These features are indicative of the improving patient experience our product development priorities will continue to focus on.
Our team also made steady progress in expanding the adoption of our first generation Kylie mobile application, which is available on both the iOS and Android platforms by educating clinician prescribers and making the app available to patients and their doctors offices through our in clinic patient product demos N V.
Social media platforms.
As a reminder, our Kylie mobile App represents a new resource for patients with tools to engage with them earlier in their disease progression educate them about lymphedema and their treatment options and help them assemble the requisite data to obtain a definitive diagnosis and qualify for treatment.
Once a patient qualifies to receive our flexi touch or entre systems. They can use the app to track their order and review our training to tutorials, helping to further enhance our industry, leading customer support and training effort.
During the fourth quarter. Our team also worked to expand the apps capabilities beyond. These initial features most notably we began incorporating bluetooth functionality into our flexi touch plus systems shipped late last year.
He touch plus with Bluetooth allows patients with the latest version of Kylie, which we recently rolled out in February to synchronize their flexi touch with the app, enabling them to automatically track and log their treatments. The latest version of our Kylie App also allows users to easily summarized their recent treatment active.
<unk> in an auto generated activity report, which they can share with their doctor.
While we're still in the initial days of this rollout. We believe the addition of Bluetooth connectivity between flexi touch plus and Kylie.
Represents a significant milestone in bringing more personalized care to the treatment of lymphedema.
In short we're pleased with the initial success of both our comfort ease lower extremity garments and Kylie mobile application.
As I'll discuss later in my remarks, they represent the beginning of a more consistent cadence of product innovation from tactile medical in 2023 in the years to come.
Turning to our efforts to raise awareness for lymphedema and educate the medical community on its effective treatment.
On November 16th a new clinical publication was featured in the European Journal of vascular and Endovascular surgery discussing the role of obesity in lymphedema.
The publication was authored by five researchers, including our Chief Medical Officer, Dr. Tom O'donnell and describe the results of an observational cohort study that included de identified patient data from over 60000 lymphedema patients.
The researchers separated these patients into two groups depending on whether they were also diagnosed with severe obesity.
The researchers then compared the demographics health related characteristics treatment plans and outcomes of the two respective groups.
The study demonstrated that patients with both lymphedema and severe obesity, where more than two and a half times as likely to suffer from cellulitis, a deep and painful bacterial infection of the skin with potentially serious consequences.
These patients had higher medical costs as a result.
Importantly, the researchers also found that these patients with lymphedema and severe obesity receive fewer targeted treatments for their lymphedema, including treatments that are proven to reduce the incidence of cellulitis.
This underscores the importance of recognizing often overlooked lymphedema among those with obesity and the importance of early and accurate diagnosis as well as effective treatment to reduce both the health and economic burden for these patients.
With this in mind during the fourth quarter, our clinical services and medical education team continued their efforts to raise awareness of lymphedema and its effective treatment through educational events, including programming that featured the results of this study in.
In December our team launched the first continuing education unit course for obesity related lymphedema, which drew participation from 266 attendees.
During the fourth quarter as a whole we hosted 43 educational programs that were attended by approximately 1300 clinician participants.
Our in person and virtual programming for the full year trained nearly 6500 participants demonstrating the significant role we continue to play an expanding awareness.
Stepping back we.
We were pleased with our conclusion to 2022 from both a financial and operational standpoint.
And looking back over the year as a whole.
We recovered from the turnover in our sales force that we experienced in late 2021, and our lymphedema product line returned to double digit revenue growth on a year over year basis in the fourth quarter we.
We achieved exceptionally strong growth throughout 2022 and sales of our airway clearance product line. Following the acquisition of the Aflow versed on.
As a result of the performance in each of these product lines, we were able to raise our annual total revenue guidance in the second and third quarter earnings press releases, which we ultimately exceeded in the fourth quarter.
And lastly, we successfully introduced the first new products tactile medical is released for lymphedema patients in over three years, reflecting our renewed multiyear commitment to new product innovation.
