Tactile Systems Technology Inc Q4 FY2021 Earnings Call

Please standby. Good evening, ladies and gentlemen, and welcome to the Fourth Quarter and Fiscal Year 2021 Earnings Conference call for Tactile Medical. At this time, all participants have been placed in a listen-only mode. At the end of the company's prepared remarks, we will conduct a question-and-answer session. Please note that this conference call is being recorded and will be available on the company's website for replay shortly. Before we begin, I would like to remind everyone that our remarks and responses to your 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 factors section of our Annual Report, on Form 10-K to be filed with the Securities and Exchange Commission. Such factors may be updated from time-to-time in our filings with the SEC, which are available on our website. We undertake no obligation to publicly update or revise our forward-looking statements as a result of new information, future events, or otherwise. This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website. I would now like to turn the call over to Mr. Dan Reuvers, Tactile Medical's President and Chief Executive Officer. Please go ahead, sir.

Thanks, Operator, and welcome everyone to our fourth quarter and fiscal year 2021 earnings call. I'm joined on the line by Brent Moen, our Chief Financial Officer. I'll begin today's remarks with an overview of our fourth quarter sales performance, along with a discussion of the drivers, trends, and operational highlights we saw during the quarter. Brent will discuss our financial results for the fourth quarter and full-year in greater detail, and review our 2022 financial guidance, which we introduced in our earnings release this afternoon. Then I will share some additional thoughts on our outlook in key areas of focus heading into 2022 before we open the line for questions. So with that, let's get started. In the fourth quarter of 2021, we reported total revenue growth of 4% year-over-year to $61.7 million. Our total revenue growth was driven by sales of our recently acquired AffloVest product line, which contributed approximately seven percentage points to our revenue in the fourth quarter. This more than offset a 3% decrease in sales of rentals. Rentals of our lymphedema products with our revenue from Flexitouch and Entre systems decreasing 3% and 2% year-over-year, respectively. Our fourth-quarter sales performance enabled us to achieve total revenue growth of 11% for the full year of 2021, exceeding our latest revenue guidance range, which called for total revenue growth of nine to ten percent year-over-year, the higher-than-anticipated results relative to our expectations was driven by slightly better sales of our Flexitouch systems during the fourth quarter. Broadly speaking, our Flexitouch and Entre system sales performance continue to be moderated by two primary factors that we outlined on our last earnings call in November. The headwinds related to the extended recovery from COVID and the sales force staffing gaps that emerged during the second half of 2021. Let me take a moment to cover each of those aspects in a bit more detail. Beginning with the impact of COVID, the spike in cases driven by the Delta variant during the second half of 2021 led to the reemergence of many of the headwinds that we'd seen during similar periods in the pandemic, namely increased patient absenteeism, constraints on patient throughput, and restrictions on rep access to both patients and clinicians at the health care facilities that we serve. These headwinds ultimately limited our team's ability to engage with new clinicians and patient customers. The persistence of these headwinds throughout the fourth quarter was largely consistent with our expectations. With respect to the sales force staffing, our performance in the fourth quarter was impacted by the challenging labor market, which in combination with some reluctance around our vaccination policy among both existing representatives and potential new hires, impacted recruiting and retention. Keep in mind, our field teams regularly engage with patients directly, both in the clinic and in their home, thus our cautious stance. In addition, with nearly 30% of our sales team unvaccinated as we entered the fourth quarter, we saw to reconcile our vaccination testing requirements to balance retention with patient safety. During the fourth quarter, we focused on enhancing our sales rep retention efforts, bolstering our internal recruiting resources, and increasing our hiring incentives, especially for territories that have been more difficult to staff. We also instituted a vaccine policy aimed at restoring access to clinicians and patients, addressing our obligations as both a federal contractor and ensuring the safety of both our employees and the customers that we serve. I'm pleased to share that we navigated the implementation of this vaccine policy during the fourth quarter while minimizing additional departures. As of December 31, our field commercial team, which is focused on increasing clinician awareness of our lymphedema solutions, consists of approximately 220 Field Sales Representatives, 30 Field Managers, and 94 field support specialists. The AffloVest device is sold through our DME providers throughout the United States and is supported by a team of 11 tactile sales representatives. To help mitigate the effects of COVID-related headwinds on our business, our team has been focused in recent quarters on leveraging virtual solutions to interact with patients and customers. These efforts continued during the fourth quarter as well. Most notably, we continued to educate the medical community through our clinician education events. We hosted a total of 65 education programs during the quarter, which saw participation from approximately 1,600 clinician attendees. In total, more than 5,500 clinician attendees participated in our educational programming throughout the course of 2021. This was more than double pre-COVID attendance. Given this enhanced engagement with the medical community, we've continued to see expansion in the awareness and effective treatment of lymphedema, as evidenced by our growing base of clinician prescribers. And lastly, we continued to make steady progress with the integration of our AffloVest product during the fourth quarter. From a sales perspective, we were pleased to see solid engagement among our channel partners. We're seeing affirmation that our DME partners are finding well-qualified patients among their oxygen nebulizers and non-invasive ventilation customers. As a reminder, we believe that this partnership with DME representatives focused on respiratory products in the home care setting is an advantageous sales and distribution strategy. These reps are well-positioned to offer a complementary portfolio of respiratory solutions and benefit from the evolving needs of their existing customers. From a margin perspective, AffloVest helped contribute to our strong overall gross margin performance during the quarter, resulting in nearly 73% for the fourth quarter. Stepping back, while the second half of 2021 proved to be more challenging than we'd anticipated when the year began, we made solid operational progress that was consistent with our expectations during the fourth quarter. By continuing to successfully navigate these issues, we remain on track for a recovery and subsequent inflection as we work our way through 2022.

