Tactile Systems Technology Inc
NASDAQ:TCMD
Earnings Call Analysis
Q4-2023 Analysis
Tactile Systems Technology Inc
The company presented a strong closure to fiscal 2023, with a notable turnout in both lymphedema and airway clearance products driving a 5% year-over-year revenue increase to $77.7 million in Q4. Full-year figures showed lymphedema revenue growing by 14%. GAAP net income surged by 77%, while adjusted EBITDA increased by 27%. The financial year ended with a fortified balance sheet, showcasing a cash position of $61 million after paying down debts including a line of credit and an acquisition-related contingent consideration.
Tactile Medical's accomplishments stem from the strategic improvement of their products, focused market leadership, and executing a sound commercial strategy. A double-digit revenue boost and a 62% growth in adjusted EBITDA underscore the company's commitment to performance. Operational changes have led to 14% revenue growth in the lymphedema product line alone for the fiscal year, with $28.5 million of GAAP net income generated and a climb of 340 basis points to 10.8% in adjusted EBITDA margins.
Looking forward, the company plans significant investments in tech-related tools for process streamlining, applying AI for intelligent order processing, enhancing the electronic health record system, and boosting sales productivity with new relationship management tools. These investments are part of a broader agenda to enhance efficiency, reduce operating expenses, and improve the customer experience with new generations of therapeutic systems and connectivity.
For FY 2024, the company has guided revenue between $300 million to $305 million, representing 9% to 11% growth. Growth will be driven through increased sales force and investments in technology, particularly in the first half of the year, which will set the stage for stronger growth in the latter half. The adjusted EBITDA guidance suggests a modest margin improvement due to these investments, with an eye towards an increased free cash flow.
The first quarter of 2024 is anticipated to be challenging with a hard comparable from a robust Q1 of the previous year. Investments made in this period are positioned to accelerate growth later in the year. Entre growth, a focus area, is expected to outpace Flexitouch, which translates to a higher patient growth rate compared to revenue growth. This dynamic is projected to maintain in the near term.
For 2025, the company targets accelerated growth with a 15% increase in top-line growth and significant margin improvement of 300 basis points. This growth will rely on the bolstering of the sales force and better leveraging of technological investments aimed at simplifying processes for health care professionals, which should be fully productive by then, thereby maximizing operating efficiencies.
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Welcome, ladies and gentlemen, to the Fourth Quarter and Fiscal Year 2023 Earnings Conference Call for Tactile Medical. [Operator Instructions] 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 the 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 filings 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 obligations to publicly update or revise our forward-looking statements as a result of the new information, future events or otherwise. This call will include references to certain financial measures that are not calculated in accordance with general accepted accounting principles or GAAP. We generally refer to these 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 our earnings press release on the Investor Relations portion of our website. Today's call will be hosted by Dan Reuvers, Tactile Medical's President and Chief Executive Officer, along with Elaine Birkemeyer, Tactile's Chief Financial Officer. I would now like to turn the call over to Mr. Reuvers. Please go ahead, sir.
