All right, good afternoon, and welcome to the 2023 Piper Sandler Healthcare Conference. My name is Adam Maeder. I'm one of the med tech analysts here at Piper. Very pleased to introduce the management team from Tactile Medical. With us, we have Dan Reuvers, President and CEO, and Elaine Birkemeyer, CFO. Guys, thanks so much for joining us. Thanks for having us. So I wanted to start off on Q3, and Dan, you know, you've strung together a great stretch of positive quarterly results over the past few quarters. You've done a nice job of turning around the legacy lymphedema business, and we'll come back to that segment in a minute, I promise. But did want to start on AffloVest, which has had a little bit of a challenging year. So with that as the backdrop, you know, kind of just level set us, where are we? What's going on, for those that are maybe a little bit less familiar with the headwind? Sure. So, the headwind that you describe is we had a large DME that had taken advantage of the PHE waiver. This is relaxed criteria Medicare put in place during the COVID period of time, and they weren't requiring a high-res CT scan, which would have exposed patients to additional exposure among other sick patients. When that came off in May, we had a large distributor that had taken advantage of that waiver and had to re-implement the original criteria, which included a high-res CT scan, and it basically saw a reset of their volumes. It happened in May, which is when the PHE waiver expired, and we expect that there'll probably be a headwind until we lap that in May of next year. In the meantime, we've continued to see them continue to place orders, so it's not as if they've backed away, they've just reset their volumes. The balance of our top 10 have continued to grow. I think we're still pleased with the overall macro, but certainly, this is an event that we'll probably have to lap in May. I got it. Really helpful color. You know, and not to get too in the weeds here, but as we think about, I guess, Q4, Q1, and I guess the first part of Q2- Just any trends you want to, or comments you want to make around seasonality for the AffloVest business? Just broad strokes. Yeah, there's not a ton of seasonality in the AffloVest business. There will be some patients that will find themselves a lower copay as the year progresses, but it's probably less influenced on seasonality than some others. I got it. Okay, so it sounds like this, in your opinion, is just purely a COPD issue that you just have to kind of get through. Yeah, I think just to really frame this, so this is a business that we acquired in the fall of 2021, trailing twelve months of $17 million in sales. And even with our adjusted guidance for the balance of this year, we'd come in in the $32 million range, which is still a 35%-40% CAGR over a two-year period. The TAM hasn't changed. It's still very large. We still see it as a very underdeveloped segment, and we haven't seen any competitive influence change. So I think the macro story is very much still intact. Yeah. No, that's, that's great context there. Thank you for that. I guess the, the one last question on AffloVest before we flip over to lymphedema is, you know, just be curious if there are growth catalysts that are coming up in, in the AffloVest segment, whether it's new products, additional DME relationships, reimbursement changes, just anything that you'd point out over the next 12-24 months. Yeah. So we've talked about the universe of respiratory DME reps is probably 4,000 in the United States, and we admittedly still don't work with every one of them. So there's still an opportunity for us to continue to expand our DME relationships and engage with some that haven't participated yet. So I think that's one of the continued growth catalysts that we'll see over the next couple of years. And we're also starting to invest in expanding our specialty rep group that supports the DMEs. We inherited 12 reps when we did the deal, and all 12 are still with us, which is pretty remarkable two years post-transition. We will start to add salespeople probably this quarter yet, and in the first half of next year. So we're going to continue to take more of an active role in demand generation, calling on some of the highest decile prescribers. And I think that both of those two will probably have a positive impact. Very helpful. And if we flip to Lymphedema, you know, like I, I said earlier, it's, it's been really good execution, and, you know, you've outperformed Street models. The growth that we're seeing, is that a function of a stabilized sales force? Is it just better productivity? Is it a combination of two? You have new product launches in, in past quarters, so maybe just kind of frame that together for us. Yeah. I think you have to stitch them all together to really tell the whole story, to your point. So, I think there have been a few things. First of all, we're really proud of the fact that we've demonstrated sales productivity increases, double-digit growth so far this year, flat head count. So clearly, that points to productivity gains. That's been mostly a function of being able to liberate the sales force from doing some of the non-selling events, like in-home demos. We're finding more capacity with our trainers to deploy them to do more of those tasks, and ultimately, it buys more selling time for the sales force. So sales force productivity, we've seen some good progress. We're not done there because there's still more of that training or demo work that is still being done, the dominant share by the sales force. So we still have more runway available to continue to move those tasks to the right portion. The second is new products, as you mentioned, and I think that the new garments, lower extremity and upper extremity garments, have certainly had an impact. The Entre Plus that we introduced in March probably outperformed even my expectations. We've continued to be much more intentional about focusing on the entry-level pump category, which we'd almost abdicated in the earlier years, recognizing that that's where so many of the patients come into the therapy through the funnel. Payers require so many of these patients to start with a basic pump. So