Tactile Systems Technology, Inc. (NASDAQ:TCMD) Q2 2022 Earnings Conference Call August 1, 2022 5:00 PM ET
Company Participants
Dan Reuvers – President and CEO
Brent Moen – CFO
Conference Call Participants
Ryan Zimmerman – BTIG
Simran Kaur – Piper Sandler
Margaret Kaczor – William Blair
Suraj Kalia – Oppenheimer & Company
Operator
Welcome ladies and gentlemen to the Second 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 which 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 non-GAAP financial measures. Reconciliations of the 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.
Dan Reuvers
Thanks operator, and welcome to our second quarter earnings call. I’m joined online by our Chief Financial Officer, Brent Moen. Today I’ll begin with an overview of our sales performance and operational highlights during the second quarter. Brent will then cover off on our second quarter financial results in greater detail and review our 2022 financial guidance which we updated in our earnings release earlier today. I’ll conclude with some additional thoughts on our updated outlook and key areas of focus in 2022, before we open the line for questions.
Starting off with our second quarter sales performance, we were pleased to report total revenue growth of 17% year-over-year to $59.6 million, which came in ahead of our 10% to 15% growth we’d anticipated at the time of our earnings call in May. Our outperformance in the second quarter was largely driven by sales of our airway clearance products, which as a reminder includes AffloVest. Airway clearance products contributed approximately 16 percentage points to our total revenue growth. Sales and rentals of our lymphedema products in the second quarter increased 1% year-over-year to $51.6 million, consistent with our expectation of flat to low single digit growth.
Looking at the performance in our lymphedema and airway clearance product categories more closely, we were pleased to see lymphedema product sales return a modest year-over-year growth as some of the more pronounced headwinds that we experienced during the first quarter began to subside. As a reminder throughout the first quarter of 2022 performance in our lymphedema business was paced by headwinds related to COVID case surge, as well as the sales force staffing gaps we experienced in the second half of 2021.
With this as a backdrop, during the second quarter, we saw lower rates of COVID related absenteeism at the patient, provider and sales force levels. Sales in our lymphedema business increased 27% sequentially compared to our first quarter’s revenue.
From a sales force staffing and training perspective, we made good progress in recovering from the recruiting and retention challenges discussed on our recent earnings calls. I’m pleased to report that we achieved our hiring target for the year, ending the second quarter with 241 field sales reps in our lymphedema channel, an increase of 15 since the end of March. In addition to filling the remaining gaps in our sales team, we’ve focused on ensuring that the bolus of new reps we brought on board in recent quarters are well trained to facilitate their increasing productivity over the second half of 2022.
In our airway clearance business, we were pleased to deliver another quarter of exceptionally strong sales performance in the DME channel. On a standalone basis given AffloVest was a private company in the prior year period, airway clearance product sales grew 96% year-over-year. Feedback from our DME channel partners indicates that the respiratory DME reps that we partner with have been quick to appreciate the value and complementary nature of having our AffloVest within their existing portfolios. They’re seeing success in finding qualified audiences across the complex respiratory patients they are already serving. These are patients who for example, may be on oxygen, nebulizers, non-invasive ventilation, or using one of the other complementary products that respiratory DME reps sell and do not yet have an effective at-home treatment for their airway clearance needs. Given the success the reps are seeing, our DME partners are continuing to introduce our AffloVest system to more of their branches, further expanding their coverage universe. In addition, our small team of respiratory specialists is making good progress supporting and educating reps among our existing DME partners, while also helping to develop new partnership opportunities.
And lastly, from an operational standpoint, we completed the final stage of our integration of AffloVest on May 1, by assuming oversight of product manufacturing and shipping. We continue to work with our existing supplier to expand production capacity, and remain on track to add a second supplier by the end of this year in order to support our growing demand. Our performance over the first half of this year for sales of AffloVest increased 102% year-over-year, along with the positive feedback received from our DME channel partners, continues to validate the effectiveness of our strategy to leverage this channel to reach more complex respiratory patients.