Thanks, operator, and welcome, everyone, to our fourth quarter and fiscal year earnings call. Let me provide a quick agenda for today's call. I'll start with an overview of our fourth quarter financial results and the primary factors that contributed to our performance, followed by a review of some of our recent operational highlights. Elaine will then cover our quarterly financial results in further detail and review our 2024 financial guidance, which we introduced in our earnings press release this morning. And I'll conclude by discussing our outlook and strategic priorities for 2024 before we open the call for questions. With that as a backdrop, let's begin with an overview of our financial performance. We were pleased to demonstrate revenue growth in both lymphedema and airway clearance products post record quarterly profit and further strengthen our balance sheet, by continuing to generate solid cash flow from operations and retiring our line of credit entirely. In the fourth quarter, we generated revenue of $77.7 million, representing 5% growth on a year-over-year basis. Our fourth quarter performance enabled us to achieve our guidance for the fiscal year. Our year-over-year revenue growth was largely driven by performance of our lymphedema product line which grew 6% year-over-year to $69.5 million. We're also pleased to see better-than-expected sales of our airway clearance products, which totaled $8.2 million in the fourth quarter, representing 16% on a quarter-over-quarter basis and 1% growth compared to prior year period despite transient headwinds. We complemented our revenue performance with notable improvements in profitability, which exceeded our expectations for the fourth quarter. GAAP net income increased 77% year-over-year and adjusted EBITDA grew 27% year-over-year. Our performance in the fourth quarter reflects our enduring commitment to enhancing our profitability profile. We also generated $18.4 million of cash flow from operations, driven by our strong net income results and continued improvements in working capital. We paid off our $16.8 million line of credit during the fourth quarter as well as our final $5.6 million contingent consideration payment related to our acquisition of AffloVest, ending the quarter with $61 million in cash. All in all, we were pleased to close out 2023 with solid financial performance in the fourth quarter while further strengthening our balance sheet. Turning to a more detailed discussion of the drivers of our fourth quarter sales performance. The growth in our lymphedema product line was driven by the enhanced productivity of our field sales team, which continued to benefit from our initiatives to improve their operational efficiency and enhance our product offering. Our continued efforts to reduce the time our reps devote to non-selling benefited from our patient trainers' assistance. Most notably, our patient trainers' conducted a larger share of in-home patient demos, a critical presales task which our sales team has traditionally been responsible for. Entering 2023, less than 10% of all in-home patient demos were conducted by our patient trainers. We reached roughly 30% by year-end, providing our reps with additional time to engage with prescribers. We're excited by the success of this initiative and we believe there's an opportunity to make further progress on this front in 2024 as well. And during the fourth quarter, we continued to see a favorable response to our new products. In particular, Entre Plus, our next-generation Entre system, has had a stronger-than-expected showing since its launch in March, and we continue to see impressive adoption of the system during the fourth quarter. The user-centric enhancements made to Entre Plus' system continue to be warmly received by patients, including features like active garment deflation, it's easy to use LCD controller, and its ability to treat 2 limbs simultaneously. We've also improved our team's level of focus on the largest segment of patients that qualify for a basic pneumatic compression device. As a reminder, insurers like CMS require patients to initiate therapy with the device in this category, like our Entre Plus system, before they may ultimately become eligible for an advanced device like our Flexitouch Plus system. In keeping with our broader focus as an organization on developing relationships with patients earlier in their treatment paradigm, our team has been working to ensure that a larger portion of these patients begin their active therapy with our Entre Plus system. The introduction of this system, combined with our enhanced focus on this portion of our addressable patient population was an important contributor to our performance in the quarter. Likewise, the launch of upper extremity ComfortEase garments during the third quarter provided our sales reps with an enhanced offering for patients with oncology-related lymphedema. Our ComfortEase upper extremity garments are used with Flexitouch and include improved therapeutic coverage of the axillary region, an important treatment area for those suffering from breast cancer-related lymphedema. They also allow for bilateral treatment of the upper extremities, enabling patients with lymphedema in both arms to complete their treatment in roughly half the time. In the months following our launch, we're seeing strong sales to patients with breast cancer-related lymphedema and we look forward to continuing to enhance our focus on this portion of our addressable patient population as well. We also finished the year with a field sales team of 254 supporting our lymphedema products, a small increase in salespeople compared to 246 at the end of the third quarter. With respect to our airway clearance product line, while sales remain paced by one large DME that returned to pre-COVID criteria in May, we were heartened to see their ordering volume improved sequentially