being much more focused on it and the improvements in the pump itself. itself. I think both of those have certainly contributed. So some of it's new products, some of it's much more intentional focus on the entry-level category, and the third one's the productivity gains. That's great color, and I, I wanna pull a couple of those, threads apart. So I guess just firstly, on the sales force, you know, has, has there been any change to kind of, how these, folks are incentivized? I guess that's, that's one question. And from just a, a headcount standpoint, are you still—I think you had 246 at the end of Q3. Are you still kind of... Any, any kind of updated comment you wanna make on headcount? Yeah. So, you know, we've been in that roughly 250 trading range over the course of the year, pretty consistently. I think it's fair to assume that we will start to add salespeople again in the first half of next year. We still expect to add them at a lower rate than top-line growth, so we can continue to demonstrate some of the leverage that we've shown over the course of 2023. But, we'll probably see some contribution of additional headcount. That and ongoing productivity is how we'll try and deliver growth next year. And I think from a compensation standpoint, we have, as I said, been much more intentional about the focus on the entry-level pump. Making sure that the reps have the appropriate incentive to continue to accept and treat patients, regardless of where they come in on the care continuum, is an important part of what they're paid to do. I wanted to ask about the, the in-home patient trainers- that are doing the demos. How many folks have you hired, you know, to train patients? And I'm just curious, is your quota-carrying sales reps, are they spending any time now doing the demos, or is this purely offloaded to the trainers? Yeah. So we're probably 25%-30% of the in-home demos are now done by non-salespeople, the trainers. Where did we get that capacity? We didn't have to hire a ton of trainers incrementally. What's happened is... So just for clarity, there's two encounters that we can have with a patient. One is a pre-sales exercise, which is a demo, and Medicare says the patient has to be exposed to it, try it on, demonstrate that they can don and doff it and would use it. That's a pre-sales exercise that our salespeople have historically done. Post-sales training, after we've booked the order and the patient receives their own device, we've historically accompanied it with in-home training. That in-home trainer rank has found themselves doing slightly less of those in-home trainings because the garments that we've developed have been more intuitive. Patients, not all of those patients require an in-home training any longer. Some of them can do a virtual training supported by us, and some can do trainings based on the video vignettes on our little handheld app. So as we've found ourselves doing a slightly lower amount of trainings, the capacity that was created with those folks can be redeployed to do some of the pre-sales demos. So we've seen about 25%-30% of those now being offloaded from the sales force to the trainers. I think over time, we will probably have to add some additional heads if we want to expand that capacity further, but there's an opportunity for more of that to come next year. I got it. And, the trainers are obviously, they're salaried, and- They are. They're hourly people. Yeah. Yep. I got it. Okay, perfect. Let's spend a minute on Entre Plus. You know, you certainly sound quite bullish, Dan. So that's the next gen basic pump system that you recently launched. I guess I'll ask the question this way: I think you've said this is, you know, the basic pump market's a larger market opportunity than advanced. Yes. It's a small percentage of your revenue today, basic. Correct. Where do you think this can go over time? Yeah, I don't know that we're prepared to sort of predict what the mix will look like down the road, but I do know that that's where most of the patients come into the therapy funnel. And making sure that we're addressing those, it certainly puts us in a position where we continue to be the market leader, but just as importantly, we establish the relationship with the patient at whatever point they come into that funnel. And many of those patients will find themselves perhaps requiring an advanced pump over time. They either don't get the relief, they develop chest swelling or truncal swelling that can't be addressed with a basic pump. So making sure that we're the first introduction to their active therapy allows us to make sure that we maintain that journey with them wherever it takes them. Yep. Good color. I did wanna ask about innovation going forward on the lymphedema side. You know, I guess, yeah, maybe just level set us on what we should expect in terms of new product launches over the next 12-24 months. Yeah. So we've certainly been a lot more focused on product development over the last few years. We have done a refresh of virtually everything in the portfolio between our Entre, adding Bluetooth connectivity with our Flexitouch, an entire new line of ComfortEase garments. So we've gotten all of those behind us, and I think they've all been meaningful contributors to our recent growth. We're working on some additional things that probably won't surface until the back part of 2024 and into 2025. As you can imagine, the longer it goes in between introduction of new products, it's fair to assume that some of the work that we're doing is a bit more ambitious on the next round. All of those things will be inclusive of things that recognize that these are therapies that patients use every day. It's part of their lifestyle. We wanna make sure that, you know, the attributes are reflective of a consumer-type product, not just a medical device... and those are some of the things that we have underway. That's great color, and good to hear that there's more coming within the LRP period. You know, you might not be able to answer this, but I'll ask anyways. You know, one question I sometimes get from investors is: why doesn't Tactile have a more portable lymphedema offering? I guess, what's your response to that