Turning to a review of our other operational highlights. As I mentioned earlier, our primary focus during the second quarter was onboarding and training our recently hired lymphedema sales reps. Most notably, we hosted our national sales meeting in April, the first time in 27 months that we’ve been able to assemble our entire sales team in person due to COVID. Our primary goal for the event was to reinforce our new team members’ technical knowledge and selling skills. With this goal in mind, our event included interactive panels, which allowed our reps to learn from and engage with both our top performing sales team members and with key opinion leaders in the field of vascular medicine.
We also held sessions dedicated to reviewing the latest clinical evidence, as well as interactive workshops focused on enhancing selling skills. Our national sales meeting was also a great opportunity to bring our team up to speed on our new product introductions ahead of their full market release. On the heels of our national sales meeting, we hosted regional in-person training sessions to support our newer reps as well. Feedback on these events has been positive and along with our new products, has helped to reenergize our team as we enter the second half of 2022.
In addition to our sales training efforts, we continued to educate clinicians. We hosted 69 educational programs attended by nearly 1,700 U.S. clinician participants. As part of this programming, we continue to build awareness of the recently published expert consensus on lymphedema by hosting a webinar with the lead physician authors along with contributing panel experts. They discussed the publication which represents an important collective stance among three disparate professional societies to payers and clinicians concluding that all patients with chronic venous insufficiency should be considered lymphedema patients and that pneumatic compression devices should be recommended for the treatment of lymphedema patients.
By continuing to raise awareness in the market about the identification and effective treatment of lymphedema, we’re creating new opportunities for our team to identify, educate, and train new clinicians and their staff.
And lastly, in keeping with our renewed focus on R&D and new product development, we completed the final pre-launch stages of two new solutions for our lymphedema patients. The first of these is the new series of lower extremity ComfortEase garments for our Flexitouch system. The development of these garments led by a designer who joined Tactile Medical with a background in athletic apparel was informed by over 18,000 points of feedback obtained from patients and therapists. The goal of our new ComfortEase series is to improve the user experience for our patients, making them easier to train and use more comfortable and better fitting. Our new garments are lighter than our prior generations and made from materials that are cooler and more malleable. Lymphedema is a condition which requires daily management. So our design team was focused on making the experience of putting on and taking off our garments more comparable to getting dressed versus wearing a medical device.
During the second quarter, we conducted a limited market release of our lower extremity ComfortEase garments across a targeted group of accounts. And I’m pleased to report that the feedback we received from our patients and trainers was excellent. Comparisons between ComfortEase and our prior generation of garments has emphasized its intuitive nature and ease of use with less external assistance required. By improving comfort, fit and ease of use, we believe ComfortEase garments will favor improved patient adherence, and ultimately, optimal treatment outcomes. Based on the success of our limited market release, we began our full market release of ComfortEase in July, which we announced via a press release last week.
In addition to our ComfortEase garments, we were pleased to announce the launch of our new Kylee mobile application for the iOS and Android platforms. As we’ve discussed previously, lymphedema is an underserved condition and patients often go undiagnosed and untreated for years. Based on an analysis conducted of 85,000 patients with lymphedema over a five year period, we found that it took three years on average for a patient to obtain a definitive lymphedema diagnosis following the onset of their first symptoms. We also found that patients often engage with three or more healthcare providers along this multi-year journey. The launch of our Kylee mobile app represents our first digital step in providing support for patients with information and tools to assist them on their path to diagnosis and treatment. Our app is designed to help educate patients with chronic swelling about lymphedema and its effective treatments. It contains features that will enable them to track and document their disease progression with pictures and measurements ahead of their visit with their specialist, helping to arrive better informed and qualified for treatment.
Patients that are prescribed one of our devices will then be able to stay informed via the app which will help update them on their verification of benefits and insurance approval status, help them track when their Flexitouch Plus or Entre system will arrive and assist them with their training, including product tutorial videos, and FAQ help. Armed with our Kylee mobile application and easier to use ComfortEase garments, patient should be better positioned for easy and effective training, either through our self-training option, or by working with one of our in-house trainers.