But before I turn the call over to Brent I'd like to discuss an important announcement, we made via press release earlier this morning.
Today, we announced that Brent communicated his intention to retire as chief financial officer in 2023.
Since joining tactile medical in September of 2018, Brent has been an important contributor to our growth as an organization, helping develop a strong financial and accounting team improve our analytical and reporting processes and achieved multiple milestones, including our largest acquisition as a public company.
And as we announced in today's press release, we've initiated a process to identify a successor in the interim we appreciate brands commitment to continued leadership in his role through the end of the first quarter or until such time as the successor is named <unk>.
Brent has been a close and trusted colleague over the last three years since I joined tactile on behalf of the broader team I'd like to take the opportunity on today's call to thank him for the important contributions he's made while at tactile and I look forward to his continued support amid a smooth transition.
Brent will now interview review, our fourth quarter financial results in more detail along with our financial guidance for 2023.
Thanks, Dan.
It has been a privilege to serve as a member of tactile his executive leadership team and work with an excellent group of colleagues to develop and grow the organization as we bring life changing therapies to patients.
Given the strength and the depth of our team and the financial and operational progress made over the course of the last year. I believe this is the right time for me to begin my transition to retiring from CFO role at tactile.
I'd like to thank everyone on our team for their support over the last five years and I look forward to supporting a smooth transition.
Turning to a review of our financial performance.
Total revenue in the fourth quarter increased 20% year over year to $73 $9 million compared to $61 $7 million in the fourth quarter of 2021.
Looking at our total revenue by product line sales and rentals of our lymphedema products, which includes our flexi touch plus an entre systems increased $8 $3 million or 14% year over year to $65 $8 million and.
And sales of our airway clearance products, which includes our Aflow vest product line increased $3 $9 million or 90% year over year to $8 1 million.
Total revenue by channel was comprised of 41 4 million from sales to commercial payers $18 million from Medicare eight.
$8 1 million from durable medical equipment distributors and.
And $6 4 million from the VA as a reminder, durable medical equipment distributors is comprised of revenue from our acquisition of the airway clearance therapy business. These figures compare to our total revenue by channel in the fourth quarter of 2021 and which commercial.
Medicare D M <unk> distributors and the V. A represented approximately $41 7 million 10 million $4 3 million and $5 7 million respectively.
Continuing down the P&L.
Unless noted all references to fourth quarter results are on a GAAP and year over year basis.
Gross margin was 75% of revenue compared to 72, 6%.
non-GAAP gross margin was 71, 2% compared to 73, 3%.
The decrease in non-GAAP gross margin was attributable to higher direct labor and freight expense as well as spot buys on select components.
non-GAAP gross margin excludes noncash intangible amortization in both periods non-GAAP gross margin also excludes inventory write offs in the fourth quarter of 2022, and noncash purchase price adjustments related to the acquisition of Aflow vest in the fourth quarter of 2000.
'twenty one.
As a reminder, we have provided reconciliations of certain GAAP to non-GAAP measures in our earnings press release.
Fourth quarter operating expenses were $44 2 million, an increase of $3 2 million or 8%.
The increase in operating expenses year over year was primarily driven by a $2 3 million increase in sales and marketing expenses due to new hires added to our lymphedema sales team along with increased travel related expenses as we returned to normalized business activities.
The year over year increase in operating expenses was also driven by a $1 2 million dollar increase in noncash intangible asset amortization and non cash earn out expense related to the acquisition of the airway clearance therapy business.
And the $365000 increase in research and development expenses offset partially by a $567000 decrease in reimbursement general and administrative expenses.
Operating income in the fourth quarter was $7 $9 million compared to $3 $8 million in the prior year.
non-GAAP operating income was $9 $5 million or 13% of sales compared to $6 4 million or 10% of sales.
Other expense was $950000 compared to $377000 due to a year over year increase in interest expense driven by higher interest rates on outstanding borrowings compared to the prior year.
Income tax expense was $2 $3 million compared to $10 $9 million.
