Q4 2023 Tactile Systems Technology Inc Earnings Call

Operator: Please stand by. Welcome, ladies and gentlemen, to the fourth quarter and fiscal year 2023 earnings conference call for Tactile Medical. At this time, all participants have been placed in a listen-only mode.

Please standby welcome ladies and gentlemen to the fourth quarter and fiscal year 2023 earnings conference call for tactile medical at this time, all participants have been placed in a listen only mode. At the end of the company's prepared remarks, we will conduct a question.

Operator: 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 sharing. Before we begin, I would like to remind everyone that our remarks and responses to your questions today may contain forward-looking statements that are based on current expectations and involve inherent risk and uncertainties, which could cause actual results to differ materially from those indicated, including those identified in the risk factor section of our annual report on Form 10-K, as well as our most recent 10-Q filings to be filed with the Securities and Exchange Commission. Such factors may be updated from time to time in our We undertake no obligations to publicly update or revise our forward-looking statements as a result of new information, future events, or otherwise. This call will include references to certain financial measures that are not calculated in accordance with General Accepted Accounting Principles, or GAAP.

And answer session. Please note that this conference call is being recorded and will be available on the company's website for replay shortly.

Before we begin I would like to remind everyone that our remarks and responses to your questions. Today may contain forward looking statements that are based on the current expectation.

Of management and involve inherent risks and uncertainties, which could cause the actual results to differ materially from those indicated including those identified in the risk factors section of our annual report on Form 10-K, as well as our most recent 10-Q filings to be filed with the securities and exchange.

Such factors may be updated from time to time in our filings with the S. E C, which are available on our website, we undertake no obligations to publicly update or revise our forward looking statements as a result of the new information future events or otherwise.

This call walk include references to certain financial measures that are not calculated in accordance with general accepted accounting principles or GAAP. We generally refer to these non-GAAP financial measures reconciliations of those non-GAAP financial measures to be most comparable measures calculated and presented in accordance with <unk>.

Operator: We generally refer to these 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 our earnings press release on the investor relations portion of our website. Today's call will be hosted by Dan Reavers, Tactile's Medical President and Chief Executive Officer, along with Elaine Burkmeier, Tactile's Chief Financial Officer. I would now like to turn the call over to Mr. Reavers. Please go ahead.

GAAP are available in our earnings press release on the Investor Relations portion of our website.

Today's call will be hosted by Dan Rivers, Tactile Medical's, President and Chief Executive Officer, along with Elaine Birchmeier tactile Chief Financial Officer.

I would now like to turn the call over to Mr. Reavers. Please go ahead Sir.

Dan Reavers: Thanks, Operator, and welcome, everyone, to our fourth quarter and fiscal year earnings call. Let me provide a quick agenda for today's call. I'll start with an overview of our fourth quarter financial results and the primary factors that contributed to our performance, followed by a review of some of our recent operational highlights. Thank you, everybody.

Thanks, operator, and welcome everyone to our fourth quarter and fiscal year earnings call.

Let me provide a quick agenda for today's call I'll start with an overview of our fourth quarter financial results and the primary factors that contributed to our performance followed by a review of some of our recent operational highlights Alain will then cover our quarterly financial results in further detail and review our 2024 financial guide.

Dan Reavers: Elaine will then cover our quarterly financial results in further detail and review our 2024 financial guidance, which we introduced in our earnings press release this morning. And I'll conclude by discussing our outlook and strategic priorities for 2024 before we open the call for questions. We were pleased to demonstrate revenue growth in both lymphedema and airway clearance products, a post-record quarterly profit, and further strengthen our balance sheet by continuing to generate solid cash flow from operations and retire our line of credit entirely. In the fourth quarter, we generated revenue of $77.7 million, representing 5% growth on a year-over-year basis.

<unk>, which we introduced in our earnings press release this morning.

And I'll conclude by discussing our outlook and strategic priorities for 2024 before we open the call for questions.

With that as a backdrop, let's begin with an overview of our financial performance.

We were pleased to demonstrate revenue growth in both lymphedema and airway clearance products post record quarterly profit and further strengthen our balance sheet by continuing to generate solid cash flow from operations and retiring our line of credit entirely.

In the fourth quarter, we generated revenue of $77 $7 million, representing 5% growth on a year over year basis, our fourth quarter performance enabled us to achieve our guidance for the fiscal year.

Dan Reavers: Our fourth quarter performance enabled us to achieve our guidance for the fiscal year. Our year-over-year revenue growth was largely driven by the performance of our lymphedema product line, which grew 6% year-over-year to $69.5 million. We're also pleased to see better than expected sales of our airway clearance products, which totaled $8.2 million in the fourth quarter, representing 16% on a quarter-over-quarter basis and 1% growth compared to the prior year period. We complimented our revenue performance with notable improvements in profitability, which exceeded our expectations for the fourth quarter. Gap net income increased 77% year-over-year, and adjusted EBITDA grew 27% year-over-year.

Our year over year revenue growth was largely driven by performance of our lymphedema product line, which grew 6% year over year to $69 $5 million. We're also pleased to see better than expected sales of our airway clearance products, which totaled $8 $2 million in the fourth quarter representing 16%.

Sent on a quarter over quarter basis, and 1% growth compared to prior year period, despite transient headwinds.

We complemented our revenue performance with notable improvements in profitability, which exceeded our expectations for the fourth quarter.

GAAP net income increased 77% year over year, and adjusted EBITDA grew 27% year over year.

Dan Reavers: Our performance in the fourth quarter reflects our enduring commitment to enhancing our profitability profile. We also generated $18.4 million of cash flow from operations, driven by our strong net income results and continued improvements in working capital. We paid off our $16.8 million dollar line of credit during the fourth quarter as well as our final $5.6 million dollar contingent consideration payment related to our acquisition of AfloVest, ending the quarter with $61 million in cash.

Our performance in the fourth quarter reflects our enduring commitment to enhancing our profitability profile.

We also generated $18 $4 million of cash flow from operations driven by our strong net income results and continued improvements in working capital.

We paid off our $16.8 million line of credit during the fourth quarter as well as our final $5.6 million contingent consideration payment related to our acquisition of Aflow vest ending the quarter with $61 million in cash.

Dan Reavers: All in all, we were pleased to close out 2023 with solid financial performance in the fourth quarter while further strengthening our balance sheet. Turning to a more detailed discussion of the drivers of our fourth quarter sales performance, growth in our Lymphedema product line was driven by the enhanced productivity of our field sales, which continue to benefit from our initiatives to improve their operational efficiency and enhance our product offerings. Our continued efforts to reduce the time our reps devote to non-selling have benefited from our patient trainers' assistance. Most notably, our patient trainers conducted a larger share of in-home patient demos, a critical pre-sales task which our sales team has traditionally been responsible for.

All in all we were pleased to close out 2023 with solid financial performance in the fourth quarter, while further strengthening our balance sheet.

Turning to a more detailed discussion of the drivers of our fourth quarter sales performance.

The growth in our lymphedema product line was driven by the enhanced productivity of our field sales team, which continued to benefit from our initiatives to improve their operational efficiency and enhance our product offering.

Our continued efforts to reduce the time, our reps devote to non selling benefited from our patient trainers assistance, most notably our patient trainers conducted a larger share of in home patient demos, a critical pre sales task, which our sales team has traditionally been responsible for.

Sure.

Dan Reavers: Entering 2023, less than 10% of all in-home patient demos were conducted by our patient trainers; we reached roughly 30% by year end, providing our reps with additional time to engage with prescribers. We're excited by the success of this initiative, and we believe there's an opportunity to make further progress on this front in 2024 as well. During the fourth quarter, we continued to see a favorable response to our new products. In particular, Entrez Plus, our next-generation Entrez system, has had a stronger-than-expected showing since its launch in March, and we continued to see impressive adoption of the system during the fourth quarter. The user-centric enhancements made to Entrez Plus continue to be warmly received by patients, including features like active garment deflation, its easy-to-use LCD controller, and its ability to treat two limbs simultaneously.

Entering 2023.

Less than 10% of all in home patient demos were conducted by our patient trainers.

We reached roughly 30% by year end, providing our reps with additional time to engage with prescribers.

We're excited by the success of this initiative and we believe Theres an opportunity to make further progress on this front in 2024 as well.