Let me now turn it over to Brent to discuss our financial results in more detail, along with our updated guidance for 2022. Brent?
Brent Moen
Thanks Dan. Total revenue in the second quarter increased 17% year-over-year to $59.6 million, compared to $51.1 million in the second quarter of 2021. Looking at our total revenue by product line, sales of our airway clearance products, which includes the AffloVest product line we acquired in September of 2021, contributed $8 million for the quarter. Sales and rentals of our lymphedema products, which includes our Flexitouch Plus and Entre systems increased 1% year-over-year to $51.6 million. Total revenue by source was 59% commercial, 17% Medicare, 13% durable medical equipment distributors and 11% VA. As a reminder, durable medical equipment distributors is a new source comprised of revenue from our acquisition of the airway clearance therapy business, which closed on September 8, 2021. These figures compared to our total revenue by source in the second quarter of 2021, in which commercial, Medicare and VA represented approximately 70%, 16% and 14% of total revenue respectively.
Continuing down the P&L. Unless noted, all references to the second quarter are on a year-over-year basis. Gross margin was 72.5% of sales compared to 70.9% last year. Non-GAAP gross margin increased 210 basis points year-over-year to 73% of sales compared to 70.9% in the prior year.
Non-GAAP gross margin excludes non cash intangible amortization in both periods. The increase in gross margin was attributable to both product and payer mix. As a reminder, we have provided reconciliations of certain GAAP to non-GAAP measures in our earnings press release. Second quarter operating expenses were $47.3 million, an increase of $11 million, or 30%. The increase in operating expenses year-over-year was primarily driven by a $7.9 million increase in sales and marketing expenses, largely due to the addition of our AffloVest sales team, and new hires added to our lymphedema sales team, along with increased travel related expenses as we return to normalize business activities, expenses related to our in-person national sales meeting held in April, and costs associated with new product introductions. The year-over-year increase in operating expenses was also driven by a $1.7 million increase in non-cash earnout expense related to the acquisition of the airway clearance therapy business and non-cash intangible asset amortization. Our prior year GAAP operating expenses were not impacted by these non-cash items; an $800,000 increase in reimbursement general and administrative expenses and a $643,000 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 28% year-over-year in the second quarter. Operating loss was $4.1 million, compared to an operating loss of $76,000 last year. Non-GAAP operating loss was $1.8 million, compared to income of $915,000 last year.
Income tax benefit was $20,000 compared to a benefit of $1.4 million last year. The difference relates to a full valuation allowance being recorded against all deferred tax assets in the current period, and a tax benefit related to a research and development credit recognized in the second quarter of 2021. Net loss was $4.6 million or $0.23 per diluted share, compared to net income of $1.3 million or $0.07 per diluted share last year.
Non-GAAP net loss was $2.9 million compared to net income of $2 million last year. Weighted average shares used to compute GAAP diluted net loss per share were 20 million and 19.7 million in the second quarters of 2022 and 2021 respectively. Adjusted EBITDA was $1.7 million, compared to $4.1 million last year. As of June 30, 2022, we had $23.4 million in cash and cash equivalents and $50.5 million in outstanding borrowings. This compares to $21.2 million in cash and cash equivalents and $51 million of outstanding borrowings as of March 31, 2022 and $28.2 million of cash and $54.8 million at December 31, 2021.
Turning to a review of our 2022 outlook, which we updated in our earnings press release today, we are raising the full year guidance range to account for our stronger than expected performance during the first six months of 2022, as well as our updated growth expectations for the balance of the year. For 2022, we now expect total revenue in the range of $238 million to $242 million, which represents growth of approximately 14% to 16% year-over-year. This was revised outlook compares to our prior revenue guidance range of $235 million to $240 million, representing growth of approximately 13% to 15% year-over-year.