Income tax expense in the fourth quarter of 2022 relates to evaluation allowance being recorded against our current year deferred tax assets, while income tax expense in the prior year period as a result of establishing a full valuation allowance against our deferred tax assets.
Net income was $4 $6 million or 23 per diluted share compared to a net loss of $7 5 million or <unk> 38 per diluted share.
non-GAAP net income was $5 9 million.
Impaired to non-GAAP net loss of $5 5 million.
Adjusted EBITDA increased 27% year over year to $12 $1 million or 16% of sales compared to $9 $5 million or 15% of sales.
As of December 31, 2022, we had $21 9 million in cash and $49 million of outstanding borrowings. This compares to $28 $2 million in cash and $55 million of outstanding borrowings as of December 31, 2021 and <unk>.
Addition, during the fourth quarter of 2022, we made the $5 million earn out payment to the former owner of <unk>.
Turning to a review of our 2023 outlook, which we introduced in our earnings press release this morning.
We expect full year 2023 total revenue in the range of $269 million to $273 million, representing growth of 9% to 11% year over year.
Our 2023 total revenue guidance range assumes sales and rentals of our lymphedema products increased approximately 8% to 9% year over year.
And sales of our airway clearance products increased approximately 18% to 22% year over year.
For modeling purposes for the full year 2023, we expect our GAAP gross margins to be in the low 70% range.
Our GAAP operating expenses to increase in the low single digits year over year.
Interest expense of approximately $4 $2 million of.
A tax rate of 25%.
And our fully diluted weighted average share count of approximately 20 million shares.
We also expect to generate adjusted EBITDA of approximately $23 million to $25 million in 2023.
Our adjusted EBITDA expectation assumes certain noncash items, including stock compensation expense of approximately $12 million.
Intangible amortization and changes in fair value of contingent consideration of approximately $5 $8 million and depreciation expense of approximately $2 5 million.
Lastly in the first quarter of 2023, we expect our total revenue to increase in the range of 10% to 15% year over year.
With that I'll turn the call back to Dan for some closing remarks Dan.
Thanks, Brent our 2023 guidance reflects our belief in the ability to return to double digit organic revenue growth on an annual basis, while driving year over year improvements in our profitability profile.
This view is based in part on the financial and operational progress we made in 2022.
With an increasingly established lymphedema field sales team traction emerging within our <unk> channel partners and the momentum created by our new product introductions. We believe we're well positioned as we enter 2023 to drive strong sustainable profitable growth going forward.
In 2023, we're also focused on pursuing the following strategic priorities for the year to support our continued financial and operational progress improve.
Improve the productivity of our lymphedema sales team.
Number two expand and deepen relationships with dnb providers and their reps for our airway clearance product line.
Three develop and introduce new products and innovation focused on addressing the lifestyle needs of our patients and improving digital functionality and therapy optimization.
And finally, enhancing our operational efficiency to continue to reduce our overall cost to serve.
We believe that driving execution with respect to each of these four priorities will enable us to achieve our revenue and profitability guidance for 2023, while progressing towards our longer term financial goals as introduced in our Investor presentation last December <unk>.
Specifically for the full year of 2025, we continue to expect to deliver at least $350 million in total revenue and at least $50 million of adjusted EBITDA.
Additionally, we expect to generate at least $75 million in cumulative free cash flow during the three year period from 2023 to 2025.
As we progress towards these goals. We believe significant runway lies ahead for us in the end markets, we serve and we look forward to extending our leadership position as we continue to reveal and treat patients with underserved chronic conditions.
I'd just like to close by thanking the entire team at tactile medical for their efforts this past year and congratulating our team on a job well done in 2022.
A special thanks, as well to our customers our supply partners, our shareholders and everyone on this morning's call.
And with that operator, we will now open the call for questions.
Thank you if you'd like to ask a 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.
You would like to ask additional questions. We invite you to add yourself back into the queue by pressing star one. Our first question comes from the line of Adam <unk> with Piper Sandler. Please proceed with your question.