During the fourth quarter, we continued to see a favorable response to our new products.

In particular Entre plus our next generation Entre system has had a stronger than expected showing since its launch in March and we continued to see impressive adoption of the system during the fourth quarter.

The user centric enhancements made to entre plus system continue to be warmly received by patients including features like active garment deflation, it's easy to use LCD controller and its ability to treat two limbs simultaneously.

Dan Reavers: We've also improved our team's level of focus on the largest segment of patients that qualify for a basic pneumatic compression device. As a reminder, insurers like CMS require patients to initiate therapy with a device in this category, like our Entrez Plus system, before they may ultimately become eligible for an advanced device like our FlexiTouch Plus system. In keeping with our broader focus, as an organization, on developing relationships with patients earlier in their treatment paradigm, our team has been working to ensure that a larger portion of these patients begin their active therapy with our Entrez Plus system. The introduction of this system, combined with our enhanced focus on this portion of our addressable patient population, was an important contributor to our performance in the quarter. Likewise, the launch of upper extremity Comfort-E's garments during the third quarter provided our sales reps with an enhanced offering for patients with oncology-related lymphedema. Our Comfort-E's upper extremity garments are used with Flexi-Touch and include improved therapeutic coverage of the axillary region, an important treatment area for those suffering from breast cancer-related lymphedema.

We've also improved our team's level of focus on the largest segment of patients that qualify for a basic pneumatic compression device.

As a reminder, insurers like CMS required patients to initiate therapy with the device in this category like our entre plus system before they may ultimately become eligible for an advanced device like our flexi touch plus system.

In keeping with our broader focus as an organization on developing relationships with patients earlier in their treatment paradigm. Our team has been working to ensure that a larger portion of these patients begin their active therapy with our entre plus system.

The introduction of this system combined with our enhanced focus on this portion of our addressable patient population was an important contributor to our performance in the quarter.

Likewise, the launch of upper extremity comfort ease garments during the third quarter provided our sales reps with an enhanced offering for patients with oncology related lymphedema.

Our comfort ease upper extremity garments are used with flexi touch and include improved therapeutic coverage of the axillary region, an important treatment area for those suffering from breast cancer related lymphedema.

Dan Reavers: They also allow for bilateral treatment of the upper extremities, enabling patients with lymphedema in both arms to complete their treatment in roughly half the time. In the months following our launch, we're seeing strong sales to patients with breast cancer-related lymphedema, and we look forward to continuing to enhance our focus on this portion of our addressable patient population as well. We also finished the year with a field sales team of 254 supporting our lymphedema product, a small increase in salespeople compared to 246 at the end of the third quarter. With respect to our airway clearance product line, while sales remained paced by one large DME that returned to pre-COVID criteria in May, we were heartened to see their ordering volume improve sequentially relative to the third quarter of 2023.

They also allow for bilateral treatment of the upper extremities, enabling patients with lymphedema in both arms to complete their treatment in roughly half the time.

In the months following our launch we're seeing strong sales to patients with breast cancer related lymphedema, and we look forward to continuing to enhance our focus on this portion of our addressable patient population as well.

We also finished the year with a field sales team of 254 supporting our lymphedema products, a small increase in salespeople compared to 246 at the end of the third quarter.

With respect to our airway clearance product line.

<unk> sales remain paced by one large D. M E that returned to pre Covid criteria in May we were heartened to see their ordering volume improved sequentially relative to the third quarter of 2023.

Dan Reavers: We were also pleased to see continued growth in sales to our other DME customers. Together, these improvements enabled us to generate growth of 16% on a sequential quarterly basis and return to growth on a year-over-year basis as well. As we've commented on previously, the large affected DME customer experienced slower placements following the expiration of COVID-19's Public Health Emergency, or PHE, waiver in May of 2023.

We were also pleased to see continued growth in sales to our other <unk> customers.

Together these improvements enabled us to generate growth of 16% on a sequential quarterly basis and returned to growth on a year over year basis as well.

As we've commented on previously the large affected D M customer experience slower placements. Following the exploration of COVID-19, public health emergency or phe waiver in may of 2023.

Dan Reavers: They've taken advantage of the relaxed eligibility requirements under the PHE waiver, and the return to traditional pre-COVID eligibility requirements has continued to slow their volume. While sales to this one large DME will likely remain paced by the impact of the PHE waiver expiration until its anniversary in May of 2024, we continue to expect strong, sustained growth longer term as we expand penetration of the large, underserved bronchiectasis patient population. To that end, we made investments in our airway clearance sales team in the fourth quarter, expanding to 16 dedicated DME sales reps in order to enhance the level of support we provide our DME customers and their reps. In addition to our commercial and financial progress during the fourth quarter, we continued our efforts to develop the markets we serve by supporting the education of clinicians and patients and investing in new clinical evidence. Our medical affairs team made strong progress throughout 2023. For the full year, we hosted nearly 100 educational events focused on lymphedema diagnosis, co-morbidities, and available treatment. Through this programming, we were able to reach over 7,200 clinicians. Record Outreach for Tactile Medical.

They've taken advantage of the relaxed eligibility requirements under the phe waiver and the return to traditional pre COVID-19 eligibility requirements has continued to slow their volumes.

While sales to this one large D. M E will likely remain paced by the impact of the phe waiver exploration until its anniversary in may of 'twenty 'twenty. Four we continue to expect strong sustained growth longer term as we expand penetration of the large underserved bronchiectasis patient population.

To that end, we made investments in our airway clearance sales team in the fourth quarter expanding to 16 dedicated <unk> sales reps in order to enhance the level of support we provide our customers and their reps.

In addition to our commercial and financial progress during the fourth quarter. We continued our efforts to develop the markets. We serve by supporting the education of clinicians and patients and investing in new clinical evidence.

Our medical Affairs team made strong progress throughout 2023 for the full year, we hosted nearly 100 educational events focused on lymphedema diagnosis, it's comorbidities and its available treatments.

Through this programming, we were able to reach over 7200 clinicians record outreach for tactile medical.

Dan Reavers: Most recently, we hosted a number of targeted educational events focused on specific populations of patients, including those with breast cancer-related lymphedema, which we believe resonated with the clinicians managing their care. On the airway clearance side of the business, we also initiated our first educational programming focused on bronchiectasis, with three on-demand continuing education courses available on the Knowledge Center education portal of our website. These courses were developed by subject matter experts and accredited through the American Association of Respiratory Care, the California Board of Registered Nurses, and the Commission for Case Managers, enabling respiratory therapists, nurses, and case managers to earn continuing education credits by completing them.

Most recently, we hosted a number of targeted educational events focused on specific populations of patients, including those with breast cancer related lymphedema, which we believe resonated with the clinicians managing their care.

On the airway clearance side of the business. We also initiated our first educational programming focused on bronchiectasis with three on demand continuing education courses available on the knowledge Center education portal of our website.

These courses were developed by subject matter experts and accredited through the American Association of respiratory care.

California Board of registered nurses and commission for case managers, enabling respiratory therapists nurses and case managers to earn continuing education credits by completing them.

Dan Reavers: Meanwhile, this past year, our Kylie mobile application provided more than 22,000 users with direct access to educational resources, as well as tools to track their symptoms and monitor disease progression. And finally, we continue to progress through the enrollment phase of our multi-center randomized controlled clinical trial evaluating Flexi-Touch for the treatment of lymphedema among head and neck cancer survivors. With 187 subjects enrolled in the trial at year-end, this trial compares the effectiveness of the Flexi-Touch system to standard care practices over a six-month duration.

Meanwhile, this past year, our Kylie mobile application provided more than 22000 users with direct access to educational resources as well as tools to track their symptoms and monitor disease progression.

And finally, we continued to progress through the enrollment phase of our multicenter randomized controlled clinical trial evaluating flexi touch for the treatment of lymphedema, among head and neck cancer survivors.

With 187 subjects enrolled in the trial at year end. This trial compares the effectiveness of the flexi touch system to standard care practices over a six month duration.

Dan Reavers: Outcome measures include both physical improvements as well as bio-social quality of life results. And based on the recent pace of progress, we expect complete enrollment by the end of the first quarter. Given the six-month patient follow-up period, we anticipate sharing the initial results near the end of the year. We look forward to sharing the results of this trial, the largest RCT ever conducted among head and neck lymphedema patients to influence payers, clinicians, and patients.