Our updated 2022 total revenue guidance range assumes sales of our lymphedema products increased approximately 3% year-over-year, which reflects growth in the range of 6% to 8% year-over-year in the second half of 2022; sales of our airway clearance products in the range of approximately $30 million to $32 million. For modeling purposes, for the full year 2022, we expect gross margins in the range of 71% to 72%, our GAAP operating expenses to increase 23% to 24% driven primarily by incremental operating expense from our acquisition of AffloVest for the 12-month period in fiscal year 2022 as compared to the partial period in fiscal year 2021. We also expect legal expenses of approximately $3 million; interest expense of approximately $2 million and a fully diluted weighted average share count of approximately 19.8 million shares. In 2022, we continue to expect to generate adjusted EBITDA of approximately $14 million to $16 million. And our adjusted EBITDA expectation continues to include certain noncash items including stock compensation expense of $12 million, intangible amortization and estimated changes in contingent consideration of $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 expectations for the third quarter. Specifically we expect total revenue growth of approximately 13% to 17% year-over-year driven by 1% to 3% growth in sales of our lymphedema products, and $7 million to $8 million of sales in our airway clearance products.
With that, I’ll turn the call back to Dan for some closing remarks. Dan?
Dan Reuvers
Thanks, Brent. We’re raising our guidance today based on the impressive airway clearance product sales performance we’ve seen so far this year, and our expectations for continued strength from this business in the second half of 2022.
We’re pleased to see the steady increase in demand for AffloVest, consistent with the significant underpenetrated market and expect additional capacity to help support demand as we move towards 2023.
With respect to our lymphedema business, our updated guidance assumptions contemplate a slower ramp to recovery than our prior guidance had assumed. Let me just take a minute to discuss why. While we’ve been pleased with the progress made in hiring and training new sales reps, we’ve not yet seen evidence of the sales force productivity ramp assumed under our prior guidance. Broadly speaking, patient volumes at clinics we serve have been a little slower to recover than we expected. And we continue to receive reports that productivity at some clinics remain challenged by issues of staffing.
We’re also seeing two other dynamics that have prompted us to revise our second half assumptions related to productivity. We saw some leakage at unrepresented accounts impacted by our sales vacancies in late ’21 and early ’22 and are now looking to recoup them with restored coverage, and an improved product lineup. We’ve also seen little commercial payers favoring the use of the pneumatic — a basic pneumatic compression device as a precondition to becoming eligible for an advanced device. With these considerations in mind, and in view of our progress to date, our updated guidance assumptions for our lymphedema business reflect a more cautious stance on the anticipated productivity ramp of our sales force in the second half of 2022.
Importantly, despite the slower ramp to recovery, we expect sequential improvement in the third quarter, and further improvement sequentially again in the fourth quarter. Taken together, in the second half of 2022, we continue to expect year-over-year total revenue growth in the mid to high-teens and organic growth above 10% coupled with improvements in our profitability.
In the second half of 2022, we’re focused on continued execution with respect to the following four objectives:
First, improving the productivity of our new sales force hires. Second, facilitating the introduction of our new ComfortEase garments and Kylee mobile app to improve patient engagement, experience and outcomes. Third, helping our current and future respiratory DME channel partners to successfully integrate and feature AffloVest to prescribing clinicians and patients and expanding capacity to meet demand; and finally, demonstrating improving profitability in the second half of the year.
Having navigated recent challenges related to the COVID surges and sales force staffing, we remain well positioned for long-term success with clinically proven therapies and a well-developed distribution network now targeting underserved patient segments in lymphedema and bronchiectasis that collectively represent two very large underserved markets. Looking beyond 2022, our execution against our four stated objectives for this year will enable Tactile Medical to deliver strong organic sales growth and EBITDA margin expansion in the back half of the year, as well as position us for a solid entry point into 2023.
Before we open the call for questions, I’d like to conclude my prepared remarks by thanking our employees for their commitment to the customers that we serve, and to our success as an organization.
Operator, we will now open the call for questions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question will come from Ryan Zimmerman with BTIG.