Hi, Good morning, Dan and Brad Congrats on the quarter and nice finish to the year and Brent Congrats on the upcoming retirement.
Maybe just to start wanted to ask for.
A little bit more color on the 2023 outlook as it relates to the top line the 911%.
I think I heard lymphedema growth of eight to nine airway clearance of 18 to 22.
Maybe just talk a little bit about kind of what's assumed from a procedure environment stand point.
Apple of Vas are there supply chain headwinds that are lingering into 'twenty three how do we think about those.
Any revenue contribution from new product launches and then.
Just I guess, if there is some general conservatism baked into the guide as we look to kind of square.
Your outlook versus where you exited the year and then I had a follow up thanks.
Yeah. Thanks for the question Adam Yeah, Let me give you a little bit of color on how we arrived at 'twenty. Three guidance then if Brent has anything he wants to add I'll.
Turn it over to him.
First of all I think it's worth pointing out that we're really trying to demonstrate balanced growth here, both in revenue and operating margin and getting back to double digits is a step in the direction that we wanted to make the.
The lymphedema growth assumes a growth of for the full year doubling what we did in 2022. So we are certainly moving in the direction that we want to go in getting back to double digit roughly overall.
It also reflects a cautious and I think leverage in.
The profitability side.
Emmons trading over 30% of adjusted EBITDA growth.
In our in the guidance as well.
I think the with the outflow.
Question about supply chain, we think that we're beyond most of this as we enter the year now so I think that we can focus more on <unk>.
Continuing to develop that business, but I think at the end of the day, you know theres a bit of cautiousness in our in our stance I think some of the assumptions that we had.
On the low end or things that probably created a little bit of caution on our part.
It was a little bit of uncertainty on what a recession could look like in the back half of the year.
If we find that.
We don't find the soft landing that so many of US I think hope for and you see an increase in things like unemployment and more pressure on consumer spending.
Those things can certainly affect co pays and they probably could have even a bigger impact on the <unk> just because the price point is much higher than some of our lymphedema products. So I think those were some of the cautions that we felt the other is we're continuing to put increased energy into making sure that we're <unk>.
To grow in both lymphedema categories, and while we expect to serve even more patients.
The growth in the E. O 651 category, obviously comes at a slightly lower ASP.
And I think the last one is.
Just thinking about what kind of impact there.
The removal of the.
Public health exemption waiver with CMS has on the <unk> business. So.
So we're just a little bit cautious there I think on the flip side, we certainly see opportunities.
From <unk> that could emerge. So if we can continue to demonstrate expansion and sales productivity.
I think if if the reception to some of our new products not only those that we introduced in 'twenty two but some of the things we have in mind for 2023.
You get a bit more traction and there's always opportunities I think for some payer policy improvement. So those are kind of the bookends that framed some of our thinking.
That's really helpful. Dan I appreciate the color there and then I guess I'll just ask one kind of housekeeping question and then a follow up on housekeeping Apple have asked did you see any.
Impact to your Q4 result, there from supply chain.
It was another nice quarter, but revenue did step down sequentially. So just wondering if you can quantify any potential impact from supply chain and then for the follow up.
Just help us kind of think through.
The commercial organization on the Lymphedema side I think you said you exited with 250 heads.
Is that the right number for this business going forward.
And maybe just kind of talk about the levers there to drive increased productivity in 'twenty three.
So much for taking the question.
Sure. So on the outflow vest, yes, we did have a bit of supply chain constraints that still lingered into Q4.
I think Brent even mentioned some of the spot buy impacts on gross margin.
But again I think that we expect that we've kind of managed our way through those so I think that we expect less of a headwind related to those in 2023.
It's always going to be a little bit naturally lumpier than our direct lymphedema business, but.
With a 90% growth that we still saw in Q4, I think a solid result overall.
I think as it relates to sales head count Adam Yeah, We finished up with $2 50, which is pretty much spot on where we had intended to be.
And I think that we feel like we're in a pretty good spot as far as the.