Outcome measures include both physical improvements as well as biosocial quality of life results.

And based on the recent pace of progress we expect to complete enrollment by the end of the first quarter.

Given the six month patient follow up period, we anticipate sharing the initial results near the end of the year.

We look forward to sharing the results of this trial the largest RCT ever conducted among head and neck lymphedema patients to influence payers clinicians and patients.

Dan Reavers: And before I turn it over to Elaine, I'd like to share some additional thoughts on our performance in 2023 as a whole. Simply stated, our team achieved considerable progress this past year across multiple areas, strengthening our market leadership position, executing on our commercial strategy, and delivering strong financial performance, including double-digit revenue growth and 62% growth in adjusted EBITDA this year. From a market leadership standpoint, we introduced multiple patient-centered design enhancements to optimize our product portfolio, including the first generational update to our Entree system since its original introduction. As I just mentioned, our education resources reached record levels of clinicians and patients, and we provided our lymphedema and airway clearance therapies to more than 77,000 patients suffering from chronic conditions that we address.

And before I turn it over to Alain I'd like to share some additional thoughts on our performance in 2023 as a whole.

Simply stated our team achieved considerable progress this past year across multiple areas strengthening our market leadership position.

Executing on our commercial strategy and delivering strong financial performance, including double digit revenue growth and 62% growth in adjusted EBITDA. This year.

From a market leadership standpoint, we introduced multiple patient centered design enhancements to optimize our product portfolio, including the first generational update to our entre system since its original introduction.

As I just mentioned our education resources reached record levels of clinicians and patients and we provided our lymphedema and airway clearance therapies to more than 77000 patients suffering from chronic conditions that we address.

Dan Reavers: Through our efforts to drive operational efficiency by improving the productivity of our sales force, we delivered revenue growth of 14% in our Lymphedema product line for the full fiscal year, our first year of double-digit growth in this product line since 2019. This enabled us to deliver significant sales and marketing leverage with just 1% growth in this expense line versus 2022. We generated record profitability for the year, with $28.5 million of gap net income, while improving our adjusted EBITDA margins by 340 basis points to 10.8%.

Through our efforts to drive operational efficiency by improving the productivity of our sales force, we delivered revenue growth of 14% and our lymphedema product line for the full fiscal year, our first year of double digit growth in this product line since 2019.

This enabled us to deliver significant sales and marketing leverage with just 1% growth in this expense line versus 2022.

We generated record profitability for the year.

With $28 $5 million of GAAP net income.

While improving our adjusted EBITDA margins by 340 basis points to 10, 8%.

Elaine Burkmeier: And from a cash flow perspective, our strong net income results, combined with material improvements in our working capital performance, enabled us to generate nearly $36 million of cash flow from operations. Along with the $35 million in net proceeds raised through our underwritten public offering of common stock last February, our financial condition has materially improved. We ended 2023 with $61 million in cash while paying off the final $10.6 million earn-out payments associated with the Aflovest acquisition and reducing our outstanding debt by almost $20 million. I'm proud of our accomplishments across each of these areas, made possible by the efforts of our entire team at Tactile Medical, which will leave us better positioned to drive profitable growth and strong cash generation going forward. Elaine will now review our fourth quarter financial results in more detail and discuss our 2024 guidance.

From a cash flow perspective, our strong net income results combined with material improvements in our working capital performance enabled us to generate nearly $36 million of cash flow from operations.

Along with the 35 million in net proceeds raised through our underwritten public offering of common stock last February our financial condition has materially improved we ended 2023 with $61 million of cash while paying off the final $10 $6 million earn out payments associated with the <unk> acquisition.

<unk> and reducing our outstanding debt by almost $20 million.

I'm proud of our accomplishments across each of these areas made possible by the efforts of our entire team at tactile medical which leave us incrementally better positioned to drive profitable growth and strong cash generation going forward Alain will now review, our fourth quarter financial results in more detail and discuss.

Our 2024 guidance Helane.

Elaine Burkmeier: Thanks, Dan. Unless noted otherwise, all references to fourth quarter financial results are on a gap and year-over-year basis. Total revenue in the fourth quarter increased $3.8 million, or 5.1%, to $77.7 million. By product line, sales and rentals of Lymphedema products, which include our Flexi-Touch and Entrez systems, increased $3.7 million, or 5.6%, to $69.5 million. And sales of our airway clearance products, which include our Apple Vest system, increased $52,000, or 0.6%, to $8.2 million. Continuing down the P&L, growth margin was 72.1% of revenue compared to 70.5% in the fourth quarter of 2020; non-GAAP gross margin, which excludes non-cash intangible amortization in both periods, was 72.5% compared to 71.2% in the prior year. The increase in non-gap girth margin was attributable to lower freight and manufacturing costs, as well as improved product quality. Fourth quarter operating expenses decreased $40,000, or 0.1%, to $44.2 million. The change in GAAP operating expenses reflected a $1 million decrease in non-cash intangible asset amortization and earn out expenses, a $0.5 million decrease in sales and marketing expenses, and a $0.3 million decrease in research and development

Dan unless noted otherwise all references to fourth quarter financial results are on a GAAP and year over year basis total revenue in the fourth quarter increased $3 $8 million or five 1% to $77 $7 million by product line sales and rentals of lymphedema products, which include our <unk>.

Flexi touch an entre system increased $3 $7 million or five 6% to $69 $5 million and sales of our airway clearance products, which include our applebee's system increased $52000 or 0.6% to $8 $2 million.

You mean down the P&L gross margin was 72, 1% of revenue compared to 75% in the fourth quarter of 2022.

non-GAAP gross margin, which excludes noncash intangible amortization in both periods was 72, 5% compared to 71, 2% in the prior year.

The increase in non-GAAP gross margin was attributable to lower freight and manufacturing costs as well as improved product pricing.

Fourth quarter operating expenses decreased $40000 or 0.1% to $44 $2 million.

The change in GAAP operating expenses reflected a $1 million decrease in noncash intangible asset amortization and earn out expense.

Zero point $5 million decrease in sales and marketing expenses and is there a point $3 million decrease in research and development expenses.

Elaine Burkmeier: These items were largely offset by reimbursement, general, and administrative expenses, which increased $1.8 million. Operating income increased $4 million, or 50.3%, to $11.8 million. The improvement in operating income was driven by a $3.9 million or 7.5% increase in our gross profit, as well as the aforementioned $40,000 decrease in our operating income. Non-GAAP operating income, therefore, increased $3.2 million or 34% to $12.7 million. As a reminder, our non-GAAP operating income excludes non-cash intangible amortization and earn-out expense, as well as certain non-reoccurring operating expenses in We provided a detailed gap to non-GAAP reconciliation in our earnings process. Other expense net decreased $0.9 million or 96.2% to $36,000. The decrease was primarily due to lower net interest expense.

These items were largely offset by reimbursement in general and administrative expenses, which increased $1 $8 million.

Operating income increased $4 million or 53% to $11 $8 million.

The improvement in operating income was driven by a $3 $9 million or seven 5% increase in our gross profit as well as the aforementioned $40000 decrease in our operating expenses.

non-GAAP operating income increased $3 $2 million or 34% to $12 $7 million.

As a reminder, our non-GAAP operating income excludes noncash intangible amortization and earn out expense as well as certain non reoccurring operating expenses in the prior year period, we provided a detailed GAAP to non-GAAP reconciliation in our earnings press release.

Other expense net decreased <unk> $9 million or 96, 2% to $36000. The decrease was primarily due to lower net interest expense.

Elaine Burkmeier: Income tax expense increased $1.3 million, or 56.3%, to $3.6 million. The year-over-year change in income tax expense was driven primarily by higher taxable income. Net income increased $3.6 million, or 77%, to $8.2 million, or $0.35 per diluted share compared to $4.6 million, or $0.23 per diluted share. Non-GAAP net income increased $3 million, or 52%, to $8.9 million compared to $5.9 million. Adjusted EBITDA increased $3.3 million to $15.4 million, or 19.8% of sales, compared to $12.1 million, or 16.3% of sales. We had $61 million in cash and cash equivalents and $29.3 million in standing borrowings at year-end.