Ryan Zimmerman
I want to start with — appreciate the commentary you gave on guidance. I guess, as I think about your guidance for the back half of the year, what is contemplated in terms of new product contributions, given the lower guidance in lymphedema sales?
Dan Reuvers
So relatively modest, as you can imagine, Ryan, based on our updated guidance, I think, maybe just to add a little bit of color on the lymphedema side. So, in the second quarter, a couple of things that we saw, patient volumes in the vascular clinics, particularly, not necessarily showing what I’d call the progressive improvement that we’ve been looking for. I think we’ve been consistent in saying that we expect progressive improvement, not back to pre-COVID levels, but certainly improving each quarter, and didn’t see so much of that in Q2 and even into July. So that probably created a little bit more caution.
And then the second one was, we did see some leakage in — as a result of some of the vacant territories. We had territories that were open here in the first part of the year. And one of the things I think we’ve noticed is, there’s two key roles, among others, besides education that our reps play. One is educating the patient when they’re in the clinic, and also hosting demos, so the patient can understand what that therapy is going to be like. And the absence of the rep presence there had a consequence on some of our business. So making sure that we’re focusing in the back half on those accounts, we think that with the new products, and now with some new sales people back with better coverage, that’s really the focus is to make sure that we pick those backup. If those weren’t a leak on the back half, the rest of the business I think would continue to have grown consistent with our original expectations.
Ryan Zimmerman
And just to follow this line of questioning, and then I had one follow-up, but are you going to — do you expect to get any type of ASP lift on some of the new garments or use of the Kylee app?
Dan Reuvers
Yes, so I think the — we don’t expect to see as much ASP lift, but on the garments, there’s a modest, good guy on the gross margin side. And the Kylee app, less a function of ASP, as it’s a courtesy application, but more about trying to unearth patients early in their journey, and ensuring that they can arrive at their specialist visit, perhaps better qualified, and not having to be sent home only to try and some of the basic interventions first, we’re trying to educate those patients earlier. So they know what they can do on their own, with the goal of arriving at a specialist’s visit with better qualified conditions, including even being able to chronicle some photos of their swelling over time.
Ryan Zimmerman
Okay. And then just the last one for me, I’ll hop back in queue, but this idea that commercial payers are putting patients through rigmarole with basic pneumatic compression, is this a newer phenomenon, has this increased material enough? Love just more color there around why this has become a challenge? Because I think, this has always been one of these topics that has circulated in the lymphedema space before moving to advanced device compression. So why now is this kind of popping up?
Dan Reuvers
I think we’ve seen a little bit of the commercial programs that administer Medicare Advantage. Some of them have aligned more with Medicare’s policies, which we know is a tried and failed approach. So there’s a certain sequence that the patient has to follow. And we saw some of the Advantage programs following that posture a bit more. Keep in mind our guidance originally, our expectation was flat to up low-single-digit, so we’re up plus 1, it wasn’t a huge contributor, but we did see some, a few pockets of it.
Operator
Our next question is from Adam Mandel with Piper Sandler.
Simran Kaur
This is Simran on for Adam. First, congrats on the quarter. I would just love some extra color or commentary around Q2 and kind of what the progression looks like from month to month, as well as the exit momentum that you had into Q3 and what you saw over the course of July, both on the lymphedema and AffloVest side?
Brent Moen
Simran, Brent here. I’ll give you a little color on the progressive nature. So as you know, and as we commented, we grew 27% sequentially over our first quarter. So we started to see a return to what I’ll consider to be normal relative to access and certainly absenteeism, specifically, as it pertains to our rep activity. It didn’t get back to 100% normal, but certainly much improved from our Q1 experiences. The second thing as it relates to AffloVest, certainly saw really strong momentum associated with that, as our DME partners continued to one, gain experience with the product, truly understand how they can leverage it and include it in their portfolio and then ultimately start to take advantage of it.
Those are some of the things that we saw from the overall performance in Q2, coupled with the fact that we had good success in finding new talent to augment our sales force. So we are net plus 15 Q2 to Q1 on sales reps. So that should be a helpful contributor as we move into the second half. The one thing that we’re starting to see and experience just given the addition, that productivity is one of those things that will take a little bit longer to ramp and perfect over the course of the second half of 2022. So those are some of the things that we saw on in the second quarter.
