Q2 2019 Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the second quarter of 2019 earnings conference call for talked on medical.
At this time, all participants have been placed any 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 is being recorded and will be available on the company's website for replay shortly.
Before we begin I would like to remind everyone that our remarks and responses to your questions today.
May contain forward looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated including those identified in the risk factor section of our most recent annual report on Form 10-K . That's what was your most recent 10- Q4 going filed today with the Securities and Exchange Commission.
Such factors, maybe updated from time to time in our filings with the FCC, 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., Jeffrey Matthews Tactile Medicals, Chief Executive Officer. Please go ahead Sir.
Mr. Muddies. Please go ahead Sir.
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Mr bodies. Please go ahead Sir.
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Good afternoon, welcome everyone to our second quarter of 2019 earnings call I'm joined on the call today by our Chief Financial Officer, Brent Moen.
Let me provide you with a brief outline of today's call.
I'll start with a review of our financial performance highlights during the first six months and second quarter of 2019.
Followed by some commentary on the primary drivers of our revenue growth.
Then I'll provide you with a brief update on our operational progress during the quarter.
Brent will then discuss our financial results in detail and review our financial guidance for 2019, which we updated in our earnings press release. This afternoon.
I'll conclude todays prepared remarks by providing a few thoughts on our outlook for the second half of 2019 before we open the call for questions.
We achieved exceptional company performance during the first six months of 2019 with total revenue of $82.8 million, representing 36% growth year over year.
Flexi touch plus system sales and rentals were the primary driver of our revenue growth in the period, increasing 34% year over year to $75.1 million.
We also saw strong sales of our entre and actually touch systems, which increased 52% year over year to $7.8 million.
During the first half of 2019, our revenue results were favorably impacted by our adoption of accounting standard S. C 842.
Excluding the impact of this accounting change, which contributed seven percentage points to our revenue growth I'm pleased to report that we achieved revenue growth of 29% year over year in the first half of 2019.
Brent will review this accounting standard and its impact in greater detail during his prepared remarks.
Our revenue growth during the first half of 2019 benefited primarily from the following four growth drivers first.
The commercialization of Flexi touch plus remains an important contributor to our performance.
Our sales team has been very successful this year in driving strong sales of this latest generation flexi touch system.
We also continue to see evidence that the improved design and enhanced capabilities of flexi touch plus as encouraged clinicians to prescribe the system for more patients, especially those with bilateral emphysema.
Second our revenue growth benefited from the investments we've made to expand our field sales team.
We ended the second quarter with a team that included more than 215 sales representatives compared to over 160 at the beginning of 2018.
Third.
Our strategy to target and focus our sales representatives on the highest diagnosing facilities in the United States Lymphedema market remains successful.
Recall that according to our last analysis of claims data tactile medical was doing business with at least one clinician at nearly 50% of the more than 4700 high diagnosing facilities.
During the first half of 2019, we continued to enhance and expand our relationships with clinicians at these facilities.
Fourth.
We experienced that important tailwind as a result of the broad in network coverage that we've obtained with commercial payers in recent years.
At the end of 2018, we were an in network provider with payers covering over 275 million us lives or roughly 90% of the us insured population.
Our status as an in network provider lowers the out of pocket expenses for this population, which helps to facilitate the sales process.
Most notably in the first half of 2019, we continued to benefit from a new direct contract with a large us commercial payer, which became effective in July of last year.
In the past, we had indirect access to a portion of this payers plans via a buying group and this new contract provided us with direct in network access to all of the patients covered by this payer that will be at a lower contracted price.
Despite the ASP impact of the new contract our expanded access to patients covered by this payer allowed us to generate stronger than expected sales volume growth, which was an important contributor to our performance in the commercial channel.
We also experienced strong sales to patients with Medicare and V.A. coverage during the first half of the year.
Our performance serving the Medicare population has been particularly strong this year.
Representing 11% of our total revenues in the first six month.
Compared to 8% in the same period last year.
We believe that our decision in 2018 to transition Entre enacted touch order processing from our field team to our internal team of specialists has been an important contributor to this strong performance.