question? Well, first of all, we have got a portable product on our pulmonary side, right? Yep. With the AffloVest, and it's certainly been a key differentiator. I think that, you know, while we've seen some more portable versions attempt to introduce themselves to the market, we haven't seen traction commercially from those. I think it's a balance between making sure you've got some of the consumer-oriented attributes, but still making sure you got the most effective therapy. We're not going to compromise on that part of it. We didn't with Entre Plus, nor will we with next generations. That said, I'm all for consumer conveniences. So to the extent we can make a product that's easier for a patient to travel with, things like that, I think it's fair to assume that those would probably be embedded in our product future. Very helpful. You know, I guess just one on competition. We just touched on that briefly. It doesn't sound like there's anything new to call out, but I'll ask anyways. Anything that you'd say is worth flagging for investors from a competitive side of things on lymphedema? Not really. I mean, you know, we've seen two smaller portable versions come to market over the last couple of years. ResMed introduced one and have withdrawn that one, sort of conceded that it's not as easy as it looks. The other one we see probably more on social media than we do in our call points, and I think that that's still a function of making sure that we've got a product that not only is the most clinically effective, but from a payer standpoint, the most available. And I think that that's probably a hallmark of our offering, too. Yeah. I wanted to ask on the digital side, Kylee, the mobile app that you rolled out. I think that was last summer. Any metrics that you can share in terms of adoption or utilization? How are you thinking about the digital roadmap going forward? I mean, you—it sounds like you're alluding to making these devices very consumer facing, so. Yeah. Yeah, so, I think through the third quarter, year to date, we added about 11,000 downloads from patients of the Kylee app, which accompanies the device, connects via Bluetooth with the Flexitouch as well. Over 110,000 patient check-ins. What we're able to do with that is help the patients not only have the encouragement to continue with their therapy regularly, but we're actually able to start to collect more information about their progress. Can flag things that would help lead to their journey to an advanced pump if it's indicated. And I think just the amount of data we're collecting now is clearly demonstrated as the richest source of information in lymphedema in the marketplace. Even some of the information that we published on our website relative to GLP-1 was on over 50,000 placements just year to date. So I don't think there's another source richer, and I think with Kylee and some of the information we're able to amalgamate, we're finding that even better. And then from a cost to serve standpoint, there's a lot of things patients can do now to self-serve with Kylee that would have otherwise taken back office support. Checking in on the status of their order, being able to ask questions about how to change settings, how to care for their garments, all the kinds of things that they would have historically called in, and someone would have had to engage with them live, we're seeing a lot more self-serve. The satisfaction levels are higher because patients want to get the answers when and how they want them. We're still available on the phone, but like me, if I'm checking in on Delta, I don't want to be online with a live person when I can self-serve at my own convenience. We're giving that same access to our patients. That's great color. You just touched on GLP-1, so I think we'll go there next. And, you know, I know you had a very elaborate, detailed analysis posted to your, to your website, in conjunction with the Q3 earnings call. You know, I guess I'll ask the question this way, Dan: do you think you've seen any impact to your business from patients falling out of the funnel due to GLP-1s? And, you know, longer term, I think in that analysis that you published, and please correct me if I'm wrong, I think you've said 15% of, U.S. lymp- of the U.S. lymphedema market at most, is at risk. So just maybe walk through kind of key assumptions there and just bigger picture, how you're thinking about GLP-1s. Well, I'll let Elaine start. Yeah, please. She was the architect of a lot of the information on that. Sure. Yeah, happy to. So thanks to your first question, have we seen any impact? And the answer is no. And we wouldn't expect it, because unfortunately, if those with lymphedema, existing lymphedema will not get corrected with weight loss. Once the lymphatic system is damaged, it doesn't recover. So really, the way you would prevent it is to prevent people from getting to that high obese level where lymphedema would be triggered. So, if we would see it, it would happen over time. When we took a look at our data, and as Dan mentioned, you know, I spent a lot of time scouring, you know, the external kind of database, and there's not a lot out there. And actually, our database is one of the richest areas to take a look in, with over 50,000 patients, where we have demographic information and etiology and so forth. And what we saw there was about 28% was cancer-related. So those right off the bat, we knew that GLP-1 was not going to, you know, materially impact them in, in any way there. The remaining 72% then, you had to bifurcate it between those with a BMI over 40 and under 40. Why 40? This is really where the data or the clinical evidence shows that obesity starts to play a material factor. And even it's really when you're over 50, is when obesity can be the primary driver. And so we took a look at our, our populations, at 24% had a BMI over 40, only 8% a BMI over 50. So as we started to kind of apply that math now to the TAM, so our, our TAM is about 20 million patients that are, you know, we believe, have lymphedema. Only 1.4 million currently are diagnosed. You know, we, we kinda took that data and said, "If 24%—that 24%, if we cut that in half, that's basically getting you to that 3 million