The staff that we want on the street.
Certainly through the first half and perhaps deeper into the second half if we continue to see some expansion and productivity.
We think that.
The growth in head count certainly is not going to be the ramp that we've seen in historical years, but the $2 50.
We think is a good target for us at least through the first half and potentially a bit deeper into the year.
Thanks again.
Thank you. Our next question comes from the line of Margaret Kaczor with William Blair. Please proceed with your question.
Hey, good morning, everyone. Thanks for taking the question.
I wanted to maybe go a little further.
Like Adam did in terms of the sales guidance for once a day.
No what we're assuming what you're assuming basically and rep productivity versus what we saw in the fourth quarter and then also touching maybe a little bit on your comment of the VA reopening being able to see those patients again cannot helped drive results in 'twenty three and then since you mentioned the potential kind of macro impact are you seeing any of that at this.
Or that was just what was contemplated in guidance.
Yeah.
Take a shot at those I think for Q4 Rep productivity, we were really pleased with the productivity we saw on a per rep head count.
It is worth reminding that Q4 is just a different dynamic with co pays have been mostly been.
Addressed earlier in the year on kind of a broad basis, we always see a step up so it's always our kind of our best.
Quarter from a productivity standpoint.
We're hopeful that we can continue to demonstrate expanded productivity in 2023, but that's one of the reasons that we always see a bit of an expansion there.
From a from the VA question, we did see some anecdotal returned to some of the VA centers, but I.
I think it's a little early to declare victory there.
They seem to behave in a inconsistent.
<unk> are such that.
No.
The old adage, if you've seen one VA you've seen one VA, we haven't heard about a a broad return to.
Two the VA centers, but certainly on an anecdotal basis it was helpful.
We're going to continue to monitor that and see if that becomes a trend as we get a little deeper into 2023 and I think on the macro question.
Yeah, we haven't seen much in the face of headwinds as it relates to some of the things that.
Have created voice of caution I think for us in 2023, but we also do know that co pays do have an impact on patient adoption and their ability to advance with their therapies.
If we see some change in that posture I think as the year progresses that that was probably a bit of a V.
Voice of caution in how we established our guidance.
Okay.
And then I wanted to walk through the adjusted EBITDA improvement expected this year.
Impressive in terms of operating expenses only going up I think I heard low single digits versus.
Versus kind of the guidance on the top line. So I guess, what would get you to the high and low end of the range. How hard are you in kind of pushing the operating leverage and then how should we think about free cash flow change for the year as well.
Yeah, No hey, Margaret it's Brent good questions. So yes, we are as we look at kind of the operating expense profile, certainly and I think Dan has probably mentioned in if not on this call previous calls, but certainly our focus is on the cost to serve so how much how expensive is sort of a patient and how do.
Are we actually bring that cost down and so we've got a.
Dedicated focus in 2023 to delivering profitable growth. So you know one of the things Dan mentioned in his previous answer to Adam was was certainly about head count and to the to the extent, we can reduce or at least normalize the turnover in our sales force that certainly provides.
Both productivity and the upside in terms of leverage there so and then on top of that.
The the reimbursement and G&A category.
It's going to be a bit moderated from a GAAP perspective, as we are as we we won't have the same legal expense that we had in 2022 recurring in 2023. So all of those things certainly are positive contributions to our overall EBITDA margin improvement in <unk> in 2023.
Yeah.
Yes.
And then the free cash flow.
Oh free cash flow, yes, right. So we finished we finished the year at.
$22 million of cash and short of $22 million as we are as we look into 2023.
It will generate a significant amount of cash flow, but we've got some commitments in 'twenty three that we've got a focus on are they particularly include the remainder of the earn out to Apolo vest. So we've got a 15 million dollar commitment provided that Apple have us continues to drive an increase in revenue.
We've got some capex obligations, albeit minor to.
To the tune of about $2 million.
We've got debt service that we've got out there all of those things.