In the Veterans Administration channel our sales performance continued to benefit from the new federal supply schedule contract that we were awarded for our Flexi touch plus system last September along with the continued efforts of our dedicated V.A. specialists.
In addition to our impressive revenue growth in the first six months of 2019, we achieved 70% gross margin and improved our profitability overall with 235 basis points improvement in operating margins year over year, and adjusted EBITDA of $8.3 million compared to $4.4 million in the first six months of 2018.
Turning to a quick review of our second quarter performance.
We reported total revenue of $45.2 million for the second quarter, representing 32% growth year over year.
Excluding the impact of the CH 42, which contributed five percentage points of growth year over year.
Our total revenue growth in the second quarter would have been 27%.
Our second quarter revenue growth was driven by sales and rentals of our flexi touch systems, which increased 31% year over year to $41 million and contributions from sales of our entre enacted touch systems, which increased 53% year over to you year over year to $4.2 million.
Overall, our sales performance in the second quarter was largely due to the continuation of the four drivers are responsible for our strong performance in the first half of this year.
And we expect these drivers to remain essential to our sales performance as we enter the second half of 2019.
And lastly, we reported 70% gross margin and significantly improved profitability during the second quarter with adjusted EBITDA of $6.2 million compared to $4.3 million in the second quarter of last year.
Turning to our operational performance during the quarter I'm pleased to report that our commercialization efforts with respect to our three latest products flexi touch plus flexi touch head and neck and Airware continue to proceed as planned.
First and foremost our latest generation flexi touch system Flexi touch plus continues to be an important enhancement to our product portfolio and a strong contributor to our sales growth.
Since we began our full commercial launch of the system in April of last year, we've consistently seen evidence that the benefits of treating both limb simultaneously are greatly appreciated by clinicians and their bilateral patients.
Most notably we believe the introduction of flexi touch plus and the new leg in trunk garments has led to an increased referrals for patients with lymphedema in the lower extremities.
These referrals have come from our existing clinician prescribers as well as clinicians who have previously never referred our products.
During the second quarter. We also saw solid performance in sales of our flexi touch head and neck system and continue to expect head and neck sales in the low to mid single digits as a percentage of total revenue for 2019.
We continue to remain focused on building our portfolio of clinical evidence that will support our longer term efforts to obtain broad reimbursement coverage for flexi touch head and neck.
With this goal in mind, we've published two clinical studies on the product to date.
In late 2017, we published at 44 patients study in the medical Journal head and neck designed to evaluate the feasibility of using the flexi touch system to help patients with head and neck lymphedema self manage their condition.
The study found that flexi touch demonstrated DEMA reduction after a single 32 minute treatment session.
With statistically significant reductions in face and neck measurements.
On January 29 of this year, we published a second study in the journal auto learned galante head and neck surgery.
Which used imaging to assess the impact of flexi touch head and neck on lymphatic drainage in 10 cancer survivors.
All of the study subjects demonstrated enhance lymphatic drainage after a single treatment.
Furthermore, areas of dermal back flow were either partially or completely reduced in six of the eight subjects that presented with thermal back flow at the onset of the study.
Building on these important findings our clinical team remains on track to complete and submit two additional clinical manuscripts on flexi touch head and neck by the end of the year consistent with our expectations.
As part of our longer term strategy. We also continue to focus on developing our approach for commercializing flexi touch head and neck outside of our traditional call points.
And finally with respect to the most recent addition to our product portfolio.
Our airware static compression garment, we have made important progress in preparing for our commercial launch by continuing to focus on securing our supply chain.
We still anticipate beginning our limited market release of the product in the second half of 2019.
We're looking forward to the launch of this truly innovative static compression garment, which we will believe will resonate with patients as they begin conservative therapy.
And enable us to establish ourselves as the provider of choice earlier in their treatment pathway educating them about the benefits of our flexi touch and entre systems.
Before I discuss the outlook for the remainder of 2019, let me turn the call over to Brent to walk you through our Q2 financial results in greater detail and review, our 2019 guidance, which we updated in our press release this afternoon.
Brent.
Thanks Jerry.
Total revenue for the second quarter increased 32% to $45.2 million compared to $34.1 million for the quarter ended June Thirtyth 2018.