Thanks, Dan. Total revenue in the fourth quarter increased 4% year-over-year to $61.7 million compared to $59.2 million in the fourth quarter of 2020. By product category, sales of our recently acquired AffloVest system contributed $4.3 million for the quarter. Sales and rentals of our Flexitouch systems decreased 3% year-over-year to $49.7 million in the quarter. And sales and rentals of our Entre systems decreased 2% year-over-year to $7.8 million. Total revenue by channel was 68% commercial, 16% Medicare, 9% VA, and 7% durable medical equipment distributors. The latter is a new channel comprised of revenue from our recent acquisition of AffloVest, which closed on September 8th, 2021. These figures compared to our total revenue channel in the fourth quarter of 2020, in which the commercial, Medicare, and VA channels represented 71%, 18%, and 11% of total revenue, respectively. Continuing down the P&L. Unless noted, all references to fourth-quarter results are on a year-over-year basis. Gross margin was 72.6% of sales compared to 70.6% last year, an increase of 200 basis points year-over-year. Non-GAAP gross margin was 73.3% of sales compared to 70.7% in the prior year. Non-GAAP gross margin excludes non-cash intangible amortization in both periods and non-cash purchase price adjustments related to our acquisition of AffloVest in the current year period. The increase in gross margin resulted from sales and rental mix by payer. As a reminder, we have provided reconciliations of certain GAAP to non-GAAP measures in our earnings press release. Fourth-quarter operating expenses were $41 million, an increase of $6.2 million or 18%. The increase in operating expenses was driven primarily by a $5 million or 26% increase in sales and marketing expenses, largely due to increases in personnel-related compensation expense, including the addition of the AffloVest sales team and travel-related expenses as we returned to hosting in-person regional sales meetings. The increase in operating expenses was also driven by a $340,000 increase in reimbursement of general and administrative expenses, a $400,000 increase in research and development expenses, and a $400,000 increase in cash or non-cash intangible amortization and non-cash earnout expense. The increase in intangible amortization and non-cash earnout expense was primarily attributable to the increase in intangible assets associated with the AffloVest acquisition, offset by a $200,000 decrease in the estimated fair value of our earn-out liability related to the acquisition of AffloVest, which represented a reduction in our GAAP operating expenses in the fourth quarter of 2021. Operating income was $3.8 million compared to $7 million last year. Non-GAAP operating income was $6.4 million compared to $7.8 million last year. Income tax expense was $10.9 million compared to an income tax benefit of $3.9 million last year. The current year tax expense was driven by the recording of a full valuation allowance against our deferred tax assets. Net loss was $7.5 million or $0.38 per diluted share compared to net income of $12.1 million or $0.61 per diluted share last year. Non-GAAP net loss was $5.5 million compared to non-GAAP net income of $11.8 million last year. Weighted average shares used to compute GAAP diluted net income and loss per share were 19.8 million shares for the fourth quarters of both 2021 and 2020. Adjusted EBITDA was $9.5 million compared to $10.8 million last year. Turning to a brief review of our results for the full year of 2021, total revenue increased $20.9 million or 11% to $208.1 million. The increase in total revenue was driven by an increase of $12.3 million or 8% in sales of Flexitouch, $5.1 million in sales related to the AffloVest, and an increase of $3.5 million or 15% in sales of Entre. 2021 revenue by payer was 68% commercial, 17% Medicare, 12% VA, and 3% DME, compared to 71%, 16%, 13%, and 0% respectively last year. GAAP net loss for 2021 was $11.8 million or $0.60 per diluted share compared to a loss of $620,000 or $0.03 per diluted share for the full year 2020. Non-GAAP net loss for 2021 was $6.5 million compared to non-GAAP net income of $3.3 million for the full year of 2020. Adjusted EBITDA for 2021 was $17.7 million or 9% of sales, compared to $16 million or 9% of sales for the full year 2020. As of December 31, 2021, we had $28.2 million of cash and cash equivalents and $55 million of outstanding borrowings compared to $47.9 million in cash and cash equivalents and no outstanding borrowings as of December 31st, 2020. This also compares to $22.4 million in cash and cash equivalents at the end of the third quarter of 2021. Turning to a review of our 2022 outlook, which we introduced in our earnings press release this afternoon, we expect full-year 2022 total revenue in the range of $235 million to $240 million, representing growth of approximately 13% to 15% year-over-year. Our 2022 total revenue guidance range assumes sales of our products that serve patients suffering from lymphedema and CVI, specifically our Flexitouch and Entre systems, increase approximately 6% to 8% year-over-year. And sales of products that serve patients suffering from bronchiectasis and chronic respiratory conditions, specifically, our AffloVest product line in the range of $19.5 million to $20.5 million for the full-year of 2022. This compares to the $5.1 million of AffloVest sales following our acquisition on September 8th, 2021. On a Pro Forma basis, assuming the asset had been acquired on January 1, 2021, sales of our AffloVest are expected to increase in the range of approximately 18% to 24% year-over-year for the 12 months ending December 31, 2022.