there." And that, that cutting in half was really done mathematically by suggesting if everybody took the GLP-1, if they stayed on it, again, had access, lost 20% of their body weight, you know, that's where you'd see the fallout. So as you said, why we feel it's a max, is you have to really believe they're accessible, they're affordable, they, they, they adhere, and so forth. Yep. No, that's great color, Elaine, and really appreciate that. We'll stick with you and maybe talk a little bit about- Sure ... the PNL. You know, I guess, the 2024 question, I have to ask it. Yep. I've consensus of $309 million. I think that's about 12% growth year over year. Any reaction to that figure? And, and if not, would just love to hear some puts and takes as you think about 2024. Yeah. So, no reaction to the figure. We will be happy to provide some more information in February when we announce. However, you know, we have discussed, you know, we have 2025 targets out there, and, you know, we feel that, you know, we continue to be on track towards those targets. You know, a couple areas can I talk about is, you know, I think from a top-line perspective, you know, we continue to expect to see, you know, sales productivity, as well as some of the additions that Dan mentioned in sales rep productivity. We continue to focus on our product portfolio. From a, you know, OpEx perspective, we are, you know, continuing to work on how do we leverage technology to continue to get more efficiencies, both from a sales productivity and our back office, to help with that, you know, continued EBITDA margin expansion. And probably free cash flow, I feel, probably even the most positive, 'cause, you know, we put targets out of $75 million of cumulative free cash flow. We expected most of that to be in 2024 and 2025 because we have the earn-out payments this year. We've actually built cash this year despite those earn-out payments. I'd say we're ahead in that target there, too. So, those are a couple of the things that, you know, I think, you know, we foresee as drivers to getting to those longer term targets. That's great color. I guess maybe just to follow up on leverage. The leverage has been really good. Yeah. You know, just talk about the future drivers there. You know, it sounds like technology advancements is one- ... you know, part of that. But we'd love to hear just a little bit more about some of the other things that you think you can do to drive leverage. Yes, I think just to build on you, we, the shift of demos to the PEX, where we've done part of the work this year, there's more to go. So I think that will continue to allow us to gain leverage and scale on our sales force. I think the technology is a material one. We'll make investments, you know, next year, to really think about how do we reduce that administrative burden that does exist with, you know, transferring documentation, ensuring that criteria has been documented. Both helps the sales force as well as our, our back office as well there. And so I think those are, you know, two kind of, I think, big meaty drivers, that will, you know, I think we'll start to recognize in 2024, but even more so also in 2025. Very helpful. Let's spend a minute on the balance sheet. You know, I think you did the capital raise earlier- ... this year. I believe you have the final earnout payment for AffloVest here in Q4? Yeah. Is that correct? Okay. So and I think that leaves you with roughly $20 million or so in net cash. How do you think about cash runway? How do you think about capital allocation in 2024? Yeah. So I think, first, we're pleased with where we're sitting, and I wasn't here last year, but I know it's in a materially different, you know, position. And so I think, you know, the cash raise early in the year was meaningful, but I think also just the work we've been doing to really improve our collections, you know, drive down our AR, has really helped, I think, to get us in a good position where, you know, seemingly we have optionality now. We're really thinking about places to invest from a future growth. We've got, you know, debt on the books that we can consider, and so, you know, we're kinda taking that position now, where we're in a good state to have some options ahead of us. You know, we look forward to sharing more of that in the future. That's great. I have 1-2 minutes left. You know, maybe I'll, I'll give... Dan, I'll give you the last word. Sure. You know, it's the company, from my vantage point, has, you know, made a lot of really good progress. And, you know, I know it's been tough sledding for the med tech names as well. But, you know, I'll—and Tactile is no exception there, and, you know, I'll ask the question this way: You know, what do you think is the most underappreciated parts of the story, you know, today, and why do you think there is maybe this valuation disconnect with your stock? Yeah. I think perhaps some struggle with comps. We're a bit of a unique entity. You know, lymphedema doesn't have a lot of other companies in the space. I think just the gaining understanding is one that we've spent so much energy with the professional community. The medical community helped them understand lymphedema, the consequences, the scope of the impact, et cetera. And I think you know, investors continue to probably grapple with that as well. So having to tell that story and educate on lymphedema, the underlying condition, the consequence of it, all very real that we know, and I think being able to tell that story is an important part. I think that we're a rare entity, and I know we've talked about this before, Adam, that there just aren't a lot of microcap companies that are growing double digit, that are profitable, that have a strong balance sheet and generate cash. And when you put all those together, I think there clearly is a mismatch. I find a little bit of comfort in knowing that we're among good company in med tech right now. And we're just hopeful that if we continue to create value and operate the business responsibly, you know, the market catches up. Yeah. That's a perfect place to stop. So we will, we'll conclude there. But thanks again, Dan and Elaine. Sure. Appreciate you coming. Great. Thank you.