Simran Kaur
And just with the latter part of my question, any early learnings in July that’s sort of guiding your expectations for both lymphedema and AffloVest and your guidance outlook?
Dan Reuvers
I think, relative to the guidance outlook, so we provided an updated range. I think some of the underpinnings on that are on the low side if we didn’t see any incremental improvement in some of the vascular patient volumes, that’s sort of baked into that one. And also caution on the productivity ramp, as we — as I said, go out and try and recover a couple of those accounts. Some of those that had leaked a bit. The Afflo assumption, we certainly feel confident that we can meet the low end there. On the higher end some of the things that I think could influence that range if we see some improved patient volumes through the clinics, but just as much a slightly faster impact from some of the new products. We’re actively out promoting and talking about the new garments. And as you can imagine, with a July full market release, we really spent the first half of July just making sure that we got all of our sales reps and trainers equipped with the garment. So I think it’s a little early to try and come to a conclusion on what impact that’s going to make based on July.
AffloVest, right now, the range that we provided continues to be based on the backdrop that we have a single source supplier through the balance of the year. I think that we had mentioned on our last call that there was some capacity constraints that, that supplier has, less about sourcing components and just there’s other businesses that they support. And this is kind of they are punching a bit above their weight already to get us up into the $30 million range. So we’re continuing to pursue an alternative supplier as an additional source. We have not built that into our 2022 numbers. But the goal is to get some — an additional supplier up by the end of the year.
Simran Kaur
And then if I could just ask one quick one on the sales force. So it does sound like you hit your full year target a couple of quarters in advance. So maybe talk about when you can expect this group to be running at full productivity, and maybe what that productivity rate looks like exiting this year if they’re not quite at full strength yet?
Dan Reuvers
Yes, so I think we’ve always said it’s at least a six month term before they can get up in to peak productivity. So the fact that we were ahead of our hiring we were certainly encouraged with. I wouldn’t say it was so much ahead of the end of the year, I think our goal was to try and get pretty close to this by the end of Q3. We typically don’t do a ton of hiring in Q4. So we’re probably a quarter ahead of where we wanted to be. It remains to be seen how much impact we’ll be able to drive from that in the back half. It certainly would position us better in ’23, as we exit enter the new year with a group that’s going to have an extra quarter under their belt. I also think it’s a good indication that the stability of the sales force is starting to take shape.
Frankly, we were — probably it was less about more gross hiring, and more about net retention that allowed us to get up to that number. So I think that was a good sign that having assembled the group at a national sales meeting, spending more time with them and I think the enthusiasm from the new products certainly is bearing fruit on bringing some stability to the sales force.
Operator
Our next question is from Margaret Kaczor with William Blair.
Margaret Kaczor
I wanted to start maybe with going back to that discussion around payers and their requirements towards basic comes first. And I know you referenced it was MA plans primarily but I guess a couple of questions within this. One, what percentage of plans at this point have something like this included? Two, are you assuming this at all spreads further? And three, are these trends accelerating so they may be a multiyear headwind or they’re relatively stable as best as you can tell?
Dan Reuvers
Yes, I would say it’s certainly not been a rampant trend, Margaret. And it’s one of the reasons also that we continue to talk about engaging with CMS, and we’ve had a fairly active dialogue with CMS and the administrators over the last few months. I think there’s an opportunity for us to continue to improve the Medicare policy, which has an impact not only on Medicare, but also, as we know, on other payers that sometimes look to them as a barometer or a guide.
So we — what we saw primarily was within the Medicare Advantage some of those plans. So, I think it’s still relatively modest, but we’re continuing to try and work to improve the efficiency with which we’re able to deliver both products. And ultimately, each patient that we get, I think, is an opportunity for us to engage with them and be available to help them on their journey, whichever path they go.