For modeling purposes, for the full year of 2022, we expect our GAAP gross margin to be in the low 70% range. Our GAAP operating expenses to increase 18% to 20% year-over-year, with roughly 1/5 of the expected year-over-year increase coming from non-cash intangible amortization and non-cash changes in contingent consideration. The remaining increase in our GAAP operating expenses is driven primarily by incremental expenses from the acquisition of AffloVest for the 12-month period in fiscal 2022 compared to the partial period for fiscal 2021. Our continued investment in research and development, including new product introductions we expect to introduce in 2022, which is expected to increase by $4 million, interest expense of approximately $2 million, a tax rate of 25%, and fully diluted weighted average share count of approximately 19.8 million shares. We also expect to generate adjusted EBITDA of approximately $14 million to $16 million in 2022. Our adjusted EBITDA expectations assume approximately $2 million of legal expenses and certain non-cash items including stock compensation expense of approximately $12 million, intangible amortization and changes in contingent consideration of approximately $8.5 million, and depreciation expense of approximately $2.4 million. Lastly, given the continued COVID-related headwinds we are seeing in the first quarter of 2022, we expect our total revenue for the first quarter to increase in the mid-single-digits year-over-year. This will be driven by a decline in sales of our lymphedema products in the low single-digits year-over-year, offset by contributions from sales of AffloVest, which by way of reminder, did not impact our sales results in the first quarter of 2021. With that, I'll turn the call back to Dan for some closing remarks. Thanks, Brent. Let me share a bit more color on some of the primary assumptions underpinning our 2022 revenue guidance. First, our guidance assumes that the primary COVID headwinds related to the Omicron variant will persist throughout the first quarter and then begin to subside thereafter. These headwinds have been similar to those experienced during recent periods of high COVID case volumes with reduced patient throughput at the facilities we serve, limitations on rep access, and higher rates of absenteeism at the patient, provider, and sales force levels. Second, with respect to sales force hiring, we made progress in the fourth quarter and remain committed to the goal expressed on our third quarter earnings call of achieving our target for Field Sales Representatives by the end of the first quarter of 2022. Our guidance therefore assumes increasing contributions from our new and recently promoted associates in the second half of 2022 after they're onboarded, trained, and ramp productivity during the first half of the year. Third, our adjusted EBITDA guidance reflects our proactive investments to support our future growth, including a step-up in R&D spend in 2022 fueled by a few important areas I'll share more color on in just a moment. In summary, we expect relatively flat results in our lymphedema business for the first half, giving way to more normalized conditions and a return to double-digit growth in the back half of the year. Our primary objective is to position Tactile Medical to return to double-digit revenue growth on an organic basis during the second half of 2022, with the contributions from AffloVest enhancing our total revenue growth in the second half to mid to high teens. Longer-term, we expect to return to delivering strong, sustained organic revenue growth and expanding adjusted EBITDA margins in 2023 and beyond. With this objective in mind, we're focused on driving operational progress in the following four key areas. First, enhancing our sales force hiring, retention, and training to fill key sales roles and improve their overall productivity. Next, expanding and leveraging the new base of clinician prescribers in our lymphedema business by increasing the penetration