Our total revenue performance in the quarter was driven by sales and rentals of our flexi touch systems, which increased $9.6 million or 31% year over year to $41 million.
The increase in our flexi touch revenue was largely driven by the expansion of our sales force, increasing physician and patient awareness of the treatment options for lymphedema expanded contractual coverage with insurance payers and growth in the Medicare channel.
Similar to the first quarter of 2019, we also saw stronger than expected sales volume to a large commercial payer.
We negotiated a new direct contract with this payer which went into effect on July one 2018.
The second quarter volume related benefit of this contract more than offset the expected impact of our price of our selling price reduction.
Flexi touch accounted for 91% of our total revenue in the second quarter of 2019 compared to 92% of sales in the prior year period.
Entre enacted touch sales increased $1.5 million or 53% year over year to $4.2 million in the quarter.
The performance of our Entre Act detached product category was driven primarily by our strategic shift in 2018 to managing these orders in house, along with higher than expected sales volume due to our new direct contract with a large commercial payer.
Second quarter revenue by payer was 71% commercial 18%, V.A., and 11% Medicare compared to 74%, 20% and 6% respectively last year.
Our total revenue growth during the second quarter benefited from the adoption of the new lease accounting standard assay 842 that became effective on January one 2019.
As a reminder, we adopted this standard on a modified retrospective basis, which did not require us to restate any of our prior periods.
For the second quarter and the first six months of 2019.
Our total rental revenue is reported in accordance with AMC 842, which requires rental agreements that began this year to be recorded as sales type leases.
For these lease rental agreements.
We recognize all of their revenue upon commencement of the agreement as opposed to our prior practice a spreading that revenue over the life of the agreement.
For rental agreements that were in place prior to this year, we continue to recognize revenue on a month to month basis as an operating lease until they are completed which we anticipate to be in the fourth quarter of this year.
In the second quarter and the first six months of 2019, the adoption of assay 842 benefited our total revenue growth by five percentage points and seven percentage points respectively.
Beginning in 2019, we also now classify revenue from garment sold to our rental customers as rental revenue. This government revenue was previously classified as sales revenue.
For consistency and comparability purposes garment revenue associated with rental agreements was reclassified to rental revenue in the prior year periods.
As a reminder to assist in comparing our 2019 revenue and gross profit reporting to prior periods.
We provided an unaudited supplemental schedule as an appendix to our 8-K filed on May six 2019.
Turning to the rest of the PML.
Second quarter, gross profit increased $7 million or 28% to $31.5 million compared to $24.5 million last year.
Gross margin was 70% of sales in the second quarter of 2019 compared to 72% of sales in the second quarter of 2018.
The decrease in gross margin was primarily attributable to incremental pricing headwinds related to our new contract with a large commercial payer.
Also impacting gross margin is revenue mix by product and payer compared to last year and to a lesser extent by noncash amortization expense related to the intangible assets.
We licensed from Sun scientific.
Second quarter operating expenses increased $5.2 million or 23% to $28.5 million compared to 23.2 million last year. The increase in operating expenses in the second quarter was primarily driven by a year over year increase of $4 million or 27% and sales and marketing expenses due to the continued investments in the field sales team and increased spending on marketing initiatives.
Operating income for the second quarter of 2019 increased $1.7 million or 132% to $3 million compared to operating income of $1.3 million last year.
We recorded an income tax expense of $422000 for the second quarter of 2019 compared to an income tax benefit of $1.1 million last year.
The tax expense recognized in the second quarter of 2019 was primarily related to decreased tax benefits from share based compensation compared to the prior year.
Net income for the second quarter of 2019 increased to $2.8 million or 14 cents per diluted share compared to net income of $2.6 million or 13 cents per diluted share for the second quarter of 2018.
Weighted average shares used to compute diluted net income per share or $19.6 million and $19.3 million for the second quarters of 2019 and 2018, respectively.
Second quarter, adjusted EBITDA was $6.2 million compared to adjusted EBITDA of $4.3 million in the second quarter of 2018.
Our adjusted EBITDA margin was 13.8% in the second quarter of 2019 compared to 12.6% in the second quarter of last year.