relative to the third quarter of 2023. We were also pleased to see continued growth in sales to our other DME customers. Together, these improvements enabled us to generate growth of 16% on a sequential quarterly basis and return to growth on a year-over-year basis as well. As we've commented on previously, the large affected DME customer experienced slower placements following the expiration of COVID-19 Public Health Emergency, or PHE waiver, in May of 2023. They've taken advantage of the relaxed eligibility requirements under the PHE waiver, and the return to traditional pre-COVID eligibility requirements has continued to slow their volumes. While sales to this one large DME will likely remain paced by the impact of the PHE waiver expiration until its anniversary in May of 2024, we continue to expect strong, sustained growth longer term as we expand penetration of the large underserved bronchiectasis patient population. To that end, we made investments in our airway clearance sales team in the fourth quarter, expanding to 16 dedicated DME sales reps in order to enhance the level of support we provide our DME customers and their reps. In addition to our commercial and financial progress during the fourth quarter, we continued our efforts to develop the markets we serve, by supporting the education of clinicians and patients, and investing in new clinical evidence. Our medical affairs team made strong progress throughout 2023. For the full year, we hosted nearly 100 educational events focused on lymphedema diagnosis, its comorbidities, and its available treatments. Through this programming, we were able to reach over 7,200 clinicians, record outreach for Tactile Medical. Most recently, we hosted a number of targeted educational events focused on specific populations of patients, including those with breast cancer-related lymphedema which we believe resonated with the clinicians managing their care. On the airway clearance side of the business, we also initiated our first educational programming focused on bronchiectasis, with 3 on-demand continuing education courses available on the Knowledge Center education portal of our website. These courses were developed by subject matter experts and accredited through the American Association for Respiratory Care, the California Board of Registered Nurses, and Commission for Case Managers, enabling respiratory therapists, nurses, and case managers to earn continuing education credits by completing them. Meanwhile, this past year, our Kylee mobile application provided more than 22,000 users with direct access to educational resources as well as tools to track their symptoms and monitor disease progression. And finally, we continue to progress through the enrollment phase of our multicenter randomized controlled clinical trial evaluating Flexitouch for the treatment of lymphedema among head and neck cancer survivors. With 187 subjects enrolled in the trial at year-end, this trial compares the effectiveness of the Flexitouch system to standard care practices over a 6-month duration. Outcome measures include both physical improvements as well as bio social quality of life results. And based on the recent pace of progress, we expect to complete enrollment by the end of the first quarter. Given the 6-month patient follow-up period, we anticipate sharing the initial results near the end of the year. We look forward to sharing the results of this trial, the largest RCT ever conducted among head and neck lymphedema patients to influence payers, clinicians, and patients. And before I turn it over to Elaine, I'd like to share some additional thoughts on our performance in 2023 as a whole. Simply stated, our team achieved considerable progress this past year across multiple areas, strengthening our market leadership position, executing on our commercial strategy and delivering strong financial performance, including double-digit revenue growth, and 62% growth in adjusted EBITDA this year. From a market leadership standpoint, we introduced multiple patient-centered design enhancements to optimize our product portfolio, including the first generational update to our Entre system since its original introduction. As I just mentioned, our education resources reached a record levels of clinicians and patients, and we provided our lymphedema and airway clearance therapies to more than 77,000 patients suffering from chronic conditions that we address. Through our efforts to drive operational efficiency, by improving the productivity of our sales force, we delivered revenue growth of 14% in our lymphedema product line for the full fiscal year, our first year of double-digit growth in this product line since 2019. This enabled us to deliver significant sales and marketing leverage with just 1% growth in this expense line versus 2022. We generated record profitability for the year with $28.5 million of GAAP net income, while improving our adjusted EBITDA margins by 340 basis points to 10.8%. And from a cash flow perspective, our strong net income results combined with material improvements in our working capital performance, enabled us to generate nearly $36 million of cash flow from operations. Along with the $35 million in net proceeds raised through our underwritten public offering of common stock last February, our financial condition has materially improved. We ended 2023 with $61 million of cash, while paying off the final $10.6 million earn-out payments associated with the AffloVest acquisition and reducing our outstanding debt by almost $20 million. I'm proud of our accomplishments across each of these areas, made possible by the efforts of our entire team at Tactile Medical, which leave us incrementally better positioned to drive profitable growth and strong cash generation going forward. Elaine will now review our fourth quarter financial results in more detail and discuss our 2024 guidance. Elaine?