of these new accounts through ongoing professional education, training of their clinical teams, and providing efficient support for the referrals. Third, introducing new and improved solutions for our customers, beginning this summer with new Flexitouch compatible garments that improve the patient experience. We also intend to introduce a mobile app designed to engage with patients earlier in their diagnosis and treatment journey, leading to better qualified patients seeking care, meeting more of the eligibility requirements at their console. It will also give us an opportunity to educate, update, and train patients more effectively. We expect to introduce fresh evidence as well, including more active podium presence at the key society meetings. And finally, supporting our AffloVest channel partners, recognizing most of these patients are complex and thus integrating airway clearance as a more focused complement to the menu of solutions patients and prescribers already depend on. An expanded and productive field team, strong network of referring customers, increasing evidence to support education and payer policy, and enhanced products in service offering will position us for a strong recovery as the near-term headwinds subside. Longer-term, we continue to see significant runway ahead of us. We shipped approximately 65 thousand Flexitouch Plus and Entre systems during the course of 2021, which represented less than 5% of the 1.4 million diagnosed lymphedema patients seeking care during this period. According to our latest analysis of U.S. medical claims data. While this is a compelling statistic, we believe that a far greater portion of our patient population remains undiagnosed and untreated and expect this opportunity to come into view as awareness of lymphedema and its treatment continues to grow. And lastly, we remain excited about the addition of AffloVest to our portfolio. AffloVest further expands our runway with an incremental $5 billion annual market opportunity, while enabling us to remain true to our core focus as an organization, providing clinically proven at-home treatments to patients with underserved chronic conditions. Before we open the call for your questions, I wanted to comment on the press release we issued on Friday, which announced the Qui Tam lawsuit filed by a competitor had been dropped and dismissed by a federal judge in Texas. On February 13th, 2019, Tactile was named in the lawsuit filed by a competitor in Texas. The suit challenged our business practices, which are consistent with those of other industry leaders. Now, three full years later, the case was dismissed with prejudice by a federal judge, with the plaintiff agreeing to waive the right to appeal pursuant to a settlement agreement. Tactile will not pay any damages, attorney's fees, or any settlement to the plaintiff. We believe that the case was without merit from the beginning, and I'm proud of how steadfastly we held our ground, choosing to defend our people, our partners, and our practices. The dismissal closes the matter entirely and removes any uncertainty regarding the outcome of this case. With dismissal by the plaintiff, Tactile has decided to voluntarily dismiss its counter-suit against the plaintiff to bring the entire matter to conclusion and continue to focus on our business. We look forward to continuing our long-standing medical education practice, partnering with healthcare professionals, selecting the most effective training methods, and serving patients with dignity and care. I'd like to conclude today's remarks by thanking our employees for their dedication, despite challenging circumstances this past year, which enabled us to bring an identity to those seeking care. Providing relief to over 65,000 patients with lymphedema, bronchiectasis, and other chronic conditions. I'd also like to thank our investors and those on today's call for their interest and support in Tactile Medical and our mission. Operator, we'll now open the call for questions.