Income tax expense increased $1 $3 million or 56, 3% to $3 $6 million.

The year over year change in income tax expense was driven primarily by higher taxable income.

Net income increased $3 $6 million or 77% to $8 $2 million or 35 cents per diluted share compared to $4 $6 million or 23 cents per diluted share.

non-GAAP net income increased $3 million or 52% to $8 $9 million compared to $5 $9 million.

Adjusted EBITDA increased $3 $3 million to $15 4 million or 19, 8% of sales compared to $12 1 million or 16, 3% myself.

With respect to our balance sheet, we had $61 million in cash and cash equivalents and $29 $3 million of outstanding borrowings at year end. This compares to $21 $9 million in cash and $49 million of outstanding borrowings as of December 31, 2022.

Elaine Burkmeier: This compares to $21.9 million in cash and $49 million of outstanding borrowings as of December 31, 2021. Turning to a review of our 2024 Outlook, which we introduced in our earnings press release, we expect full year 2024 total revenue in the range of $300 to $305 million, representing growth of approximately 9% to 11% year over year. Our 2024 total revenue guidance range assumes that revenue in both our lymphedema and airway clearance product lines will also grow in a similar range of 9% to 11% year-over-year. For modeling purposes, for the full year 2024, we expect our gap growth margins to be approximately flat to the prior year, and our GAAP operating expenses to increase approximately 10% to 11%. Interest expense of approximately $0.6 million, a tax rate of 30%, and a fully diluted weighted average share count of approximately $24 million.

Turning to a review of our 2024 outlets, which we introduced in our earnings press release today, We expect full year 2020 for total revenue in the range of $300 million to $305 million representing growth of approximately 9% to 11% year over year.

Our 2024 total revenue guidance range assumes that revenue in both our lymphedema in airway clearance product lines will also grow in a similar range of 9% to 11% year over year.

For modeling purposes for the full year of 2024, we expect our GAAP gross margins to be approximately flat to prior year.

Our GAAP operating expenses to increase approximately 10% to 11%.

Interest expense of approximately zero point $6 million, a tax rate of 30% and our fully diluted weighted average share count of approximately 24 million shares.

Dan Reavers: We also expect to generate adjusted EBITDA of approximately $33 to $35 million in 2025. Our adjusted EBITDA expectation assumes certain non-cash items, including stock compensation expense of approximately $7.7 million, intangible amortization of approximately $3.8 million, and depreciation expense of approximately $3 million. Lastly, in the first quarter of 2024, we expect our total revenue to increase in the range of flat to slightly below single digits year-over-year. With that, I'll turn the call back to Dan for some closing remarks, and, Thanks, Elaine. As Elaine mentioned, our guidance reflects growth in both our lymphedema and airway clearance product lines for the full year. It also assumes that more of our full year growth will be driven by our performance in the second half of the year, as prior year comparisons ease, and we realize the benefits of our 2024 strategic initiatives, which I'll walk through now. As we look to 2024, we're focused on delivering another balanced year of double-digit revenue growth coupled with continued improvements in operating profitability by executing the following three strategic priorities. First, we remain focused on driving growth in both our therapy segments.

We also expect to generate adjusted EBITDA of approximately $33 million to $35 million in 2024.

Our adjusted EBITDA expectation is seen certain noncash items, including stock compensation expense of approximately $7 $7 million intangible amortization of approximately $3 $8 million and depreciation expense of approximately $3 million.

Lastly in the first quarter of 2024, we expect our total revenue to increase in the range of flat to up low single digits year over year.

With that I'll turn the call back to Dan for some closing remarks Dan.

Thanks Helane.

As Alain mentioned, our guidance reflects growth in both our lymphedema and airway clearance product lines for the full year.

It also assumes that more of our full year growth will be driven by our performance in the second half of the year as prior year comparisons ease and we realize the benefits of our 2024 strategic initiatives, which I'll walk through now.

As we look to 2024, we're focused on delivering another balanced year of double digit revenue growth coupled with continued improvements in operating profitability by executing the following three strategic priorities.

First we remain focused on driving growth in both our therapy segments.

Dan Reavers: This will include adding sales reps to both our lymphedema and respiratory teams in the first half of 2024. We also plan to contribute to ongoing gains in sales rep productivity by expanding in-home demo support among our patient trainers. As I mentioned earlier, with roughly 30% of in-home patient demos conducted by our patient trainers at the end of 2023, we see more opportunity to build on the success of this initiative in 2024, freeing up even more time for our lymphedema sales reps to engage with prescribing clinicians. We expect to continue our increased level of focus on entry-level pump placements with our improved Entrez Plus system. Knowing that so many patients enter the therapeutic funnel with an entry-level pump, either due to initial symptoms or payer requirements, we plan to compete vigorously to provide whatever therapy the patient qualifies for.

This will include adding sales reps to both our lymphedema and respiratory teams in the first half of 2024.

We also plan to contribute to ongoing gains in sales rep productivity by expanding in home demo support among our patient trainers.

As I mentioned earlier with roughly 30% of in home patient demos conducted by our patient trainers at the end of 2023, we see more opportunity to build on the success of this initiative in 2024, freeing up even more time for our lymphedema sales reps to engage with prescribing clinicians we.

Expect to continue our increased level of focus on entry level pump placements with our improved entre plus system.

Knowing that so many patients entered the therapeutic funnel with an entry level pump either due to initial symptoms or payer requirements. We plan to compete vigorously to provide whatever therapy the patient qualifies for.

Dan Reavers: And on the AfloVest front, we intend to not only expand our sales specialist headcount but to work on onboarding additional DMEs, showing them that Aflovest is becoming a valuable part of the respiratory DME arsenal and a new offering for them to compete with. Second, 2024 will be a year of investment in tech-related tools throughout our business. We will be streamlining various back office processes, applying AI to interpret incoming orders and direct them with less manual processing, as well as a more efficient electronic method of verifying patient benefits. We're evaluating more efficient collection and exchange of prescriptions and medical records with a more frictionless electronic medical record system targeted for deployment in the second half of 2024, and we're planning to introduce new customer relationship management tools later in 2024 as another way to further enhance Salesforce productivity.

And for the absolute best front, we intend to not only expand our sales specialist head count.

But to work on Onboarding additional D emmys, showing them that aflow vest is becoming a valuable part of the respiratory DMA Arsenal and a new offering for them to compete with.

Second 'twenty 'twenty four will be a year of investment in tech related tools throughout our business will be streamlining various back office processes.

Flying a I to interpret incoming orders and direct them with less manual processing as well as more efficient electronic method of verifying patient benefits, we're evaluating more efficient collection and exchange of prescriptions and medical records with a more frictionless electronic medical record system.

Targeted for deployment in the second half of 2024.

And we're planning to introduce new customer relationship management tools later in 2024 as another way to further enhance sales force productivity.

Dan Reavers: These are important investments designed to improve our efficiency, reduce operating expenses, and leverage the best of technology. And third, we'll continue to focus on improving the customer experience. That will include the introduction of a next-generation lymphedema therapy platform by the end of the year, as well as advancing a next-generation AfloVest system targeted for 2025. New generations of our therapeutic systems will focus on consumer-friendly attributes as we recognize patients depend on our therapies daily and thus our therapies become an important expression of their lifestyle. They will also focus on connectivity, ensuring that patients get the education and feedback they need to manage their conditions effectively. As I mentioned earlier, we also recognize the healthcare practitioner as a key customer, as much as the patient. And with this in mind, some of our tech investments are designed to make their role in helping patients obtain treatment as unobtrusive to their practice as possible.

These are important investments designed to improve our efficiency reduce operating expense and leverage the best of technology.

And third we'll continue to focus on improving the customer experience.

That will include the introduction of a next generation lymphedema therapy platform by the end of the year as well as advancing a next generation Aflow vest system targeted for 2025.

New generations of our therapeutic systems will focus on consumer friendly attributes as we recognize patients depend on our therapies daily.

And thus our therapies become an important expression of their lifestyle.

We will also focus on connectivity and.

Showing that patients get the education and feedback they need to manage their conditions effectively.

As I mentioned earlier, we also recognized a health care practitioner as a key customer as much as the patient.

And with this in mind some of our tech investments are designed to make their role and helping patients obtain treatment as unobtrusively to their practice as possible.

