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    TACTILE SYSTEMS TECHNOLOGY (TCMD)

    Q1 2024 Earnings Summary

    Reported on Feb 19, 2025
    Pre-Earnings PriceN/ADate unavailable
    Post-Earnings PriceN/ADate unavailable
    Price ChangeN/A

    What went well

    • Increased Sales Force and Productivity Gains Expected to Drive Revenue Growth : TCMD has increased its sales representatives by 9% , aiming to boost revenue growth as new hires become fully trained in the second half of the year. Additionally, by shifting 35% of in-home demos to patient trainers, sales reps have more bandwidth to focus on high-volume clinics, further enhancing productivity ,.
    • Investments in Technology to Enhance Efficiency and Margins , : The company is investing in an e-prescribing platform and a CRM system to streamline operations. These technological advancements are expected to improve sales force and back-office productivity, reduce operating expenses, and drive adjusted EBITDA margin growth in the long term.
    • Reaffirmation of Strong Long-Term Growth Targets : TCMD reaffirms its commitment to long-term targets set in 2022, including a top-line growth rate in the teens, expansion of operating margins, and stronger cash conversion. The company remains confident in delivering sustainable growth, even as leadership transitions occur.

    What went wrong

    • Despite improved gross margins, adjusted EBITDA guidance remains unchanged, indicating that increased operating expenses may offset profitability gains. The company plans to reinvest savings into technology investments and additional hires, which could pressure margins.
    • The upcoming CEO transition introduces potential uncertainty. With the retirement of CEO Dan Reuvers and the appointment of Sheri Dodd as the new CEO effective July 1, there may be questions about the company's long-term targets and strategic direction under new leadership. ,
    • The company's growth relies on new sales representatives who may not reach full productivity until the second half of the year. This dependency could impact revenue growth if the new hires do not perform as expected. ,

    Q&A Summary

    1. Revenue and EBITDA Guidance Confirmation
      Q: Can you comment on revenue and EBITDA phasing this year?
      A: The company reaffirmed its full-year guidance, expecting modest improvements in growth for both pneumatic compression and AffloVest products, with sequential revenue increases each quarter. Adjusted EBITDA margins are seasonally weaker in Q1 but are expected to build throughout the year, with the majority of operating contribution realized in the back half.

    2. Long-Term Targets Under New CEO
      Q: Will long-term targets remain under the new CEO?
      A: Despite the CEO's retirement, the company maintains its commitment to long-term targets established in 2022, including top-line growth in the teens, expanding operating margins, and stronger cash conversion. The incoming CEO will focus on delivering the 2024 plan and providing 2025 guidance at the end of 2024.

    3. Gross Margin Improvement Plans
      Q: How will gross margins improve long-term?
      A: Gross margins increased this quarter due to achieving scale in new products and cost reductions. The company expects these drivers to continue, but long-term adjusted EBITDA expansion will primarily come from operating expense leverage rather than gross margin improvement.

    4. Impact of New Sales Reps on Growth
      Q: How will new sales reps affect lymphedema growth?
      A: Additional sales reps hired in Q1 will start contributing in the second half, as it typically takes a couple of quarters for full productivity. The company plans to continue adding reps, expecting them to reach full stride later in the year, which should support low double-digit growth in lymphedema.

    5. Head and Neck Trial and Potential Market Impact
      Q: What is the status and impact of the head and neck trial?
      A: The 235-patient study completed enrollment, aiming to provide evidence for payer coverage and influence healthcare providers. Data will be available after a six-month follow-up, with commercial impact expected in the back half of 2025. The company has unique IP protecting compression treatments for the head and neck, positioning it to benefit significantly.

    6. Productivity Gains from Patient Trainers
      Q: How does using trainers free up sales reps?
      A: Transitioning in-home demos to patient trainers increased from 30% to 35% in Q1, freeing sales reps to focus on high-volume clinics. The goal is to reach 50% by year's end, enhancing sales force productivity without significantly increasing headcount.

    7. Next-Gen Pneumatic Compression Device
      Q: Can you share details about the next-gen device?
      A: The company is developing a next-generation pneumatic compression device focused on making the patient experience more friendly. While cautious about revealing details, they are enthusiastic about its potential reception.

    8. Use of Technology Investments for Operating Leverage
      Q: How will tech investments drive operating margin expansion?
      A: Deploying an e-prescribing platform and other technology initiatives will improve order efficiency and reduce operating expenses. These investments are designed to drive operating expense leverage and expand margins over time.

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