Thank you. If you'd like to ask a question, 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. And our first question will come from Adam Maeder with Piper Sandler, please proceed with your question.

Hi, everyone. This is Emmerine Ann on for Adam. Thank you for taking the questions. I guess I wanted to start with guidance, so 15% to 20% growth for 2022. And obviously it's a very fluid environment right now, but any additional color that you can provide on what you're seeing in the procedure landscape far into Q1 and is there anything meaningful outside of COVID that has been contemplated in the guide? And then I guess to round it out, when can we expect growth to return to that normalized 20% base and the core lymphedema business.

Yes, those are good questions. Let me address a few of them, and Brent may also want to contribute. To begin with, I’d like to reflect on the first quarter and how we see things progressing. We were pleased that our performance in December exceeded our expectations slightly, with a decline in COVID cases early in the month which allowed us to surpass our recent guidance. However, as we moved into January, we encountered a significant spike due to the Omicron variant, notably impacting January and early February. We experienced higher absenteeism among our clinics and healthcare practitioners, as well as among patients and our own staff. Over 50 of our salespeople tested positive for COVID in January because of the Omicron variant. This context influenced our full-year guidance, leading to a slower start. Nevertheless, we anticipate that the Omicron variant, having surged quickly, will also decline rapidly, allowing for more normalized conditions. We expect improvements in the latter half of the year, with our staffing levels for sales positions becoming more robust throughout Q1. In Q2, our focus will be on ensuring that our newer team members are trained effectively and are productive. By the latter half of the year, we expect not only enhancements in sales productivity but also a more favorable market backdrop concerning COVID. Additionally, we plan to introduce new products that could energize both our sales team and our customer base. These are some of the crucial assumptions that shaped our outlook. Regarding ongoing growth, we still hold that the growth profile for this business remains stable. Considering the size of the market and the opportunities available, 2022 should be a year of recovery, particularly in the second half, and we believe we can close the year in a much stronger position.

Hi Emmerine, it's Brent. Let me just provide a little bit of context about the year as well. The way I look at it, it's really the tale of two halves. If you heard my commentary, we're looking for first quarter to be a little bit softer than what we historically have seen with all of the things that Dan just mentioned and I'll lay it out in terms of what we expect, but a total revenue increase in the mid-single digits year-over-year. And then our lymphedema business is probably going to be down in the low-single digits for the first quarter, offset by contributions from AffloVest. You'll see AffloVest because it doesn't have a comparable to the prior year drive increase in Q1, but what we've experienced and what Dan was talking about will be a challenge in Q1. And then as we progress through the year, expecting continual improvement throughout the quarter, Q2 being a productivity focus, and then Q3 and Q4 getting back to our double-digit revenue growth on an organic basis.