Operator: These are the moves that you should expect of a market leader. With increasing sales productivity, an enhanced portfolio of products and solutions, and strong customer relationships, we look forward to building on our success in 2023. Before concluding my remarks today, I'd like to thank our employees for their tremendous efforts this past year, which made our collective progress possible. Thanks as well to our customers and investors for their continued support. Operator, we'll now open the call for questions. Thank you. If you'd like to ask a question, please signal by pressing star 1 on your telephone key. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.

These are the moves that you should expect of a market leader.

With increasing sales productivity.

An enhanced portfolio of products and solutions and strong customer relationships, we look forward to building on our success from 2023.

Before concluding my remarks today I'd like to thank our employees for their tremendous efforts this past year, which made our collective progress possible.

Thanks, as well to our customers and investors for their continued support.

Operator, we'll now open the call for questions.

Yeah.

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.

Operator: We do ask that you limit yourself to one question and one follow-up. If you'd like to ask additional questions, we invite you to add yourself to the queue again by pressing star 1. Our first question comes from the line of Adam Maeder with Piper Sandler. Please proceed with your question. Hi, good morning, Dan Mullane.

If you'd like to ask additional questions. We invite you to add yourself to the queue again by pressing star one.

Our first question comes from the line of Adam meter with Piper Sandler. Please proceed with your question.

Hi, Good morning, Dan Helane. Thank you for taking the questions. Congrats on a solid Q4 and great to see the leverage in the quarter.

Dan Reavers: Thank you for taking the questions. Congratulations on a solid Q4 and great to see the leverage in the quarter. I wanted to ask about the guidance construction on the top line for 2024, the 305, sorry, the 300 to 305 million. I think that's 9 to 11% growth. You know, can you just help us understand how you framed the expectations for growth for both Lymphedema and Aflavest? I think I heard they're expected to both kind of grow around that range, but wanted to confirm that. And then also, I guess, understand what's contemplated for those segments and how you arrived at those figures. And then I'll follow up.

I wanted to ask about the guidance construction on the top line for 2024 to $305.

Sorry, the $300 million to $305 million I think that's 9% to 11% growth.

Can you just help us understand how you framed.

The expectations for growth for both lymphedema and Aflow Bath I think I heard they are expected to both kind of grow around that range, but wanted to confirm that and then also just I guess understand what's contemplated for those segments and how you arrived at those figures and then I had a follow up thanks.

Dan Reavers: Sure, Adam. Thanks for the questions. Let me start with a little bit of color on the growth drivers for 2024, and then maybe I'll ask Elaine to weigh in on some of the additional assumptions. I think if we look back, certainly at 2023, just for context, I think we recognized and were able to demonstrate where growth could come from. Really, three key areas in our recent past and our performance was attributed in the past to adding heads, and we know that the heads we added in 22 became productive in 23 and contributed pretty meaningfully. PEC support that we've continued to expand to liberate the sales force has led to more productivity. We saw about 14% improvement last year with a relatively flat head count, almost $100,000 of additional productivity per head, and then a simpler RX process.

Sure Adam Thanks for the questions, let me start with a little bit of color on the growth drivers for 2024, and then maybe I'll ask Elaine to weigh in on some of the additional assumptions.

If we look back certainly a 2023.

Just for context, I think we recognized and were able to demonstrate where growth can come from really three key areas in our recent past and our performance was attributed in the past to adding heads and we know that the heads we added in 'twenty two became productive in 'twenty, three and contributed pretty meaningfully.

It's a PEC support that we've continued to expand to liberate the sales force has led to more productivity. We saw about 14% improvement last year with a relatively flat head count almost $100000 of additional productivity per head and then a simpler Rx process remember at the beginning of last.

Dan Reavers: Remember at the beginning of last year, we introduced the elimination of the CMN, courtesy of Medicare, and an easier form, and all of those things we talked about were nice contributors. So as we look into 2024, increasing headcount in the first half is part of the playbook again. We added just a few in December, but we expect to add some additional heads in the first half of this year, and that should be a growth driver as we get into the back half.

Year, we introduced the elimination of the C M N.

Courtesy of Medicare and an easier form and all of those things we talked about were nice contributors. So as we look into 2024.

Increasing head count in the first half as part of the playbook again, we added just a few in December.

But we expect to add some additional heads in the first half of this year and that should be a growth driver as we get into the back half of this whole productivity piece, we think that probably half of the growth that we'll be able to deliver this year can come from some continued expansion in productivity.

Dan Reavers: This whole productivity piece, we think that probably half of the growth that we'll be able to deliver this year can come from some continued expansion in productivity. The fact that we had about 30 percent of the in-home demos done now by someone other than the sales force certainly proved productive last year, and we think that there's more runway to expand as we enter into the second half. And then the whole HCP experience is a really important one that we've recognized can influence prescriber behavior. The easier we can make it for them, the more it will be their therapy of choice. And I think that patients that need therapy don't get overlooked when it's an easier, less obtrusive process.

The fact that we had about 30% of the in home demos done now by someone other than the sales force certainly prove productive last year, and we think that there's more runway to expand as we.

Enter into the second half and then the the whole HCP experience is a really important one.

That we've recognized can influence prescriber behavior, the easier we can make it for them.

More they'll will be their therapy of choice and I think that patients that need therapy don't get overlooked when it's an easier less obtrusive process. So we're going to continue to invest in.

Dan Reavers: So we're going to continue to invest in some electronic tools that will make it a much easier process for HCPs to submit those orders. I think on the AfloVest side, we've talked a little bit about the fact that we have to lap that May event with one DME, but we're going to invest in more salespeople there as well. We added a few in the fourth quarter, and we'll add some additional heads in the first half of the year. And then we will continue to focus on expanding branch participation, not only among the DMEs we already work with but piloting some new DMEs, and I think all of those things should certainly be contributors as we look into the balance of 2024 as well. I don't know if, Elaine, you've got a couple of comments on some of the other assumptions.

Some electronic tools that will make it a much more easy process for HCP to submit those orders.

I think on the Aflow Vas side.

We've talked a little bit about the fact that we have to lap that may event with the <unk>, but we're going to invest in more salespeople there as well we added a few in the fourth quarter.

And we will add some additional heads in the first half of the year.

And we're continuing to focus on expanding branch participation not only among the Dms, we already work with but piloting some new <unk> and I think all of those things should certainly be contributors as we look into.

Into the balance of 2024 as well I don't know if the land <unk> got a couple of comments on some of the other assumptions I think maybe the only thing I would add is you know the adjusted EBITDA guidance. We've provided does suggest a small improvement in EBITA margin, we will continue looking at driving productivity.

Elaine Burkmeier: Yeah, I think maybe the only thing I would add is that the adjusted EBITDA guidance we've provided does suggest a small improvement in EBITDA margin. We will continue looking at driving productivity and getting operating expense leverage. But, as Dan mentioned, we are making investments this year in headcount growth as well as technology. So we don't expect large improvements, but we do expect a modest one. And secondly, we are going to continue to focus on increasing our free cash flow. We made great strides last year, close to $33 million of free cash flow improvement.

Getting operating expense leverage, but as Dan mentioned, we are making investments this year and head count growth as well as technology.

So we we don't expect to large improvements, but we do expect a modest one and then secondly, we are going to continue to focus on increasing our free cash flow, we made great strides last year.

Close to $33 million of free cash flow improvement.

Elaine Burkmeier: We will continue to look at driving free cash flow both from our profitability as well as continued improvements in working capital. I will say the working capital improvements won't be to the same extent as last year, but we do still think there's runway to continue to work on improving our collections, which fueled a lot of the growth last year. That's great, Keller.

We will continue to look at driving free cash flow both from our profitability as well as continued improvements in working capital I will say, though working capital improvements wont be to the same extent as last year, but we do still think there's runway to continue to work on improving our collections, which is.

You have a lot of the growth last year.

Dan Reavers: I appreciate the fulsome response there. And, Elaine, I think you just ticked the box on my second question about the leverage piece. But maybe I'll stick with the financials. And, you know, I guess I wanted to ask about the LRP that you've previously outlined. You know, I think on the top line, it's $350 million plus in revenue in 2025. You know, just wondering if, and I think that would imply kind of an acceleration to growth and... 25 over 24.