You know our commitments that we have but one thing to keep in mind Margaret is that if we even at the midpoint, if we generate $24 million of adjusted EBITDA.
We certainly believe that we've got enough cash to continue to support the growth of this organization and make the necessary investments for the future as well.
Great. Thank you guys.
You bet.
Thank you. Our next question comes from the line of Ryan Zimmerman with <unk>. Please proceed with your question.
Good morning, Thanks for taking the questions. Congrats on the good end of the year and Brent Congrats on your retirement I don't know if this is like a Tom Brady type retirement, you might come back in a year, but.
We do do appreciate working with you over the years to this company and others.
One I wanted to ask about the long term the long term guidance.
Yet you are putting out there Dan if I do the math it looks like about a 12, 13% CAGR over the next few years.
Just help us understand kind of the cadence of your expectations.
How to think about that CAGR and kind of as you get out to 2025 and so forth.
Yes, I think first of all the reason that we put out let me take a step back. The reason we put out the 2025 numbers was.
I think as we've emerged from the post Covid environment Theres been an interest in what does the future look like and while we wanted to clearly give 'twenty three guidance today I think the question continues to be kind of what's on the other side of the horizon. That's why we establish those 25 numbers.
We're we'll give as we did today 2023 guidance, we're not going to breakout 2024 and 2025 at this point.
And if we found ourselves there a bit early we'd be delighted, but I think the point, we were trying to make was from an investor standpoint.
We think that there's consistent double digit growth in front of US we think the opportunity to establish and expanded adjusted EBITDA profile to the tune of $50 million.
By 2025, and then the free cash flow piece I think is an important one that we tried to establish as well to <unk> point, you kind of walk through cash.
Cash needs and cash generation for 2023, but when we get to 2024 and 2025 beyond the earn out payments.
We think that will become a really healthy cash flow generator and and that's an important part of the profile that we hope to express as people kind of contemplate us.
Okay. That's very helpful and then.
Can you kind of hinted at the pipeline getting more robust and just a steady stream of updates.
I don't want to steal the Thunder here, but can you expand a little bit on kind of what youre thinking in and where you go over the next few years from a new product standpoint.
Sure Yes.
New product development continues to be an important one for us we want to make sure that we continue to demonstrate ourselves as a leader and making sure that the patient experience.
Increasingly becomes more consumer like as part of that journey.
I can certainly add specifically in 2023 in the first half we're going to introduce.
Just a line extension on Aflow vest, we have a size gap on some of the larger patients that we couldnt accommodate and we'll be introducing that in the first half. We're also going to refresh our entre device in the first half of the year with some feature enhancements as I mentioned earlier competing in the 651 or entry level pump space is going.
Important for US we believe to serve all the patients so.
We're not going to neglect that space and then in the second half Brian we're going to we're looking forward to introducing the balance of our company's portfolio. So in the upper extremity garments those are devices that <unk>.
Help patients that are oncology survivors, typically with head and neck cancer survivors are breast cancer survivors that can treat the head and neck, the arm and the chest.
We think it's going to invite us into an opportunity to go.
Revisit the oncology space with with a really good solution and then there's a series of new Kylie drops that we'll have over the course of the year Kylie today now enables a patient to track their order.
That's something we couldnt have allowed or enabled not very long ago. It allows them to get some training assistance, which can reduce our cost to serve when they can self serve and some of those areas and then sharing status with their physicians in the second half. We're looking forward to some additional features on Kylie patients will.
Be able to track measurements there'll be able to get reminders and encouragement prompts to make sure. They have the best kind of output outcome as possible and.
Some order processing engagement, which again comes back to cost to serve so those are some of the things I think that.
You can expect in 2023, and then we have some longer term things, which I'll just suggest continue to focus on treating the therapy like a daily consumer experience.
And those will likely demonstrate themselves in in the windows.
Appreciate it I appreciate all the color and congrats again solid grate and of the year.
Thanks, Ryan Thanks, Brian .
Yes.