Margaret Kaczor
And can you guys provide any detailed number of productivity. I will kind of chime on to what my colleague from Piper had said earlier. But if I use the 241 sales reps, and use some of the historic annualized sales per rep, which I think was around 1 million, 1.5 million, that roughly gets me to somewhere between a $240 million and $260 million lymphedema revenue number. So, I guess any reason to think that those historic metrics would not be the right measures going forward? I know there’s a mixed thing with specialists versus associates, but just kind of curious how you’re thinking about that, and why that wouldn’t be the right number, especially as we look at ’23?
Brent Moen
Hi, Margaret, it’s Brent. I would tell you that, that certainly is a methodology for which we actually continue to think about what forward opportunity might exist as well. So you know that the mix has been in the past 50-50 between product specialists and APS. It’s slanting more towards product specialists, which will certainly increase that rep productivity as those product specialists start to gain access into territories and such. We also certainly believe that nothing’s changed systemically in the lymphedema business. So ultimately, this is really about getting our new bolus of reps up and productive such that they move closer to the overall averages.
Dan Reuvers
I would just add, Margaret, I think the — one of the good news right now for us is we really feel like we’ve got solid national coverage with the number of reps that we have in the field. So I think we’ve got good thorough coverage in virtually all markets. As it relates to productivity, we’ve got some pilot programs underway. We’re continuing to work with our inside teams to identify ways we can continue to become more efficient in processing referrals, and claims as well as more resourceful in how we collect the necessary medical records, and the other things we need to submit on behalf of the patient. And I think as we can continue to make advances with some of the internal support that has a direct impact on sales rep productivity. Payer policy will ultimately also have a direct impact on rep productivity. So there’s a handful of variables and I don’t know that it’s — we take a static number as much as we look at those variables, and I think we’ll have a better idea of where we think we can get with this group, but we do feel good about the coverage that we’ve got with this number.
Margaret Kaczor
And just moving to AffloVest briefly, obviously, huge success there so far. I know you’re sort of capacity constrained. But can you give us a sense of how many DME accounts maybe you’re selling into, the growth that you’ve seen there versus kind of growth in existing DME accounts? And how should we look at that through year-end?
Dan Reuvers
Sure. Yes, the AffloVest has really been something we’ve been very pleased with. The affirmation of the channel, I think is something we continue to see. We have a lot of the DMEs, the majority frankly that we’re working with, had purchased AffloVest before we acquired the business. So they’re not necessarily new accounts, but it’s much deeper penetration. Most of the bigger DMEs, we’re still in what I would call pilot phase, when we did our diligence, and completed the acquisition. They had deployed it in small pockets with only a few branches, they wanted to demonstrate that this really fit and what they’re learning is the organic. And I think this is an important one. This is not just taking share from an existing competitor, but it’s mostly about organic growth. They’re realizing and they did in their pilots that these airway clearance candidates are already prequalified patients that they’re serving. So when you think about the patients that they tend to serve, they’ve either been discharged from a hospitalization, they need oxygen and nebulizers. Or they’ve either had a lung infection, they needed antibiotic or nebulizer therapies, or they just had an exacerbation. All of those qualify them for airway clearance therapy.
So when these DMEs are receiving these patients with all these overlapping comorbidities and needs, they’re introducing the fact that airway clearance therapy would probably serve the patient well, given the condition that they’ve come to them in. And prescribers are, I think, embracing that. So I think all of those are really good signs for us on this one. And as we look forward, we’re thinking that we’ll continue to see some of the expansion that we’ve seen. Even the larger DMEs that we inherited a relationship with have expanded the number of branches as they’ve seen their success. And we still don’t see all branches participating. So we’re still working hard to try and get the rest of the branches up and running, trained, and familiar with how they can mark it and solve the airway clearance issues with the AffloVest.