Got it. Perfect. Thank you. That was very helpful. A quick follow-up on the sales force update. How quickly do you think you can get back to a full-strength sales organization? And to put a finer point on it, how long does it take these reps to get fully productive? And is there an average run rate revenue per rep that we should be looking out for to be considered productive rep?

Sure, Emmerine, it's Brent again. I want to provide some context regarding Salesforce. It's essential to understand our position at the end of Q3 and what we've revealed in the transcript as we move out of Q4, along with our future expectations. At the end of Q3, we had around 20 fewer sales representatives. By the end of December, we categorized our workforce into three main groups: 220 field sales representatives, 30 field managers, and 94 field support specialists. Our goal for the fourth quarter was to have 225 field sales reps, so we made good progress but didn’t fully reach our target as we exited Q4. Looking ahead to Q1 of 2022, we aim to get closer to 230 field sales reps by the end of that quarter, with a target of increasing to about 240 by the end of the third quarter.

Got it. Thank you both.

Our next question is from Ryan Zimmerman with BTIG. Please proceed with your question.

Hey, this is Phil on for Ryan. Can you guys hear me okay?

Come in through, Phil.

Great, great. Thanks for taking the question. In terms of the lawsuit, getting that behind you, what do you expect from a revenue perspective in the Texas region where you were impacted?

It's a little early to say, but we will certainly have a fresh opportunity to go back and revisit those accounts that demonstrated pause just based on the reputational overhang that this created for us. We're certainly looking forward to getting back and more engaged with the number of those accounts, particularly within the VA system. Don't know that we've put a finer point on it beyond that, but we think it's a ready place for us to certainly go lean back into.

Sure. Sounds great and thanks for answering that. In terms of the VA, what you just mentioned. I understand your earlier comments about FY 22 being a tale of two halves, but in terms of that recovery in the VA as it relates to lymphedema patients, how do you see that playing out as we move through the year here? Are there still regulations that your sales force is encountering, or how do you see that going?

Yes. One of the things about the VA is they seem to be growing increasingly entrenched in their posture. I think when COVID surfaced, it seemed a little uncertain about whether or not their pivot was temporary or if it was a precursor to something more permanent. Recall that we used to find most of our patients at the VA centers, of which there were about 170. When COVID surfaced, most of those patients were redirected out to the community-based outpatient centers. As we continued to monitor this one, I think that the CBOC or the outpatient centers and even virtual patient encounters seem like it's here to stay. So I think that there's a good chance that this is the new model that we've seen. But I think we've also demonstrated that we've been able to pivot along with it. The outpatient centers have become a regular call point for us, so we're certainly engaging there. I think longer term, I've suggested that I expect that low double-digits is more likely percentage is a function of mix for us on a projected basis with the VA, if you look at just the size of the market relative to the overall market. So we think that the VA posture is probably going to be enduring at least for the foreseeable future, and I think we've adapted to be able to engage with patients in that model.

Awesome, thanks so much.

Thanks, Phil.

Our next question is from Margaret Kaczor with William and Blair, please proceed with your question.

Hey, guys, this is Maggie on for Margaret today. I just wanted to ask within the 2022 guide what are you assuming in rep productivity growth from your existing reps and then the new reps that you would plan on hiring throughout the year.

Yes, maybe I can give you a little perspective on that. Recall that our general expectation for product specialists, and this is on average, is a product specialist generates roughly about $1 million of revenue in a given year. And depending on the size of the territory and how much demand there is in the territory, they might actually be granted an associate product specialist. And if that territory can support both the product specialists and associate product specialists, you can think about that territory generating roughly about $1.5 million with out of that APS. Then of course, we've talked about the field support specialists, if we can have a field support specialists in that territory, we start to see nice productivity gains on a comparable basis. So fully staffed territory with a product specialists, APS and an FSS, think about that FSS adding roughly somewhere between 20% and 30% relative to that territory. So that just gives you an idea of how the build works from a productivity perspective by the reps.

I want to add that we have historically relied on one method to staff product specialists, which involved hiring associates and developing them, but this process often takes considerable time. To ensure that we effectively staff our field territories and speed up our productivity curve, we are now adopting a blended approach. This includes some associate product specialists who will continue to progress as they are ready, while we also compete externally in the med-tech marketplace. We are incorporating both internal promotions and experienced med-tech salespeople from outside. By doing this, we believe there is a chance to reduce the productivity ramp-up time for new product specialists.

Okay, great. Thank you. You guys talked about having a heavier podium presence this year. So what type of data are you aiming for? And then what, if any, benefits are included within the guide, whether that'd be assistance with utilization or new accounts or just growing market access. Thank you.

Great question. We previously mentioned that we began sponsoring a randomized clinical trial focused on head and neck cancer survivors, which will continue to progress. This initiative is a significant investment in ongoing evidence. Although it is a multiyear study and won't yield results in 2022, we believe it will generate substantial evidence that can impact payer policy. Additionally, we will be participating in the American Venous Foundation Congress in Orlando later this week, where various speakers will present updated information on identifying patients and exploring market opportunities. In June, we expect to present at the Society for Interventional Vascular Radiology, which will allow us to discuss lymphedema and the identification of suitable candidates for treatment. We are also starting earlier stage work related to AffloVest, where we expect to demonstrate the therapy's efficacy. Overall, gathering evidence remains crucial as we work to highlight underserved patients and assist clinicians in diagnosing and prescribing appropriate therapies to bring them relief.

Great. Thank you.

As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. We ask that you limit it to one question and one follow-up. Our next question is from Suraj Kalia with Oppenheimer, please proceed with your question.

Hey, Dan and Brent. Hope everyone is safe and healthy. Dan, first two-part question. In Q4, what percent of your organic revenues were contributed by the 30% unvaccinated reps? And the second part of that question is in one, the 50 reps that contracted COVID, on average, how long were they decommissioned and how recoverable is this business?

Suraj, I just want to make sure I answered the first one. There were a couple of percentages mixed in there. Your question was related to the 30% that we're unvaccinated. I just want to make sure the nature of the part of that.

Yeah. Just trying to understand what percent of the organic business is contributed by these 30% of the unvaccinated reps?

I don't have the specifics on that. As a reminder, we indicated that about 30% of our sales force were unvaccinated approaching the fourth quarter. Throughout that quarter, several employees either got vaccinated or were subject to our policy that was set to begin at the start of the year. Those who remained unvaccinated would have received a waiver agreeing to undergo testing a few times a week. By the end of the quarter, the entire sales force was either vaccinated or complying with the testing requirement. Our aim was to ensure that we could safely bring people into patients' homes and meet with them in clinics. The percentage of unvaccinated employees did continue to decrease. In response to the second question regarding the duration, it might be reasonable to assume no less than five days. If someone tests positive, most protocols generally suggest being out for at least a week, and in some cases, it could be longer. That seems to be a typical guideline.

But is this business recoverable, Dan?

When you ask if it is recoverable, the sales representative wouldn't have been available to interact with patients in the clinic. This concerns the capacity to support new prescriptions. If we had prescribers writing prescriptions for patients, we were still able to provide support. We arranged for trainers to meet with them. So I believe that part of the business continued, but you can understand that if there are absences, it is similar to having an open territory. If you remove a few salespeople who are not productive in the clinic, either by driving business growth or continuing to support their customers, there is certainly an impact. This situation influenced the guidance and general direction we provided regarding Q1.

Got it. And final question, Dan, what was the percent use of virtual training in the quarter? Thank you for taking my questions.

I don't have the percentage at my fingertips, Suraj, but it was relatively modest. It's a place where I think we can continue to grow, particularly as we introduced this mobile app in the back half of the year. I think engaging with patients with a digital footprint, increased training content via video in the palm of their hand on their phone, certainly will continue to help us move in that direction. But at this point, I think it was relatively modest in Q4.

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

Thanks, Carl.

Thanks, Carl.

You're welcome.