That's great color I appreciate the fulsome response, there and.

Elena I think you just.

Tick the box on my second question on the leverage piece, but maybe I'll stick with the financials.

I guess I wanted to ask about the LLP that you've previously outlined.

I think on the <unk>.

Topline, it's $350 million plus in 2025 of revenue.

Just wondering if and I think that would imply kind of an acceleration to growth and 25 over 24. So what can you tell us about how we should think about.

Dan Reavers: So, you know, what can you tell us about how we should think about, you know, the LRP, does that still stand firm? And are you comfortable with the acceleration and growth that's kind of implied for 25? Thanks for taking the question. Yeah, let me let me take a shot at that one, Adam.

The <unk> does that still stand firm and are you comfortable with the acceleration in growth that's kind of implied for 25, thanks for taking the questions.

Yeah, Let me, let me take a shot at that one Adam So first of all our 25 targets are still are good targets. We believe you know I think that staying focused on revenue profitability expansion free cash flow.

Dan Reavers: So first of all, our 25 targets are still our good targets, we believe, you know, I think that staying focused on revenue, profitability, expansion, free cash flow, those are still very much in sight. I think we've certainly made good progress in 2023 against those. I mean, if you reflect on the first of this three-year window that we laid out, our lymphedema growth of 14% in 2023 was actually a little ahead of our expectations. The $33 million in cash flow was also ahead of our expectations.

Those are still very much insight I think we've certainly made good progress in 2023 against those me if you reflect on the first of this three year window that we laid out.

Our lymphedema growth of 14% in 2023 was actually a little ahead of our expectations. The 33 million of cash flow was ahead of our expectations and then as we know we've kind of lost a year on aflow vest, so some puts and.

Dan Reavers: And then, as we know, we kind of lost a year on AfloVest. So, you know, some changes and takes happened in 2023. Lots of work left to do, but I think we still expect that when we exit 2024. One of the reasons, you know, growth isn't always perfectly linear, we think that we're really going to be nicely positioned for some additional inflection points. I mean, from a growth standpoint, we're going to have more reps at the end of the year, presumably hitting their stride on productivity, both in lymphedema and the airway clearance side. We should have an optimized home demo assignment.

As happened in 2023.

Plenty of work left to do but I think we still expect that when we exit 2020 for one of the reasons growth isn't always perfectly linear we think that we're really going to be nicely positioned for some additional inflection points.

If we think about from a growth standpoint, we're going to have more reps at the end of the year, presumably hitting their stride on productivity, both in lymphedema and the airway clearance side.

We should have an optimized home demo assignment.

Dan Reavers: So, you know, continuing to expand the productivity of applying those to the right people on the team. Some of the tech-deployed EMR medical record exchanges that we're investing in this year should be more operational at the beginning of 2025. Some of the new products that I alluded to, I think the head and neck results that we'll be able to socialize through 2025, and then just some of the normalized Aflo growth that we're not going to have to confront in the first half of this year or next year. So I think we'll certainly be entering the onramp of 2025 with some good momentum at our backs. And, you know, those are the targets that we're still pursuing for sure. Thanks for the color, Dan.

So continuing to expand the productivity of applying those to the right people on the team some of the tech deployed EMR medical record exchanges that we're investing in this year should be more operational in at the beginning of 2025 some of the new products that I alluded to I think the head and neck.

<unk> that we'll be able to socialize through 2025, and then just some of the normalized outflow growth that we're not gonna have to confront in the first half of this year next year. So I think we'll be.

Certainly entering the on ramp of 2025.

With some good momentum at our back and.

Those are those are the targets that we are still pursuing for sure.

Thanks for the color Dan.

Okay.

Dan Reavers: Hmm? Thank you. Our next question comes from the line of Ryan Zimmerman with BTIG.

Thank you. Our next question comes from the line of Ryan Zimmerman with BTG. Please proceed with your question.

Operator: Please proceed with your question. Good morning, Dan and Elaine. This is Izzy on behalf of Ryan.

Hey, good morning, Dan and Helane. This is <unk> on for Ryan. Thanks for taking the question. So just first to start off on guidance I heard your comments on expecting the first quarter to be flat to up low single digits, but I was wondering if you could provide a little bit of color on what's driving that expectation and how youre thinking about the cadence or pacing for both revenue.

Operator: Thanks for taking the question. So just first, to start off on guidance, I heard your comments on expecting the first quarter to be flat to up low single digits, but I was wondering if you could provide a little bit of color on what's driving that expectation and how you're thinking about the case, pacing for both revenue and margins for the balance of the year. Yeah, let me start; I'll start and then Elaine will have anything she wants to add.

And margins for the balance of the year.

Yeah, Let me I'll start and then if Elaine has anything she wants to add anything.

Dan Reavers: I think as we thought about Izzy in the first quarter, we knew Aflo was going to be a bit of a headwind, as we called out earlier, so that's one we have to offset for. We had somewhat modest lymphedema guidance in the first quarter, in part because we probably didn't benefit quite as much from the demo assignments in the first quarter. That's the quarter we have had the highest co-pays since patients' co-pays reset, so our sales force, I would say, is a bit more protective of allocating some of those in the first quarter. We added headcount, started in December and will continue to add some more heads in the first half of this year, but as we know, those heads historically won't be really productive until the second half.

Because we thought about <unk> in the first quarter, we know <unk> is going to be a bit of a headwind as we called out earlier. So that's when we have to offset four.

We had somewhat modest lymphedema guidance in the first quarter in part because we probably don't benefit quite as much from the demo assignments in the first quarter, we had a quarter we have the highest copays since patients copays reset so our sales force I would say, it's a bit more protected protective of allocating some of those in the first.

Quarter.

We added head count started in December and we will continue to add some more heads in the first half of this year, but as we know those heads.

Shortly won't be really productive until the second half and I think if you look at it from a historical standpoint.

Dan Reavers: And I think if you look at it from a historical standpoint, you know, it's a step down sequentially of somewhere in the mid 20%s from Q4, which is pretty typical. If you looked over the last three or four years, I think history would show that that's pretty much in the normal range. And I think the last one is it is the quarter where we're going to have the toughest competition. It's a little bit of an inverted scenario from last year where we had the easiest competitions at the beginning of the year and they progressively got more difficult. We kind of turned it upside down. So getting past Q1, I think those are some of the assumptions that we had applied. Great, that's really helpful. Thank you.

It's a step down sequentially of somewhere in the mid 20% from Q4, which is pretty typical if you looked over the last three or four years.

History would show that that that's pretty much in the normal range and I think the last one is it is the quarter, where we're going to have the toughest comp.

A bit of an inverted scenario from last year, where we had the easiest comps at the beginning of the year and they progressively got more difficult we kind of turn the.

Ill turn it upside down so getting past Q1 I think.

Those are some of the assumptions that we had applied in.

Great. That's really helpful. Thank you and then just a follow up for me. So what are you guys thinking about alright, how are you thinking about the impact.

Elaine Burkmeier: And then just a follow-up question for me, so what are you guys thinking about, or how are you thinking about the impact of faster Medicare collections in terms of cash flow and your subsidies? Yeah, so I think, as I alluded to a little earlier, we do think there's still opportunity for us to continue to work on improving our cash collections and improving working capital. That being said, we made a lot of traction last year, and so to expect to repeat that isn't realistic, but we do think there's still some room way ahead for the year. As far as the use of cash, I think one thing we did at the end of the year was retire our line of credit.

From faster Medicare collections in terms of cash flow and your subsequent use of cash.

Yes, so I think as I alluded to a little earlier, we do think there is still opportunity for us to.

To work on improving our cash collections.

Improving working capital that being said, we made a lot of traction last year and so to expect to repeat that we don't think is unrealistic, but we do think there is still some runway ahead for the year.

As far as kind of use of cash I think you know one thing we did do it at the end of the year was retire our line of credit and we also completed our alpha <unk> earn out and as we look forward. We still have more debt that we have to continue to service and we are making investments in technology and in head count that you know Dan alluded to.

Elaine Burkmeier: We also completed our Apple VEF earn out. As we look forward, we still have more debt that we have to continue to service, and we are making investments in technology and headcount that Dan alluded to, but clearly, this stronger balance sheet position that we are proud to now have does offer us some good optionality as we think about continuing to grow the business in the future. Alright, thanks for taking the call.