As a reminder, we have provided a reconciliation of certain non-GAAP measures to non-GAAP measures in our earnings press release.
Let me now turn to review of our 2019 revenue guidance, which we updated in our earnings release. This afternoon.
We are raising the full year revenue guidance range to account for our stronger than expected performance in the second quarter.
For 2019, we now expect total revenue in the range of $182 million to $184 million, which represents growth of 26.5% to 28% year over year compared to revenue of $143.8 million in 2018.
This revised outlook compares our prior year revenue guidance range of $180 million to $182.5 million or 25% to 27% year over year growth.
As a reminder, our 2019 total revenue guidance continues to assume that the adoption of assay 842 will benefit our full year total revenue by approximately $6 million or approximately four percentage points of growth year over year.
The line item components of our updated 2019 total revenue guidance, which calls for growth of 26.5% to 28% year over year includes the following assumptions.
Sales revenue will be in the range of $157 million to $158.5 million compared to sales revenue of 130.2 million in 2018.
The sales revenue guidance range includes the impact of the Reclass of garments revenue to rental revenue.
Rental revenue guidance remains unchanged and will be in the range of 25 million to $25.5 million compared to rental revenue of $13.6 million in 2018.
The year over year increase in rental revenue for 2019 is expected to be driven by the impact of the adoption of assay 842, representing approximately half of the increase in rental revenue for 2019.
The reclassification of garment revenue to rental revenue that was previously reported in sales revenue representing approximately one quarter of the increase in rental revenue for 2019 and operational growth of 20% to 22% over the 2018 rental revenue representing approximately one quarter of the increase in rental revenue for 2019.
By product our 2019 total revenue guidance range assumes sales of our flexi touch products increased approximately 26% to 28% year over year in 2019 compared to 25% to 27% growth in our prior guidance range and sales of our entre actually touch products increased approximately 30% year over year in 2019 compared to 24% growth in our prior guidance range.
In terms of the anticipated contribution of our new products, we continue to expect head and neck sales in the low to mid single digits as a percentage of total revenue.
And we continue to expect sales of airware to be immaterial and 2019.
Lastly.
For full year 2019, we expect our gross margin to remain in the low 70% range.
And our adjusted EBITDA margin to be in the range of 13% to 14%.
This adjusted EBITDA range assumes stock based compensation expense of approximately $10 million.
Approximately $1 million of expenses related to the planned move to our new corporate headquarters in the third quarter of 2019.
As a reminder, the $1 million of expenses is comprised of approximately $400000 of moving expenses, which will only impact our full year 2019 PNM.
The remaining expense comes from accelerated depreciation on our current facility and higher rent expense related to occupancy at both the current and new facility. This year.
For purposes of calculating earnings per share.
We expect our fully diluted weighted average share count in 2019 to be 20 million shares.
With that I'll now turn the call back to Jerry for some closing remarks Gary.
Thank you Brent.
We are raising our guidance again this quarter to account for our exceptional second quarter sales sales results driven by strong execution across our four strategic growth drivers, including the stronger than Mpus anticipated sales volume. We saw as a result of last year's new direct contract with a large commercial payer.
I'm incredibly pleased by the performance our team has achieved across the board this year and would like to congratulate everyone attacked on medical for contributing their energy and time to helping more patients suffering from chronic diseases live better and care for themselves at home.
We continue to see a bright future in store for our company as we look at a number of important macro dynamics, including.
The growing awareness of lymphedema in the market at both the clinician and patient level.
The more than 4 billion dollar addressable us market opportunity that remains in front of us.
And our unique position in the market.
With an established direct to patient and provider model proven reimbursement and payer relations expertise and innovative products supported by extensive clinical and economic evidence.
As we enter the second half of 2019, we will continue to drive growth in our markets by leveraging the features and benefits of our flexi touch system in our sales process by expanding our field sales team to over 230 sales representatives by year end and improving the productivity of our recent hires.
By developing our relationships with the more than 4700, hi, diagnosing lymphedema accounts in the United States and by continuing to capitalize on our broad in network coverage with insurers.