Thank you as a reminder, star one to join the question queue. Our next question comes from the line of Suraj Kalia with Oppenheimer and company. Please proceed with your question.
Good morning, Dan Brent can you hear me all right.
We can good morning Suraj.
First and foremost let me echo the sentiments sprint it's been a pleasure working with you through the years and wish you all the success in your next endeavor.
So Dan.
A few questions at least from my sudden maybe Brendan can also jump in.
Then when we look at the number of New York Drips, how many would you see our quote unquote to Newark.
How many would you say currently have let's say a million million annual productivity.
Which is usually sort of what the target you will have talked to in the past.
Yeah, So I would say, it's Brian I'll I'll I'll take a shot and then Dan can can chew.
And but you know.
I think as we exited 2021 we.
We saw a larger than normal turnover in our sales rep category.
And I think that led to some of the some of the things we communicated back in the back half of 2021 throughout 2022, we've seen good success in being able to get our sales force I'm back.
Back to where we believe we can sustain growth and in 2023.
So.
In terms of the turnover our turnover.
On an average basis, where we expect it to be in that roughly 20% range and it was outsized in 'twenty one so.
You can imagine that the the ability to.
Become productive certainly started to show itself in the latter half of 2022, and we will continue to provide benefit into 2023, but where.
We're going to talk a little talk much about the number of reps that are but that are at that point.
So.
But good.
Good progress.
Fair enough.
Last couple of questions I'll ask both of them one you Brent one for Dan and I'll hop back into queue. So Brent first in terms of the FY2023 guide.
Give me if I missed it I know, you'll keep the overall lymphedema growth.
But I'm more interested in the commercial component of it if you could give some additional color. There also what was the impact of E.
Sps with comfort ease and others.
Two to the guide and then specifically for you in terms of Kylie.
Maybe I'm just looking at it from a purely engineering perspective, right. It's a great step up in terms of data gathering and presumably it's passive in nature.
Could it become more assistive in the future I E improving compliance and functionality gentlemen, Thank you for taking my question that Brent Congrats again.
Thanks Raj.
I appreciate that so I'll provide a little bit of color on commercial I think your first question was what.
What we should expect from commercial and I'll just be honest with you Suraj, we don't we don't forecast by payer.
In terms of expectations over the course of the year.
And making sure that we can provide the therapy is necessary to those patients and whether it's a commercial patient or a Medicare patient or a V a patient.
All of them are are are we look at equally so.
We don't provide much much color relative to where the commercial expectations.
Relative to that.
Yeah, I think just to add to that Suraj, we did have a particularly good quarter as it relates to the Medicare mix in Q4, which you I suspect recognized and I think that it's less about focusing on a payer and more about a prescriber source. So the vascular call point as <unk>.
Been dismissive of an older patient just thinking it was going to be too difficult and the addition of zippers and making it easier to apply perhaps as I think gotten some prescribers to consider patients. They may have otherwise overlooked I think the other one was this elimination of the <unk> gave us an opportunity to go in and revisit.
With prescribers on process and anytime we have a chance to engage with them.
It's typically a a good opportunity and I think that those both were a bit reflective in Q4 and I think your question's a good one on Kylie. So Kylie has in my mind two different identities. One is it can continue to reduce our cost to serve being able to track their order scourge.
All the training.
Manage the order process all of those things have historically been done in a very manual basis with a lot of people in our office doing personal outreach on the telephone and we all know that that's not the most efficient way in 2023, nor the way most businesses operate so I think Kylie is a vehicle.
That will continue to help reduce cost to serve on the flip side I think the other component of its identity is exactly what you described which is the ability to increase compliance and also to ensure that the <unk>.
<unk> has the best therapeutic outcome. So the mentioned I had about being able to share their progress with their physician.
Doing reminders and encouraging prompts on their handheld.
As it relates to celebrating when they've been consistent in their therapy or encouraging them when they haven't or both components that I think can help as well.
Thank you.
We are currently seeing no remaining questions at this time that does conclude our conference today. Thank you for your participation you may now disconnect your lines.