Thanks, Dan. Unless noted otherwise, all references to fourth quarter financial results are on a GAAP and year-over-year basis. Total revenue in the fourth quarter increased $3.8 million or 5.1%, to $77.7 million. By product line, sales, and rentals of lymphedema products which include our Flexitouch and Entre systems, increased $3.7 million or 5.6%, to $69.5 million, and sales of our airway clearance products which include our AffloVest system, increased $52,000 or 0.6% to $8.2 million. Continuing down the P&L. Gross margin was 72.1% of revenue compared to 70.5% in the fourth quarter of 2022. Non-GAAP gross margin, which excludes noncash intangible amortization in both periods, was 72.5% compared to 71.2% in the prior year. The increase in non-GAAP gross margin was attributable to lower freight and manufacturing costs as well as improved product pricing. Fourth quarter operating expenses decreased $40,000 or 0.1%, to $44.2 million. The change in GAAP operating expenses reflected a $1 million decrease in noncash intangible asset amortization and earnout expense, a $0.5 million decrease in sales and marketing expenses, and a $0.3 million decrease in research and development expenses. These items were largely offset by reimbursement, general and administrative expenses, which increased $1.8 million. Operating income increased $4 million or 50.3%, to $11.8 million. The improvement in operating income was driven by a $3.9 million or 7.5% increase in our gross profit, as well as the aforementioned $40,000 decrease in our operating expenses. Non-GAAP operating income increased $3.2 million or 34%, to $12.7 million. As a reminder, our non-GAAP operating income excludes noncash intangible amortization and earnout expense as well as certain nonrecurring operating expenses in the prior year period. We provided a detailed GAAP to non-GAAP reconciliation in our earnings press release. Other expense net decreased $0.9 million or 96.2%, to $36,000. The decrease was primarily due to lower net interest expense. Income tax expense increased $1.3 million or 56.3%, to $3.6 million. The year-over-year change in income tax expense was driven primarily by higher taxable income. Net income increased $3.6 million or 77%, to $8.2 million or $0.35 per diluted share compared to $4.6 million or $0.23 per diluted share. Non-GAAP net income increased $3 million or 52%, to $8.9 million compared to $5.9 million. Adjusted EBITDA increased $3.3 million to $15.4 million or 19.8% of sales, compared to $12.1 million or 16.3% of sales. With respect to our balance sheet, we had $61 million in cash and cash equivalents and $29.3 million of outstanding borrowings at year-end. This compares to $21.9 million in cash and $49 million of outstanding borrowings as of December 31, 2022. Turning to a review of our 2024 outlook, which we introduced in our earnings press release today. We expect full year 2024 total revenue in the range of $300 million to $305 million, representing growth of approximately 9% to 11% year-over-year. Our 2024 total revenue guidance range assumes that revenue in both our lymphedema and airway clearance product lines will also grow in a similar range of 9% to 11% year-over-year. For modeling purposes, for the full year 2024, we expect our GAAP gross margins to be approximately flat to prior year. Our GAAP operating expenses to increase approximately 10% to 11%. Interest expense of approximately $0.6 million, a tax rate of 30%, and a fully-diluted weighted average share count of approximately 24 million shares. We also expect to generate adjusted EBITDA of approximately $33 million to $35 million in 2024. Our adjusted EBITDA expectation assumes certain noncash items, including stock compensation expense of approximately $7.7 million, intangible amortization of approximately $3.8 million, and depreciation expense of approximately $3 million. Lastly, in the first quarter of 2024 we expect our total revenue to increase in the range of flat to up low single digits year-over-year. With that, I'll turn the call back to Dan for some closing remarks. Dan?