But.

Clearly, there's a stronger balance sheet position that we are proud to now have it does offer us some good optionality as we think about continuing to grow that business in the future.

Great. Thanks for taking the questions.

Mhm.

Operator: Mm-hmm. Thank you. Our next question comes from the line of Margaret Andrew with William Blair. Please proceed with your question. Hey, good morning, guys.

Thank you. Our next question comes from the line of Margaret Anderson with William Blair. Please proceed with your question.

Hey, good morning, guys. Thanks for taking the questions.

Operator: Thanks for taking the questions. There's a couple things I wanted to follow up on. And so, you know, first, I wanted to talk a little bit about first quarter guidance. Dan, I know you just said that maybe it's typical of historical sequential patterns. If I look at, like, 18 and 19, it's typically maybe in the mid-20s, maybe even in kind of like the 23, down 24 percent, but it seems like it's maybe a little bit worse.

There's a couple of things I wanted to follow up on that end.

So you know first and I wanted to talk a little bit about first quarter guidance.

Dan I know you just said that now maybe its typical historical sequential patterns. Yeah. If I look at like 18, and 19 and that's typically maybe in the mid 20 is maybe even in kind of like the 23 down 24%. It seems like it's maybe a little bit worse.

Dan Reavers: I guess I'm asking because Q4, obviously, was also a little bit lighter relative to typical seasonal patterns for Q4. So, I guess, is there anything else underlying, you know? Maybe you didn't quite have the number of sales reps or so on, and so that starts to change the trajectory throughout 2024. But I just wanted to push on that seasonality pattern, especially as it implies for Q1 and pushes more of that pressure into the second half of the year for Q4. Yeah, thanks, Margaret.

I guess I'm asking because Q4, obviously was also a little bit lighter relative to typical.

No patterns for for Q4, so that I.

I guess is there anything else underlying.

Yeah, maybe you didn't quite have the number of sales reps or so on and so that starts to change trajectory throughout 2024, but just wanted to push on that seasonality pattern, especially as it implies for Q1 pushes more of that pressure into the second half of the year for growth.

Yeah. Thanks Margaret.

So, yes, I think our current guidance suggest a.

Dan Reavers: So, yeah, I think our current guidance suggests a decline in Q1 of about, you know, 25% to 27%. So, if you take a look back, it's fairly similar. I went back to, you know, 2020.

A decline in Q1 of about 25% to 27%. So if you take a look back it's fairly similar I went back to 2020 and it's in line with what we've seen over the past several years I think as we think about Q1 and what you know Dan mentioned.

Elaine Burkmeier: And it's, you know, in line with what we've seen over the past several years. I think as we think about Q1 and what Dan mentioned, you know, again, it will be our hardest comp. We had 22% growth last quarter. And we're making a lot of investments in this first half of the year, which will really accelerate growth in the back half, you know, the sales rep ads, the technology. And I think the other thing just to note that we saw in Q4 and we'll continue to see in this year as well is that, you know, entree growth continues to outpace FlexiTouch. We're still growing FlexiTouch, but the entree growth, as Dan mentioned, is a, you know, a bigger segment that we've chosen to focus on. And, you know, that does, you know, mute growth a little bit in the sense that our patient population is actually growing faster than our revenue growth. And so that's another piece that we saw in Q4, and we'll continue to see in Q1 as well. Okay.

Again, it's it will be our hardest comp yeah, we had a 22% growth last quarter and we're making a lot of investments in this first half of the year, which really will accelerate growth in the back half of the the sales rep adds that that that technology and I think the other thing just to note that we saw in Q4, and we will continue to see is and in this year as well.

Entre growth continues to outpace Foxy touch first of all growing foxy attached, but the entre growth as Dan mentioned is that you know that.

It's a bigger segment that we've chosen to focus on any of that does mute growth a little bit in the sense at our patient served is actually growing faster than our revenue growth and so that's another piece that we saw in Q4, and we'll continue to see in Q1 as well.

Okay.

Dan Reavers: And then, you know, the second thing that I wanted to push on a little bit as well is that 2025 LRP. And so, again, just to put some finer numbers on it, if I look at what that implies for 2025, you do need a 15% top-line growth number in 2025, which is maybe up from 10%, right, this year. So, 50% acceleration, I guess, in sales growth and a pretty sizable kind of margin expansion of 300 basis points plus. So, as you kind of look at that, are you assuming meaningful uptake and head and neck or acceleration relative to that next generation system to reach those numbers? And then, kind of a similar comment on the margin side, you know, what gets you to get that, you know, pretty meaningful step up as you go in? Thank you. Sure, Margaret.

And then the second thing that I wanted to push it out a little bit as well is that 2025 L. R. P and so again just to put some finer numbers on it if I look at what that implies for 25, you do need a 15% top line growth number in 2025, which is maybe up from 10% in writing this year so far.

50% acceleration I guess in sales growth and a pretty sizable kind of margin expansion of 300 basis points plus so yeah. As you kind of look at that are you, assuming a meaningful uptick in head and neck or acceleration relative to that next generation system to reach those numbers.

And then kind of a similar comment on on the margin side.

What gets you to get that that.

Meaningful step up as you go into 2025. Thank you.

Sure Margaret.

Dan Reavers: You know, as I said, it's tough to do a three-year plan linearly. But if you looked at 2023, 14% lymphedema growth was ahead of the 13% CAGR we'd kind of put out there for a three-year window. So, you know, I think that while we expect this might be a little bit less than that in 2024, there are some things that we think are going to be really well positioned as we enter 2025. Remember last year we added zero heads, and we just got productivity out of the ones from the past in expanding demo performance with other allied support folks in the training side. We think that there's still opportunity to continue to expand in the second half of this year.

As I said.

It's tough to do a three year plan linearly, but if you looked at 2023.

14% Lymphedema growth was ahead of the 13% CAGR, we'd kind of put out there for a three year window.

So I think that while we expect this might be a little bit less than that in 2024.

There are some things that we think are going to be really well positioned as we enter 2025 remember last year. We added zero heads and we just got productivity out of the ones from the past and expanding demo performance with other allied support folks in the training side, we think that there's still opportunity to continue to expand.

And that the second half of this year and we would enter next year, then with a higher productivity profile, presumably in our entire sales force along with some folks that we would add in the first half of this year that should be entering 2025 with just a naturally higher train productivity quotient on top of it.

Dan Reavers: And we would enter next year then with a higher productivity profile presumably in our entire sales force along with some folks that we would add in the first half of this year that should be entering 2025 with just a naturally higher trained productivity quotient on top of it. This tech employed or deployed work that we're working on to try and simplify the process for HCPs to submit their referrals; it's not an insignificant one. You know, we saw at the beginning of last year that when we can make things a little bit easier, whether through forms or processes, it does actually have an impact on prescriber behavior. So the investments that we're making this year are intended to introduce by the back half of this year an electronic EMR experience that should be easier for the prescriber. And we think that that influences their vendor choice, and it also influences just the volume of patients they'll take the time to prescribe for. Head and neck, as you alluded to, that one's certainly going to be a more contributor once the results are complete this year into next year.

This tech employed or deployed work that we're working on to try and simplify the process for HCP has to submit their referrals, it's not an insignificant one.

We saw at the beginning of last year that when we can make things a little bit easier whether through forms or process. It does actually have an impact on prescriber behavior. So the investments that we're making this year are intended to introduce by the back half of this year and electronic EMR experience that should be.

Year for the prescriber, and we think that that influences their vendor choice and it also influences.

Just the volume of patients they will take the time to prescribe for.

Head and neck as you alluded to that one certainly going to be.

More contributor once the results are complete this year into next year and I think the other one is we have clearly stated that <unk> is going to have a headwind in the first half of this year and we'll have a more normalized expectation for next year. So I think theres reason to believe that.

Dan Reavers: And I think the other one is, you know, we've clearly stated that AfloVest is going to have a headwind in the first half of this year, and we'll have a more normalized expectation for next year. So I think there's reason to believe that, you know, our top line growth can have some ebbs and flows, but we think, as I said, we should enter the on-ramp of 2025 with some things nicely set at the table. I think from a profitability standpoint, I'll just let Elaine add a little bit of color to the other half of the question.