So we’ve done less about adding new DMEs and more about continuing to support them in their expansion. And I think over time, there’s probably an opportunity for us to do one of three things, continue deeper penetration, and there’s still plenty of runway with the existing DME partners. There are still some DME partners we are not yet working with that I think there’s an opportunity for channel expansion. And then we do very little in the VA right now as well. So as we said, we got into this when we weren’t going to do it as a hobbyist and we’re pretty enthusiastic about what we’ve seen so far.
Operator
[Operator Instructions] Our next question is from Suraj Kalia with Oppenheimer and Company.
Suraj Kalia
So Dan, hopping in between multiple calls, so just bear with me here in case you will have already referenced this. Dan, I remember quite some time back, the number 5,000 was constantly brought up in terms of high volume prescribing physicians, there was a proprietary database of docs that Tactile had identified in terms of prescribing lymphedema product, and I’m curious, where are we with that penetration? What has changed, specifically in this cohort? And the reason I ask is just looking at growth rates in the different buckets, maybe if you can just kind of contextualize it and give us a perspective?
Brent Moen
Suraj, it’s Brent. We formally used to refer to prescribing physicians in the top three deciles. And we’ve actually taken a step back from talking about that publicly, but — and partially because of the onset of COVID. And so now, just given the fact that we’re continuing to train, and invest in education with our new clinicians out there. So as we referenced there’s — we trained 1,700 clinicians during the course of the second quarter through our webinars and interactions on educating about lymphedema. So it continues to expand in terms of the knowledge base. But as we go forward, we’re not going to talk about the number of high prescribing clinics out there.
Suraj Kalia
Gentleman one other question, and I’ll hop back in queue. So Dan, your comments about ComfortEase, new garments, helping patients — improve patient adherence, again, when we look at the growth rates and the different buckets in commercial VA and Medicare, is it more in your view in terms of a demand problem? Or do you envision this more in terms of compliance and a patient adherence problem that would help mitigate at least some of the issues you’re seeing in the field?
Dan Reuvers
Yes, I think it’s less about compliance, Suraj. But even though compliance has been good, I would say, among users of our products, we want to continue to make sure that the experience is the best it can be. And I think that the introduction of the ComfortEase garments are going to make it easier for patients to use. We obviously listen closely to the feedback of our customers and want to make sure that we continue to lead with a winning portfolio. And we think this is a nice advance for that.
I think that from the growth standpoint issue, this turnover piece clearly had implications to us that I think we’ve fully realized now, as we see some of the gaps, where we had open territories. So I think that’s probably one of the more lingering hangover components that we recognize we have to resolve. I think the fact that we have restaffed the territories that we’ve got good coverage in place now focusing on getting these folks trained and up and running. And then the addition of equipping even our experienced sales force, with something new. it’s a better experience for the patient, but sales reps that have been selling the same solutions for a handful of years starve for a new story and a new reason to go back in and see customers. So I think that that’s what we’re optimistic that can help reenergize our tenured folks, as well as giving some of the newer reps an opportunity to go back into accounts. So I think those are a couple of variables that are worth noting.
Operator
Our next question is from Ryan Zimmerman with BTIG.
Ryan Zimmerman
Hey, thanks for the follow-up. I just want to get one more in. If I look at the gross margin Brent, and the guidance for this year, I think it’s coming in at around 71%, 72%. You guys did 73% this quarter on kind of some product mix benefit. Why is it step back essentially in the back half of the year? Because I would think with the incremental AffloVest sales, some of the new products, you got the gross margin benefit. Just curious kind of your thoughts on the gross margin for the back half of the year?
Brent Moen
Yes. Hi, Ryan. It’s good question. What I would tell you is, is that we’re no different from any other manufacturer, kind of med-tech company out there. We’re experiencing some of those same kind of inflationary pressures, primarily in the wage inflation and then also freight. So, as we kind of project out for the back half of the year, certainly, we’re focused on managing those as effectively as we possibly can, but taking into account some of that same kind of inflationary pressure that we are — that other med-tech companies are starting to experience.
Operator
Thank you. We are currently seeing no remaining questions at this time. This does conclude our conference today. Thank you for your participation.
Dan Reuvers
Thanks, operator, and thanks for joining.
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