Thanks, Elaine. As Elaine mentioned, our guidance reflects growth in both our lymphedema and airway clearance product lines for the full year. It also assumes that more of our full year growth will be driven by our performance in the second half of the year, as prior year comparisons ease, and we realized the benefits of our 2024 strategic initiatives, which I'll walk through now. As we look to 2024, we're focused on delivering another balanced year of double-digit revenue growth, coupled with continued improvements in operating profitability by executing the following 3 strategic priorities. First, we remain focused on driving growth in both our therapy segments. This will include adding sales reps to both our lymphedema and respiratory teams in the first half of 2024. We also plan to contribute to ongoing gains in sales rep productivity, by expanding in-home demo support among our patient trainers. As I mentioned earlier, with roughly 30% of in-home patient demos conducted by our patient trainers at the end of 2023, we see more opportunity to build on the success of this initiative in 2024, freeing up even more time for our lymphedema sales reps to engage with prescribing clinicians. We expect to continue our increased level of focus on entry-level pump placements with our improved Entre Plus system, knowing that so many patients enter the therapeutic funnel with an entry-level pump, either due to initial symptoms or payer requirements, we plan to compete vigorously to provide whatever therapy the patient qualifies for. And for the AffloVest front, we intend to not only expand our sales specialist headcount, but to work on onboarding additional DMEs, showing them that AffloVest is becoming a valuable part of the respiratory DME arsenal, and a new offering for them to compete with. Second, 2024 will be a year of investment in tech-related tools throughout our business. We'll be streamlining various back-office processes, applying AI to interpret incoming orders and direct them with less manual processing, as well as more efficient electronic method of verifying patient benefits. We're evaluating more efficient collection and exchange of prescriptions and medical records with a more frictionless electronic medical record system targeted for deployment in the second half of 2024. And we're planning to introduce new customer relationship management tools later in 2024, as another way to further enhance sales force productivity. These are important investments designed to improve our efficiency, reduce operating expense, and leverage the best of technology. And third, we'll continue to focus on improving the customer experience. That will include the introduction of a next-generation lymphedema therapy platform by the end of the year as well as advancing a next-generation AffloVest system targeted for 2025. New generations of our therapeutic systems will focus on consumer-friendly attributes, as we recognize patients depend on our therapies daily, and thus, our therapies become an important expression of their lifestyle. We'll also focus on connectivity, ensuring that patients get the education and feedback they need to manage their conditions effectively. As I mentioned earlier, we also recognized a health care practitioner as a key customer as much as the patient. And with this in mind, some of our tech investments are designed to make their role in helping patients obtain treatment as unobtrusively to their practice as possible. These are the moves that you should expect of a market leader, with increasing sales productivity, an enhanced portfolio of products and solutions, and strong customer relationships, we look forward to building on our success from 2023. Before concluding my remarks today, I'd like to thank our employees for their tremendous efforts this past year, which made our collective progress possible. Thanks as well to our customers and investors for their continued support. Operator, we'll now open the call for questions.
[Operator Instructions] Our first question comes from the line of Adam Maeder with Piper Sandler.
Congrats on a solid Q4 and great to see the leverage in the quarter. I wanted to ask about the guidance construction on the top line for 2024, the 305 -- sorry, the $300 million to $305 million, I think that's 9% to 11% growth. Can you just help us understand how you framed the expectations for growth for both lymphedema and AffloVest? I think I heard they're expected to both kind of grow around that range, but wanted to confirm that. And then also just, I guess, understand what's contemplated for those segments and how you arrived at those figures? And then I have a follow-up.