Our topline growth.

You can have some ebbs and flows but we think that as I said, we should enter the on ramp of 2025 with some things nicely set at the table I.

I think from a profitability standpoint, I'll, just let a lane to add a little bit of color to the to the other half of the question, Yes, I think as I mentioned, the 'twenty 'twenty four or we don't expect large EBITDA margin gains and really that says hey, we've got sales reps that we will be carrying on our books that are not going to achieve productivity until later in the year.

Elaine Burkmeier: Yeah, I think, as I mentioned, you know, 2024, we don't expect, you know, large EBITDA margin gains. And really, this is because we've got sales reps that we will be, you know, carrying on our books that are not going to achieve productivity until later in the year. Similarly, we will be making investments in technology that we will not have fully ramped up adoption until later in the year. So those, those things will change in 2025.

Similarly, we will be making investments in technology that we will not.

Have fully ramped and in adoption until later in the year. So those those things change in 2025 those are now fully productive assets and then we will continue.

Elaine Burkmeier: Those are now, you know, fully productive assets, and then we will continue to have the opportunity to optimize once they're in place to see further OPEX improvements. So that's really why that profile for 2025 is going to look different from an EBITDA margin expansion compared to 2024. Thank you, www.surajkalia.com. Thank you.

The opportunity to optimize once they are in place to see further opex improvements. So that's really why that profile for 2025, we think is going to look different from an EBITDA margin expansion compared to 2024.

Thank you guys.

Mhm.

Thank you as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad. Our next question comes from the line of Suraj Kalia with Oppenheimer <unk> Company. Please proceed with your question.

Operator: As a reminder, if you'd like to join the question queue, please press star 1 on your telephone key. Our next question comes from the line of Suraj Kalia with Oppenheimer and Company. Please proceed with the question. Good morning Dan, Elaine, can you hear me alright? We can, thank you. Pardon the background noise.

Good morning, Daniela can you hear me all right.

We can thank you.

Pardon the background noise.

Dan Reavers: Hey, Dan, so let me stick with some SRP questions, okay, short range. Specifically, you'll mention sales rep productivity is up 14% year-over-year, the number of in-home training is up 30% or exited at 30%, and liquidity with sales is up 6% year-over-year. So maybe, Dan, you can help dissect this.

Hey, Don So let me stick with some SRP questions, Okay short range.

Specifically youll mention sales rep productivity is up 14% year over year.

The number of in home trading is up 30% or exited at 30%.

And Liberty with sales are up 6% year over year, So maybe dead.

Dissect this I know, it's not a linear correlation.

Dan Reavers: I know it's not a linear correlation, but how much incremental reproductivity is there in the existing sales force, and how is the decision made to add more heads versus squeeze extra productivity going into 24, maybe 25? Yeah, I think it's a good question. Look, we still believe, as we said, Suraj, that there is additional productivity by expanding the demos being reassigned. I think that said, you know, we still fashion ourselves as a growth company, and we want to make sure that we're continuing to invest in growth. And I don't think that it's binary, right?

How much incremental.

Is there an existing sales force and how is the decision made to add more heads versus squeeze extra productivity going into 'twenty four 'twenty five.

Yeah I think good question look we still believe as we said suraj that there is additional productivity by expanding the demos being reassigned I think that said.

We still fashion ourselves as a growth company and we want to make sure that we're continuing to invest in growth and I don't think that it's binary right. It's not.

Dan Reavers: It's not continue to expand productivity and abandon the expansion of the Salesforce headcount. I think it's a combination of the two that we intend to continue. And I think trying to find the right balance between those is what we're certainly striving for. Having been able to deliver double-digit growth on a relatively flat headcount last year, I think demonstrated the productivity gains were real.

Continue to expand productivity.

And abandoned the expansion of the sales force head count I think it's a it's.

It's a combination of the two that we intend to continue and I think trying to find the right balance in those is what we're certainly striving for having been able to deliver double digit growth on a relatively flat head count last year, I think demonstrated the productivity gains were real but knowing that still.

Dan Reavers: But knowing that, still, you know, only roughly a third of those in-home demos have been taken off the plate of Salesforce, that means that there's more opportunity. So, you know, kind of how we thought about Suraj for 2024, it's probably half the growth comes from increased productivity as we continue to make some of the improvements that we've talked about. And then the other half ultimately probably comes from adding headcount, but that's more of a second half contribution.

Only roughly a third of those in home demos have been taken off to play to the sales force that means that there's more opportunity. So.

How we thought about Suraj is for 2024, it's probably half the growth comes from increased productivity as we continue to make some of the improvements that we've talked about.

And then the other half ultimately probably comes from adding head count, but that's more of a second half contribution we know we don't hire.

Dan Reavers: We know we don't hire between December and the first half of this year and just flip a switch, and they become productive. So we would expect them to be contributing more in the back half like our historical lead time has looked like. And that should certainly, as I mentioned in a previous question, put us in a much better position as we enter 2025 as well, with another step up in Salesforce, for the most part, having all achieved their productivity targets and an increased number of that. Got it.

Between December and the first half of this year and just flip a switch and they become productive. So we would expect them to be contributing more in the back half like our historical.

Lead time has looked like and that should certainly as I've mentioned in a previous question put us in a.

A much better position as we enter 2025 as well with <unk>.

Step up in sales force.

For the most part having all achieved kind of their productivity targets.

And and increased number of that.

Got it.

Elaine Burkmeier: Elaine, I'll send one question your way. So, Elaine, how should we think about same-store and new-store growth in the quarter? And also, moving forward, should we think more about OPEX leverage rather than the typical mantra of top-line growth at all costs? Thank you for taking the time to answer my question. So, yeah, I think, Suraj, to your first question there about the new store, same store, I think, you know, there's still a good opportunity for us to continue to both, you know, acquire and work with new prescribers as well as to increase volume from existing prescribers. So, we're pursuing both angles as we look at both our vascular and oncology and lymphatic therapist spaces. As far as, you know, OPEX, could you repeat that part of the question one more time? So what I was just trying to understand is...

And then one question your way so Elaine how should we think about same store new store growth in the courtyard and also moving forward should we think about more about opex leverage rather than the rather than the typical mantra topline growth at all costs. Thank you for taking my questions.

So yeah, I think sorry to hear your first question there around.

The.

New store same store I think they're still good.

Good opportunity for us to continue to both.

Both.

Fire and work with a new prescribers as well as to increase volume from existing prescribers. So it's a it's something we're pursuing both angles as we look at both our vascular and oncology and lymphatic therapist spaces.

Far as your Opex could you repeat that part of the question one more time.

So what I was just trying to understand is.

Operator: Thank you. Should we expect OPEX leverage? I mean, you'll generate pretty good OPEX leverage in the quarter. Is that what we should keep expecting moving forward? And is that coming at a cost of investing for top-line growth at any cost?

Should we expect Opex leverage I mean, youll generate a pretty good opex leverage in the quarter is that what we should keep expecting moving forward and is that coming at a cost of investing for top line growth at any cost.

Elaine Burkmeier: So I think for this year, we are still achieving OPEX leverage, but we're also making investments. And I think we're doing both, which is why the OPEX leverage is not larger. As you look at last year, we drove OPEX leverage to a great extent. This year, we still have the opportunity to do so, but it will be muted by continued investment. As I just mentioned, when you think about 2025, those investments will then be largely done and behind us, and now at scale where we can generate more efficiencies. And so we would expect to see more operating margin expansion in 2025 as well.

Yeah, So I think.

For this year and we are still achieving opex leverage, but we're also making investments in I think.

We're doing both which is why the opex leverage is not a larger or as you look at last year. We are we drove opex leverage to a great extent. This year are we still have opportunity to do so but it will be muted by continued investment as I. Just mentioned when you think about 2025 those investments then will be large.

Done and behind Us and now at scale, where we can generate more efficiencies and so we would expect to see more operating margin expansion in 2025 as well.

Operator: Thank you. Thank you. We are currently seeing no remaining questions at this time. That does conclude our conference for today. Thank you for your participation. Thank you, everyone, www.surajkalia.com

Thank you.

Thank you. We are currently seeing no remaining questions. At this time that does conclude our conference for today. Thank you for your participation.

Thanks, everyone.

Okay.