We believe these important growth drivers along with our focus on executing against our near and longer term initiatives will enable us to continue to deliver impressive top line growth improved profitability and strong returns for our shareholders as we leverage our leadership in the market for at home therapies.
Thank you everyone for your interest in our company and for your participation on Tonight's call.
Operator, we will now open the call for questions.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
If you are using a speakerphone. Please make sure your mute function is turned off to allow your signal to reach our equipment. We do ask that you limit yourself to one question and one follow up.
If you would like to ask questions. We invite you to add yourself to the queue again.
Pressing star one.
And our first question will come from the line of J.P. Mckim from Piper Jaffray. Your line is open.
Hi, good afternoon, Thanks for taking my question.
I wanted to start on the breakdown between Medicare VA and commercial.
I guess I've been more surprised by that kind of the difference in the growth drivers this year than in prior year that used to be very VA.
Heavier just given the growth rate there.
But this year through the Medicare Lastly, a more commercial so.
Let me comment on that and I know you don't give guidance on the three segments, but maybe just kind of.
Brush stroke, what you think.
The key drivers are going to be for the remainder of this year.
Thanks, JP and thanks for the question.
Youre right, we don't necessarily breakout by channel the different performance of the company, that's actually not how we forecast internally.
We don't forecast by Medicare commercial in the business.
But to try to get some color around your question.
In the first half of the year Medicare made up 11% of sales.
Versus 8% last year, we think the single biggest reason for that shift has been the move inside to lift the burden of paperwork and order processing from our field team. So that they may focus on flexi touch sales. So most of those sales came from our simpler products the entre and active touch and that was the primary driver for the Medicare mix shift that you saw in the first half of this year.
Okay.
Any comments on the V.A. and.
You know we are in terms of the number of clinics or adding specialized via reps.
We made our biggest.
Addition, in V.A. reps last year in 2018, so for the first half of the year. The V.A. made up 19% of total revenue versus 20% over the same period last year, we're very happy with the VA performance overall, it was up 22%.
Year over year in that particular segment.
Keep in mind that when we signed the federal supply schedule or got on the new federal supply schedule last September of the VA is entitled to most favored nation pricing. So our volume is actually higher than the than the revenue that we showed here and we're very feeling very comfortable about being able to continue that into the second half of 2019.
Okay. That's helpful. Then just one more for me as a strong growth margins.
How we should think about.
You're like just hovering around 70, you're sticking on 70, but.
How should we think about that for the remainder of this year and into next year and then I didn't hear anything on such a new product coming in the back half the lower cost entree.
If I'm correct and maybe how that could how that could benefit you guys in the margin.
Hi, John .
Hey, Jamie its Brent.
So yes, we finished.
The year to date six month period at gross margins of 69.7%.
You know down from the prior year by roughly about 215 basis points. The largest driver that say two thirds of that difference really is the impact of the new.
Direct.
Contract that we have with the large commercial payer.
The other piece that is impacting gross margin is certainly the mix and thats the mix by product and by payer. So if you think about entre growing.
At 53%.
You know relative to flexi touch.
There's a there's a slight margin differential between those two.
As we look forward to the remainder of the year, we anniversary against those asps that weve been talking about for the last three quarters. So I.
Our expectation is that we'll start to see a gradual lift in gross margin in the second half of the year, but.
Still hovering right around that low 70% range for the full year.
And then to your last question JP on the on the entree.
Keep in mind that flexi touches our most profitable of the three products in terms of gross margin.
But we are.
We're.
Having good progress made on the bringing in a new entre product too.
Lower our costs, so thats still plugging away as we expected.
Those will be incremental improvements and are contemplated in our guidance for the second half.
Okay. Thank you.
Your next question comes from the line of Chris Pasquale from Guggenheim. Your line is open.
Thanks, Congrats on the quarter guys.
Jerry the potential for plus to increase your traction among patients with bilateral disease or something you called out ahead of that launch it sounds like Thats playing out I'm curious if you can quantify the progress you've made there in any way.
Either in terms of the percentage of systems that you're shipping with double leg wraps or the percentage of customer base that is now prescribing for those patients.