Sure, Adam. Thanks for the questions. Let me start with a little bit of color on the growth drivers for 2024, and then maybe I'll ask Elaine to weigh in on some of the additional assumptions. I think if we look back, certainly, at 2023, just for context, I think we recognized and we are able to demonstrate where growth can come from really 3 key areas in our recent past and our performance was attributed in the past to adding heads, and we know that the heads we added in '22 became productive in '23 and contributed pretty meaningfully. PEC support that we've continued to expand to liberate the sales force has led to more productivity. We saw about 14% improvement last year with a relatively flat head count, almost $100,000 of additional productivity per head, and then a simpler Rx process. Remember, at the beginning of last year, we introduced the elimination of the CMN, courtesy of Medicare and an easier form. And all of those things we talked about were nice contributors. So as we look into 2024, increasing head count in the first half is part of the playbook again. We added just a few in December, but we expect to add some additional heads in the first half of this year, and that should be a growth driver as we get into the back half. This whole productivity piece, we think that probably half of the growth that we'll be able to deliver this year can come from some continued expansion in productivity. The fact that we had about 30% of the in-home demo is done now by someone other than the sales force, certainly proved productive last year, and we think that there's more runway to expand as we enter into the second half. And then the whole HCP experience is a really important one that we've recognized can influence prescriber behavior. The easier we can make it for them, the more will be their therapy of choice. And I think that patients that need therapy don't get overlooked when it's an easier, less obtrusive process. So we're going to continue to invest in some electronic tools that will make it a much more easy process, for HCPs to submit those orders. I think on the AffloVest side, we've talked a little bit about the fact that we have to lap that May event with the one DME, but we're going to invest in more salespeople there as well. We added a few in the fourth quarter, and we'll add some additional heads in the first half of the year. And then continuing to focus on expanding branch participation, not only among the DMEs we already work with, but piloting some new DMEs. And I think all of those things should certainly be contributors as we look into the balance of 2024 as well. I don't know if, Elaine, you've got a couple of comments on some of the other assumptions.
Yes. I think maybe the only thing I would add is the adjusted EBITDA guidance we provided does suggest a small improvement in EBITDA margin. We will continue looking at driving productivity and getting operating expense leverage. But as Dan mentioned, we are making investments this year in head count growth as well as technology. So we don't expect large improvements, but we do expect a modest one.
And then secondly, we are going to continue to focus on increasing our free cash flow. We made great strides last year, close to $33 million of free cash flow improvement. We will continue to look at driving free cash flow both from our profitability as well as continued improvements in working capital. I will say the working capital improvements won't be to the same extent as last year, but we do still think there's runway to continue to work on improving our collections, which has fueled a lot of the growth last year.
That's great color. I appreciate the fulsome response there. And Elaine, I think you just ticked the box on my second question on the leverage piece, but maybe I'll stick with the financials, and I guess I wanted to ask about the LRP that you've previously outlined. I think on the top line, it's $350 million-plus in 2025 of revenue. Just wondering if -- and I think that would imply kind of an acceleration to growth in '25 over '24. So what can you tell us about how we should think about the LRP, does that still stand firm? And are you comfortable with the acceleration and growth that's kind of implied for '25?
Yes. Let me take a shot at that one, Adam. So first of all, our '25 targets are still our good targets, we believe. I think that staying focused on revenue, profitability expansion, free cash flow, those are still very much in sight. I think we've certainly made good progress in 2023 against those. I mean if you reflect on the first of this 3-year window that we laid out, our lymphedema growth of 14% in 2023 was actually a little ahead of our expectations. The $33 million of cash flow was ahead of our expectations. And then as we know, we kind of lost a year on AffloVest. So some puts and takes happened in 2023. Plenty of work left to do, but I think we still expect that when we exit 2024, one of the reasons growth isn't always perfectly linear, we think that we're really going to be nicely positioned for some additional inflection points. I mean, if we think about from a growth standpoint, we're going to have more reps at the end of the year, presumably hitting their stride on productivity, both in lymphedema and the airway clearance side. We should have an optimized home demo assignment, so continuing to expand the productivity of applying those to the right people on the team. Some of the tech deployed EMR medical record exchanges that we're investing in this year should be more operational at the beginning of 2025. