Earnings Call Transcript - TCMD Q1 2022

Operator, Operator

Welcome ladies and gentlemen to the First Quarter of Fiscal Year 2022 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 as well as our most recent 10-Q filing 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 on 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.

Dan Reuvers, CEO

Thank you, operator, and welcome everyone to our first quarter earnings call. I am joined on the line by Brent Moen, our Chief Financial Officer. I am going to begin our prepared remarks today with an overview of our quarterly sales performance and some of the highlights that we saw during the first quarter. Brent will cover our first quarter financial results in greater detail and review our 2022 financial guidance, which we reaffirmed in our earnings release today and I'll conclude with some additional thoughts on our outlook in key areas of focus in 2022, before we open the line for questions. So let me start by saying I was pleased with our team's ability to deliver a strong quarter amid a host of headwinds that we believe peaked in the first quarter. In the quarter, we reported total revenue growth of 12% year-over-year to $48 million exceeding our expectations for growth in the mid-single digits, which we communicated on our earnings call in February. Our total revenue growth was primarily driven by sales of our airway clearance products, which include our recently acquired AffloVest product line. Airway clearance product sales contributed approximately 17 percentage points to our revenue growth in the first quarter. The stronger than anticipated sales of our airway clearance product offset a 5% decrease in sales and rentals of our lymphedema products. Let me provide you with a brief update on the puts and takes that we saw in our lymphedema and airway clearance categories. Beginning with our lymphedema products; as we outlined in our earnings call in February, our first quarter sales performance remained paced by the surge in COVID cases related to the Omicron variant, as well as the expected effects of the sales force staffing gaps we experienced during the second half of 2021. As we anticipated on our last call, the headwinds related to the Omicron variant continued through much of the first quarter. Similar to prior periods with high COVID case volumes, we saw higher rates of absenteeism at the patient provider and staff, and even within our own salesforce levels, along with reduced patient throughput and limitations on representative access at some of the facilities that we serve. While these headwinds ultimately limited our team's ability to engage with new accounts, we were pleased with their efforts to support our existing clinician and patient customers despite the disruption created by this recent case surge. In terms of sales force staffing, remember that we navigated several challenges during the second half of 2021, which impacted our recruiting and retention efforts, including the challenging labor market and some reluctance related to vaccination and testing. During the first quarter, we continued to make progress in getting back to our target headcount and ended the quarter with 226 field sales representatives. Given the influx of our new field sales reps that joined since late 2021, we remain focused on getting them onboarded and trained during the second quarter, with the expectation of improving productivity as we enter the second half of 2022. We're also targeting continued expansion of our field sales headcount during the remaining months of this year to approximately 240 before the end of 2022. With respect to our airway clearance products, we were pleased to see strong initial performance in the DME channel during the first quarter culminating in pro forma growth of 108% year-over-year. As a reminder, our AffloVest product line is sold through respiratory DME providers throughout the United States supported by a small team of tactile sales specialists. The AffloVest acquisition was predicated on the belief that respiratory DME reps are uniquely positioned in the market due to their existing relationships with pulmonologists and primary care providers that treat chronic respiratory conditions like bronchiectasis, as well as other chronic disorders that lead to retained secretions and breathing problems. The initial traction these DME reps are seeing is evidence that the AffloVest airway clearance therapy is a natural complement to other therapies that they provide to complex respiratory patients, including oxygen, nebulizers, and non-invasive ventilation. Our integration efforts also progressed as we expected during the quarter and our specialized airway clearance sales force continued to make progress in raising awareness, educating, and training within our DME channel. Turning to a review of some important operational highlights. During the first quarter, we continued to host virtual education events as well as service sponsors at the American Venous Forum and power lymphatics conferences. Specifically, we hosted 54 educational programs that were attended by nearly 1,600 clinician participants and we increased our podium presence at the key society meetings, including the American Venous Foundation Congress in February, where our Chief Medical Officer, Dr. Tom O'Donnell and several other key opinion leaders delivered five presentations on a variety of topics related to our identification, the diagnosis, and management of lymphedema. In addition to these efforts, we were pleased to see an expert opinion consensus on lymphedema diagnosis and treatment published in phlebology, the journal for venous disease in March. It reflected a consolidated stance on the diagnosis and treatment of lymphedema among three independent professional societies, the Society of Vascular Medicine, the American Venous Forum, and the American Vein & Lymphatic Society. Experts from these societies used the Delphi methodology and arrived at a consensus on a number of factors related to lymphedema including two particularly notable items. First, all patients with chronic venous insufficiency stages C2 through C3 through C6 should be considered lymphedema patients and second, pneumatic compression should be recommended for lymphedema patients. We believe this will prove to be another persuasive tool as we engage with prescribers, as well as payers, particularly in demonstrating the need for access to pneumatic compression devices for patients suffering from CVI-related lymphedema. We also made progress in our development of new solutions for our lymphedema customers. We remain on track for a limited market release later in the second quarter and a full market release in the third quarter of a new series of Flexitouch garments intended to further enhance the patient experience. Among the improved features, our redesigned garments increase patient comfort and ease of use, all focused on a better patient experience. And our work continues towards introducing a mobile app later this year. This app will enable Tactile to engage and inform patients earlier in their diagnosis and treatment journey, help them learn more about their condition and treatment options and allow them to document their symptoms and progress ahead of their visit with a specialist, helping them arrive better informed and potentially better qualified for our therapies. We believe that both of these new solutions will provide the added benefit of helping our team to educate and train patients more effectively, as well as begin to engage with them earlier in their journey toward a definitive diagnosis and path to relief. In January, we bolstered our board of directors with the appointment of two new highly experienced members, Valerie Asbury, and Brent Shafer. Valerie is the President and CEO of LifeScan, a former Johnson & Johnson company and global leader in blood glucose monitoring for people with diabetes. She previously spent 20 years with J&J including five years as global president of its diabetes solutions business. Brent is the former Chairman and CEO of Cerner Corporation, which was acquired by Oracle in 2021. He formally served as the Chief Executive Officer of Philips North America as well. Their addition to our board further strengthens Tactile Medical's depth of experience in accessing and treating patients that suffer from chronic conditions, including the use of digital health tools and supporting our continued development as a company. And lastly, in February, we were pleased to announce that the Qui Tam lawsuit filed by a competitor had been dropped and dismissed with prejudice by a federal judge, with the plaintiff agreeing to waive the right to appeal. After defending our organization and its partners against the allegations in this case, which we always believed were meritless, we were proud to resolve this matter in its entirety, without paying anything to the plaintiff, his counsel, or the government. We're proud to have rightfully defended our reputation and glad to close this chapter with it fully intact. Now, let me turn it over to Brent to discuss our financial results in more detail along with our guidance for 2022.

Brent Moen, CFO

Thanks Dan. Total revenue in the first quarter increased 12% year-over-year to $48 million compared to $42.8 million in the first quarter of 2021. Looking at our total revenue by disease state, sales of our airway clearance products, which include our recently acquired AffloVest product line contributed $7.3 million for the quarter and sales and rentals of our lymphedema products, which include our Flexitouch and entree systems decreased 5% year-over-year to $40.7 million. Total revenue by channel was 55% commercial, 18% Medicare, 15% durable medical equipment distributors, and 12% VA. As a reminder, durable medical equipment distributors is a new channel comprised of revenue from our acquisition of the Airway Clearance Therapy business, which closed on September 08, 2021. These figures compared to our total revenue by channel in the first quarter of 2021, in which the commercial, Medicare and VA channels represented 66%, 20% and 14% of total revenue, respectively. Continuing down the P&L unless noted, all references to first quarter results are on a year-over-year basis. Gross margin was 70.6% of sales compared to 70.7% last year. Non-GAAP gross margin was 71.2% of sales compared to 70.7% in the prior year. Non-GAAP gross margin excludes non-cash intangible average in both periods. As a reminder, we have provided reconciliations of certain GAAP to non-GAAP measures in our earnings press release. First quarter operating expenses were $48.8 million, an increase of $14.4 million or 42%. The largest driver of the increase in operating expenses year-over-year was a $7 million increase in non-cash earn-out expense related to the acquisition of the Airway Clearance therapy business and non-cash intangible asset amortization. Our prior year GAAP operating were not impacted by these non-cash items. The increase in operating expenses was also driven by a $5.1 million increase in sales and marketing expenses, largely due to increases in personnel related compensation expense, including the addition of the AffloVest related commercial expenses and travel-related expenses as we return to normalized business activities, a $2 million increase in reimbursement, general and administrative expenses, and a $300,000 increase in research and development expenses. Excluding the aforementioned non-cash expenses and litigation defense costs in both periods, our non-GAAP operating expenses increased 19% year-over-year in the first quarter. Operating loss was $14.9 million compared to an operating loss of $4.1 million last year. Non-GAAP operating loss was $5.4 million compared to a loss of $3.1 million last year. Income tax expense was $200,000 compared to an income tax benefit of $1.8 million last year. The difference relates to a full valuation allowance being recorded against all deferred tax assets in the current period. Net loss was $15.6 million or $0.78 per diluted share compared to a net loss of $2.3 million or $0.12 per diluted share last year. Non-GAAP net loss was $8.4 million compared to a net loss of $1.5 million last year. Weighted average shares used to compute GAAP diluted net loss per share were $19.9 million and $19.5 million in the first quarter of 2022 and 2021 respectively. Adjusted EBITDA loss was $2.6 million compared to an adjusted EBITDA loss of $7,000 last year. As of March 31, 2022, we had $21.2 million in cash and cash equivalents and $51.3 million of outstanding borrowings compared to $28.2 million in cash and cash equivalents and $55 million of outstanding borrowings as of December 31, 2021. Turning to a review of our 2022 outlook, which we reaffirmed in our earnings press release today, our guidance for full year 2022 total revenue remains unchanged in the range of $235 million to $240 million representing growth of approximately 13% to 15% year over year. Our total revenue guidance reflects sales of our lymphedema products increasing approximately 6% to 8% year-over-year and sales of our Airway Clearance products in the range of $19.5 million to $20.5 million. For modeling purposes, we expect to generate adjusted EBITDA of approximately $14 million to $16 million in 2022. This range is based on the following assumptions for the full year. Gross margins in the low 70% range, an increase in GAAP operating expenses in the low 20% range year-over-year, driven primarily by $2 million to $3 million of legal expenses and certain non-cash items, including stock compensation expense of approximately $12 million, intangible amortization, and estimated changes in contingent consideration of approximately $11.5 million and depreciation expense of approximately $2.4 million. Lastly, in the interest of transparency, we would like to provide some additional color on our revenue expectations for the second quarter. Specifically, we expect total revenue growth of approximately 10% to 15% year-over-year driven by flat to 3% growth in our sales of our lymphedema products and $5 million to $6 million of sales of our airway clearance products, which as a reminder, did not impact our sales results in the second quarter of 2021.

Dan Reuvers, CEO

Thanks, Brent. And we're pleased to be in a position to reaffirm our full year guidance. We expect improving growth and profitability performance in the second quarter and the second half of this year, driven by a combination of the increasing productivity of recently hired and promoted sales representatives, the moderation of COVID-related headwinds, and the commercial launch of our new garments and digital app. As a result, we expect to deliver mid-to-high teens total revenue growth in the second half of the year. Looking ahead, we remain focused on driving operational progress in the following four areas. First, enhancing our sales force hiring, retention, and training, to fill key roles and improve the productivity of our new reps. Our recently hosted national sales meeting in April, the first time in 27 months we've been able to assemble our entire team was a solid step forward towards improving retention and engagement. Second, increasing the base of our new clinician prescribers for our lymphedema products, as well as deeper penetration by educating and training their clinical teams and providing efficient support for the referrals. Third, introducing new and improved solutions, including our new Flexitouch garments and mobile app to improve patient engagement, experience, and outcomes, as well as extend our competitive lead. And finally, supporting our respiratory DME channel partners to help them integrate the AffloVest among their existing offerings of complementary solutions and raise awareness among their physician and patient customers. By continuing to execute with respect to these key areas, we expect to set the stage for sustained organic revenue growth and EBITDA margin expansion in the coming years, with significant runway ahead for us as we continue to penetrate the combined multi-billion dollar annual addressable markets that we serve. And before concluding my remarks today, I'd just like to thank our employees for their continued dedication to the advocacy and treatment of underserved patients living with lymphedema, bronchiectasis, and other related chronic conditions. Tactile Medical's success is the direct result of their dedication to bringing relief to thousands of patients. I'd also like to thank our investors and those on today's call for their interest and support of Tactile Medical. Operator, we'll now open the call for questions.

Operator, Operator

And our first question will come from Ryan Zimmerman with BTIG. Please proceed.

Ryan Zimmerman, Analyst

Hey, good evening. Thanks for taking the questions, Dan and Brent. I want to start with the guidance for a moment here and appreciate that you're reaffirming. If I think back to the last quarter, I think the AffloVest guidance was fairly similar to what you're telling us today. And the lymphedema products guidance was expected to increase about 6% to 8% for the year as well. Given where you're at with AffloVest and then kind of given where you're at with the lymphedema products, it would imply, pretty big increase in lymphedema in the second half of the year and somewhat of a slowdown in AffloVest in the second half of the year. So help me kind of reconcile that and kind of your thinking about the pacing of each of the product categories through the year.

Dan Reuvers, CEO

Certainly. I'll address that question and then Brent might want to add some thoughts. Starting with AffloVest, we were very encouraged by the strong performance in the first quarter. Maintaining our team and preserving the specialist group from the AffloVest acquisition played a significant role in this success. They've shown their ability to engage with our DME partners effectively. Another positive observation from the first quarter is that AffloVest fits well within their portfolio, especially as they cater to patients with chronic respiratory issues, which highlights a clear opportunity for addressing the airway clearance gap. However, we recognize that we are just one quarter into the year, and we remain cautious to ensure that this success isn't merely a short-term gain but reflects sustainable growth. Therefore, we're keeping our AffloVest expectations steady for now. Regarding the lymphedema business, we have maintained our guidance, indicating no changes and that it will likely be more of a story for the second half of the year. We still have considerable efforts ahead for the latter half, including the introduction of new products and ensuring our teams are trained effectively. We will likely reassess our expectations once we reach the halfway point. Brent, do you have anything to add?

Brent Moen, CFO

Yeah, no, I think that's a good summary of what we expect for the remainder of 2022.

Ryan Zimmerman, Analyst

Okay. A couple follows. Just two for me, just briefly one, what's kind of the state of the state on VA access at this point? I know that was an issue for you guys before, and then just the second question, I'll ask it as well, is the state of the new prescriber base in terms of their relative to existing prescribers? It sounds like you had picked up a lot last year and are we seeing any meaningful contribution from that group at this point? Thanks for taking the questions.

Dan Reuvers, CEO

I think the situation with VA access hasn’t changed significantly. We still have a large number of patients visiting the community-based outpatient centers, which we've included in our outreach. We are focusing on certain targeted VA centers to drive additional growth as the year progresses, with specialists dedicated to this effort alongside our product specialists. There remains an opportunity for growth, but I wouldn't say there has been any shift in our approach to the VA over the past quarter. Regarding our new prescriber base, we have indeed added more prescribers. The sales force reset during the second half of last year and into the first quarter has affected our ability to penetrate this new prescriber group more effectively. However, this remains our game plan and priority as we move through the year. We approached this cautiously in the second quarter, but we expect to see enhanced penetration in the latter half of the year, particularly in Q3 and Q4. Additionally, there are opportunities to improve payer relations and policy, which we anticipate will become more favorable as the year continues.

Ryan Zimmerman, Analyst

Thank you guys.

Operator, Operator

Our next question is from Adam Mandel with Piper Sandler. Please proceed.

Adam Mandel, Analyst

Hi Dan. Hi, Brent. Congrats on the progress and thanks for taking the questions. Just wanted to start with broader procedure environment. It's a dynamic environment, I think that's putting it mildly, so we just love some extra color or commentary around Q1 and kind of how it played out by month, as well as kind of the exit momentum that you had into Q2 and what you saw over the course of April, both on the lymphedema and AffloVest side. I didn't hear you guys kind of talk about trends in that much detail, so just wanted to flesh that out a little bit in terms of progression and then I had a follow-up or two. Thanks.

Dan Reuvers, CEO

Yeah, I think I'll start just with a little bit of Q1 then maybe ask Brent to add something as it relates to Q1. We started off certainly with a soft beginning of the quarter with Omicron. We continued to see what I'd say some modest positive progression through the quarter, but it was still a bit sluggish as we entered March. So, I think that's what probably got us a little on the lower side of where we expected on the lymphedema business. So, that's a little bit of, I think what we saw on that side.

Brent Moen, CFO

Yeah, Adam, it's Brent. Just as we progressed into Q2 certainly look for an uptick in performance, total revenue expectations somewhere between 10% and 15% year-over-year. It's split between our lymphedema products, which we expect to be flat to 3%. So as Dan pointed out, improvement in the Omicron impact, but looking for continued enhancements in productivity as we progress through Q2 of obviously not getting all the way there, but really emphasizing second half of 2022 growth there. And then $5 million to $6 million of sales of our airway clearance products, which as you know, that's AffloVest. So we have expectations that will continue to perform at that expectation. And then as we improve growth, certainly profitability will pick up as well in the second half of the year, but more particularly in the second quarter as well. So just with the relief of some of the Omicron impacts, and then the commercial launch of our new ease-of-use garments and digital app in the second half of the year.

Adam Mandel, Analyst

That's helpful color guys, appreciate that. And then maybe wanted to just follow up on the sales force and hire initiatives that you guys have. It sounds like if I heard correctly, you finished Q1 with 226 heads. And I think that was maybe just shy of the 230 number that I think that you pointed to you in the past. How is the hiring environment today? Is it getting any better? Maybe just the level, the confidence to continue to scale the sales force in a timely fashion and then I had one last follow-up for you guys. Thanks.

Dan Reuvers, CEO

Yeah. So we did end up at 226 and keep in mind that's a snapshot in time. So, we are consistent. We always report where we sit at the end of the quarter. If you asked us a week ahead or a week later, it could be a different number. As you can imagine, it moves a little bit and it's dynamic. I think the key point for us was when we exited, just to recall Q3, the end of September, we had 200 sales people and we said that, we had a good amount of work ahead of us to try and get that number back up. We wanted to get upward near 230 towards the end of Q1, and we got within four heads. And that's a net increase of 26 over the course of the last couple of quarters. So, we feel good about the fact that we've been able to attract some really good talent. I think some of the ads that we've made have been really particularly good ads for us coming from good profiles. Some of that's been promotion, but as we had alluded to, I think before some of it's coming from the outside as well and then we were able to assemble all of our sales force just a couple of weeks ago in Las Vegas, where we had a National Sales Meeting. First one used to be an annual event. This is the first one we've had in three years due to Omicron or rather COVID. So it was a really encouraging and I think engaging opportunity to get this group together. We feel like it was going to be a good investment that's certainly bring some restored energy to our group. And I think that the enthusiasm they showed for some of the things that we covered in training, as well as some of these new garments that we'll be introducing there was a lot of good energy as we left that. And we think we'll continue to see some of the benefits of that.

Adam Mandel, Analyst

That's great to hear, Dan, and I appreciate the insights. I have one last question, which is more of a housekeeping item. I’m not sure if I caught it in the prepared remarks, but regarding the supply chain situation, are there any notable challenges related to procurement from a Tactile perspective that you would like to highlight for investors? Thank you for addressing my questions.

Brent Moen, CFO

Yeah. Adam, it's Brent. I'll start and then if Dan wants to clean up any of this certainly but I think it all centers around gross margin and we reaffirmed that we expect gross margins to be in the low 70% and we've reaffirmed our top-line revenue. So I think that's suffice to say that we have been pretty successful at specifically our operations team doing a great job to stay ahead of and mitigate any potential issues that are out there. And so I think we feel like we're in a good spot relative to our supply chain.

Dan Reuvers, CEO

Yeah. I would just add a couple items on that one too. Adam first, let me just do a shout out to our ops team because I think they've done a fantastic job. We have certainly not been immune to some of the issues that you've alluded to, that a lot of companies are talking about. So, we've seen plenty of increases in things like freight and spot buys and labor and things like that. But I think our team has done a really good job of finding offsets. The other one I would just add as it relates to AffloVest and it's a little bit about what kind of tempered our update as far as guidance, but we are in the final stages now of the integration of AffloVest. We had before this past quarter, we basically brought virtually everything in with the final exception of taking direct control of the supply chain upstream as well as final assembly and we're going to be completing that during the second quarter. That said we have a really good supplier that we inherited, but they've got some capacity constraints. They're fully capable of delivering product to our original forecast. But as we see a potential opportunity for growth not only this year but well into the future, keep in mind, this is a big opportunity and one that, we didn't enter into as a hobbyist. We're in the midst of working on trying to stand up a secondary source. I think right now we continue to believe that that's probably likely about the end of the year. But that's a work in progress as well.

Adam Mandel, Analyst

Okay. Thanks for the extra color.

Operator, Operator

Our next question is from Suraj Kalia with Oppenheimer. Please proceed.

Suraj Kalia, Analyst

So Dan, I have three questions regarding lymphedema. Can you provide insight on the anticipated growth in lymphedema for the second half of 2022 to meet guidance? Which segments within lymphedema do you expect to drive this growth, such as commercial, Medicare, or VA? How should we analyze these three segments in relation to lymphedema?

Dan Reuvers, CEO

I think it's a bit challenging to answer because we don't provide forecasts by payer. Our focus is on end-user segments. The key areas we anticipate showing growth likely include a combination of oncology patients and those with lower extremity lymphedema, as well as phlebolymphedema or CVI related conditions. This is clearly the largest market and represents about two-thirds of the opportunity. Therefore, expecting a mix that resembles this would be reasonable.

Suraj Kalia, Analyst

Got it. And Dan on the lymphedema side, how many reps had tenured and where does the annual productivity stand exiting Q1?

Brent Moen, CFO

Yeah, I'll take a shot at Suraj. So as Don had pointed out earlier, we've had net ads of 26 heads since our Q3 period. So probably suffice to say that, more than 26 have left the organization. And so I would tell you that from my view, we're not as far along as we would like to be. And I think that's what we've been talking about in terms of ramping up productivity in the second half, or particularly in the second quarter, but starting to see the benefits in the second half of 2022. And so the new ads that we brought in, I think we had talked also about in Q3 and Q4 that, not all of them, our historical kind of hiring methodology is to bring them in as associate product specialists. We've expanded that now to bring in reps that are not only associate product specialists, but also the product specialist in order to ramp productivity faster than it historically has. And so we have expectations that what historically has taken roughly a year to get to productivity is going to be something less than that as we push through 2022.

Suraj Kalia, Analyst

Got it. One last question for Brent and Dan, and I'll return to the queue. Are there any aspects of the commercial segment that you would consider one-time or unique that influence the perceived growth rate on the commercial side? Additionally, Brent, could you clarify the last point you made? Specifically, what is the number of reps reaching productivity levels of a million or more? Thank you, gentlemen, for addressing my questions.

Brent Moen, CFO

On the payer side, I can discuss that aspect, Suraj. In terms of the commercial segment, our experience has been similar to what we've seen seasonally and from a COVID perspective. The highest co-pays early in the period certainly affect our ability to fully take advantage of the commercial opportunity, further complicated by a significant COVID Omicron outbreak. Additionally, during such outbreaks, large institutions and hospitals restrict access, which has historically limited the majority of prescriptions for Flexitouch. However, as we move into Q2 and the latter half of 2022, I anticipate a slight recovery in the commercial business due to seasonality and the easing of some COVID-related issues.

Dan Reuvers, CEO

It's challenging to provide an accurate productivity figure because we have variations in our sales team; for instance, some representatives work alone while others have associates supporting them. Instead of giving you a single, possibly misleading number, I can confirm that our overall productivity didn't meet expectations in the first quarter. As we have restructured the sales team and filled some roles towards the end of last year and the beginning of this year, it seems like we are making progress. We feel that our salesforce is becoming more engaged now. Our immediate focus will be on training, and the National Sales Meeting came at just the right time to energize the group while also providing valuable learning opportunities. We have several follow-up training events planned. With these efforts, including the general training from the National Sales Meeting and additional practice time, we are confident about a stronger second half of the year. It's important to note that this is a common trend for us, as the latter part of the year tends to perform better. Devices become more affordable as the year goes on, and co-pays decrease. We're accustomed to this pattern, but with new product launches creating fresh interest and some increasing stability within our sales force, we remain optimistic about the outlook.

Suraj Kalia, Analyst

Thank you.

Operator, Operator

Our next question is from Margaret Kaczor – William Blair. Please proceed.

Maggie Boeye, Analyst

Hey guys, this is Maggie Boeye on for Margaret today. I wanted to ask one on AffloVest just a little bit differently. So it obviously came in stronger than expected this quarter. So can you talk about what drove that dynamic and just kind of give us a breakdown of that and what you're seeing into April?

Dan Reuvers, CEO

Yeah, ultimately what drove it is the same reason that we were founded as an appealing asset for us in the first place. Maggie is remember there's thousands like 4,000 respiratory DME reps out there. So when we explored the opportunity this was still what I'd call an emerging product within the portfolio of some of the respiratory DME. Our diligence continued to point to the fact that, if you think about a complex respiratory patient, like a little bit like a puzzle, there's NIV, there's O2, there's nebulizers, there's PEP devices, and there was one glaring missing piece in the middle, and it was the ability to provide effective airway clearance therapy. So I think what we're seeing is that these respiratory DME reps are recognizing that these same complex patients that they are already serving and the same referral sources that they're serving, this fits very well and by introducing more active dialogue about trying to call out and help doctors recognize which patients can benefit, we're seeing an attached rate that we're pleased with. So I think as are some of the characteristics. As we've said, this is a really big market, and with thousands of respiratory DME reps, we're still in the early days when you think about what kind of penetration we even had in Q1. So it was a good way for us to get off in Q1 and we still have some work to do.

Maggie Boeye, Analyst

Got it. Thanks. And then I just want to ask for your core lymphedema business, you've got the new garments you're launching as well as the mobile app. So what type of momentum can that drive within the core lymphedema business? And then how can we see that translate into growth specifically in the back half of the year? Thanks for taking our questions.

Dan Reuvers, CEO

That's a fair question, Maggie. To provide more clarity on the timing, we have a limited market release for the new garments this quarter, specifically in the latter half. We anticipate a full market release in early Q3. As is typical with new products, this transition won't be instantaneous, but we are hopeful that launching in early Q3 will allow us to see an impact as early as Q4. This expectation has been factored into our plans. We also believe this will help us build momentum heading into the new year. The new garments feature a lighter weight, making them easier for patients to put on, and include zippers among other enhancements. The digital app will roll out shortly thereafter, with an initial limited market release in early Q3 and a full market release expected by the end of Q3. We think this app could provide more benefits for us in 2023 and offers a chance to engage with patients sooner. Our analytics indicate that many lymphedema patients remain under-recognized and underdiagnosed, so an app that helps them educate themselves on their condition and track symptoms could empower them to be better prepared when they consult their specialists. They can document their progress and take pictures of their limbs, which we believe will encourage earlier patient engagement. The app will also include features for easier self-training, such as video content and many other functionalities. This represents just the first step, as we have an extensive digital roadmap planned internally.

Maggie Boeye, Analyst

Great. Thank you.

Operator, Operator

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

Dan Reuvers, CEO

Thank you, everyone.