Thanks, Chris appreciate the question and the congratulations on the quarter.
We don't really break out.
Upper versus lower extremity sales, but as you suggested or thesis that.
Having the ability to treat both limbs of a bilateral patients simultaneously.
Rather than having them treat one limit at a time.
Thus, reducing the amount of time needed for treatment by half has played out quite well in our marketing efforts I would say that not only did we get.
More patients from our existing customer base, which we certainly anticipated, but we also were able to find new customers that weren't really prescribing our product because of that limitation that product limitation on the flexi touch classic.
So don't have any specific numbers to highlight that for you other than to say, it's been one of the primary drivers of our growth in the first half and we expect that that flexi touch plus appeal to continue as we carried into the second half of 2019.
Okay.
And then can you remind us how you're planning to sell airware once it launches, there's some synergy between that product and flexi touch how to identify the patients earlier and then it's something you can be selling to your existing installed base, but I would think that keeping the reps focused on plus is going to be priority number. One is that how do you maximize the potential the airware products without having your sales force kind of take their eye off the ball.
A really really good question and certainly one weve been grappling with we've been focused with our airware efforts on securing the supply chain.
So it's taken us longer than we anticipated frankly to get the vendors in line to be able to supply that product that the quantity. We think we're going to be able to to sell and we're still in the process of doing that.
So to your point about distracting the Salesforce, we've changed our plans a little bit and that will still be able to execute our limited market release here in the second half of 2019, but we'll postpone coming up with the full launch of that product until our national sales meeting, which is in early 2020, so to avoid that distraction and whats inevitably is going to be our strongest quarter for this year.
We're just going to push that out a quarter, because we don't see that as.
Something that we want to take on.
With the risk of disrupting this the field team during that fourth quarter.
But the plan is still to have your core rep, selling that product rather than carving it out like you've done with entre and such.
I think you know for at least the first part of next year and we'll certainly get into this more in more detail when we talk about 2000 or 2020.
Guidance, we will have our reps introducing that product.
To their customer base, but it's our intent to be able to move quickly from that introduction to the follow up being the responsibility of the inside an internal team.
So you hit on the you hit on the key concern that we have about that product, we don't want our RUPS spending too much time on selling airware when they could be selling flexi touch, but we certainly want to leverage their relationships that they've built with our customer base.
Makes sense. Thanks.
Your next question comes from the line of Kyle Visor from Dougherty and company.
Your line is open.
Hi, good evening, great quarter here, just a couple of market related questions for me.
It sounds like you're making some nice progress within the high diagnosing facilities I'm just curious how do you find high and diagnostic facilities and what is the.
The minimum amount of patient volume of facility you need to see to be in that bucket of.
4700 clinics.
Thanks, guys I appreciate the question and thanks for the kudos on the quarter.
We actually access the list of high diagnosing clinicians when we do our.
18 to 24 month refresh.
Trying to identify how many patients were diagnosed with lymphedema in the United States. So those data come from Lexis Nexis.
We've been doing that survey if you will of the marketplace.
For about five years, now and that the number of patients diagnosed each year.
Over the past five it's been an average compounded growth rate of about 11% over that five year period. So the market is continuing to grow when we get those data. We also get a list of the high.
Who diagnosed those patients and we can stratify those into the highest deciles of prescribers.
So the 4700 number comes from the top three desks aisles are the top 30% of high diagnosing clinicians and weve been focusing our field team to call on those.
Top three deciles as a way to uncover new customers.
We came into 2019 with a relationship with at least one clinician in about half of those high diagnosing facilities.
So we'll report on our progress.
Once we get into guiding around the 2020 timeframe.
But that is an area of keen focus for our field organization, and one where we're making great headway.
Got it and it sounds like you do I think you said, an 18 to 24 month refresh deep do you have an updated year to date number or perhaps for the first six months for.
Diagnosing volumes and let the Dina I mean, any any clarity kind of on how volumes. This year have been trending would be helpful.
Yes, so so our last data pool was with data through December of 2018.
So no we don't have anything fresher than December of 2018.
But.
The the list is still quite current and has been a very fruitful call point for our sales organization.
Got it that's helpful and just lastly for before just talking about your accounts in the high diagnosing facilities bucket.
To the extent you can share what percent of your lymphedema related sales come from this bucket I'm just sort of wondering if the 80 20 rule applies here.
We don't really.
We don't really break that out in terms of our.
In terms of our reporting.
What we have said in the past is that once we can get one of those clinicians to start prescribing our product or start using the tactile.
Sales organization.
Those customers tend to order twice the amount of product from us that are typical accounts order.
So it's a again a very lucrative call point for us and one that we're quite focused on and we'll continue to focus on through the second half of 2019.
Okay, great. Thanks, that's it for me.
Your next question comes from the line of Jason Mills from Canaccord Genuity. Your line is open.
Hello, Good afternoon for Jason can you hear our.
Hi, David Yes, we can.
Hi, great. Thanks for taking the question so.
Yes, it looks like in the slightly easier comps in the second half the year.
Herbal adjusted basis, so what implies slower growth in the second half of the year. So could you walk us through kind of some of the puts and takes a little assumptions in here and how we should think about these.
I can tell when it's driving growth in the second half of the year based on whats implied in the current comparable guide.
Sure. Thanks, David appreciate the question.
First and foremost were.
Feeling very confident about our second half 2019 growth, we're continuing to enjoy the tailwinds of expansion of the field organization.
Since the.
Up 45 reps from this this time a year ago.
The flexi touch plus adoption and expand that access and and covered lives are all nice tailwinds to the second half.
We also get some.
Comparison headwinds on SP that go away with the anniversary of our large payer contract in.
Which which went effective July of last year and our BA.
FSS schedule, which we executed in September .
So feeling good about the second half growth.
In terms of the overall.
Growth of the business in the second half Weve.
We have to achieve about 55% of the Companys annual revenue yet in the second half.
And each and every year, we see the second half growing a bit slower than the first half.
So we've guided to.
Flexi touch growing in the 20% to 23% range.
Others, the entre and other products and a 13% range.
Feeling really good about what that contribution can be for the second half of the year.
Okay, Thanks, and maybe second around a sales rep hires and you mentioned lumber commentary around the higher so far this year base over the.
First half of last year to run any color around kind of how that how that trend has been going so far as well as what you're seeing on the lines of productivity with newer products to the bag and how we should think about.
Higher interest going forward.
Absolutely David So let me just spend a minute on on field hiring and we did in the second quarter with over 215 reps Thats up from 200 at the beginning of the year.
And we had committed to.
Trying to add 30 more reps in 2019, so we're about halfway there at the halfway Mark.
Having said that.
This is a little we are behind a bit on our hiring it's harder.
To find good people out there these days with the unemployment where it is.
And we would have liked to have had more reps.
In place.
By this time of the year.
We're very confident in our updated guidance that the hiring to date will be able to deliver.
On the second half results.
But we are behind on the hiring at this point in time feeling good about getting to that 230 number but again, we'd have liked to have had a little earlier in the year.
Okay. Thanks, I guess, a follow up to that one what any upside in the second half of the year come with any hiring trends coming in faster than that as well as productivity trends ticking higher now.
I think from a productivity perspective.
We've really enhanced the training programs that we have in place and are seeing reps become productive.
In many situations faster than anticipated.
But again being a little behind.
In our hiring at this point in time, we're not really forecasting any additional upside from hiring for the remainder of the year because these reps take some time to be productive.
So were still confident in the updated guidance.
Though the hiring to date, it's been a little below our internal expectations.
Okay. Thanks for taking the questions.
Your next question comes from the line of Margaret.
Okay XR from William Blair. Your line is open.
Hi, guys. Thanks for taking my question. This is an on from Margaret.
I'll follow up on the question about guidance the implied deceleration there no appreciated the color that you can provide.
Specifically, if you could talk about.
The.
Or the Tailwinds from the large commercial paran traction there and the Medicare channel.
What what percent of.
Right of that channel is coming from entree.
First the Barclay touching and your expectations going forward.
And then in regard to the sales force how much benefit is.
Are you getting from the internal sales growth and as part of their expected higher is included.
Increases in the internal sales force.
Hey, Ana. Thank you. Thank you for the questions.
First on the guidance, we are forecasting sales and rental revenues for the flexi touch to be.
That's what went up in our guidance. This this quarter.
So.
You know up to.
157 to 158, and a half so 20.5% to 22% increase on the sales revenue side on the rental side debt remained unchanged at 25% to 25.5 million for the rest of the year.
So flexi touch overall, we're looking at 26% to 28% growth year over year.
That that implies 20% to 23% in the second half. So we feel really good about being able to achieve those numbers.
As we think about that.
On the on the question around the inside sales team, that's primarily a driver for entre inactive touch growth not necessarily flexi touch volume and I think the second half of the year.
We're we're still.
We're still tracking beautifully we expect overall the growth in that product line to be 30%.
In this year the full for the full year, so thats where were seeing the big benefit from our internal organization, they're able to lift that burden of paperwork and order processing from our field team.
Allowing them to go get the flexi touch revenue, we just talked about.
Okay that makes sense. Thanks, and then in regard to adjusted EBITDA and in some of the drivers there how do you view the sustainability of.
Some of the operating leverage seen this quarter, particularly in the sales and marketing and then DNA line.
Hey, Dan its Brian .
I'll take a shot at that question Hugo Officer, we were pleased with where our adjusted EBITDA percentage came in for the.
Second quarter, and then for the first half of the year.
For the remainder of the year.
We also expect improvement and improved leverage on the adjusted EBITDA line.
So if you look at our first half of the year, we came in at 10%.
Adjusted EBITDA margin, our expectation is to get between 13 and 14% for the full year. So we do expect a step up in.
Leverage and adjusted EBITDA margin in the second half of the year. The majority of that margins are going to come from GSK and reimbursement, we continue to invest in our sales and marketing line. So majority of that is going to come out of those those other cost categories.
All right. Thanks, a lot.
Once again, if you would like to ask a question.
Please press Star then the number one on your telephone keypad.
Your next question comes from the line of Suraj Kalia from Northland Securities. Your line is open.
Good afternoon, Thanks for taking my questions.
Jerry My apologies I joined the call a little late.
So you might have mentioned this.
What would the respective growth rates within Medicare V. and commercially in the quarter.
And a corollary to that question Jerry.
You know maybe others have it figured out I'm a little confused.
Any color you could give would greatly appreciate it.
Your new commercial payer kicked in really in Q4.
If I strip out this new contracted payer.
And ill see if 42 changes can you can meet the.
What would growth rates look like so on an apples to apples basis, we could have you know get our arms around some of the core growth rates in these in these three buckets any color would be great. Thank you for taking my questions.
Yeah, you bet psoriasis appreciate the question.
Let me start with the channels description or the Medicare commercial V.A. that you asked about so for the first half of the year Medicare or Medicare business equaled about 11% of sales versus 8% last year, that's a big step up almost nine Oh.
Over 90%.
The second quarter specifically.
11% of sales for Medicare versus 6% last year, so a little step up there.
Commercial at 71%.
Versus 74, prior year, and VA, 18% versus 20% last year.
And psoriasis, Hey, Brent I will give you a little bit of color on growth drivers.
Excluding ASEAN 42, and I'll try to give you a little bit of context on the large payer as well so.
For the first half of 2019, our approach and our reported growth rate was 36%. We've identified the impact of assay 842 to be seven percentage points on that number so.
Taking out the effect of ASEAN 42, our year over year growth rate would have been 29%.
And then as it relates to the step up in full year guidance.
We expected and got to see.
Some improvement relative to volumes from that large payer contract.
We increased our mid point on the guidance range by $1.7 million. We can should we attribute about roughly a million of that to the large payer contract. That's out there. So that will just give you a little bit of perspective on.
Kind of what the drivers are the other piece that is a contributor to our overall step up in guidance for Q2 is just the stronger execution by our sales teams overall.
And that new guidance range.
Implies normalized growth rates of 22.5% to 24% year over year.
Thank you.
There are no further questions at this time. This concludes tonight's call. Thank you for your participation you may now disconnect.
Yes.
On.
Oh.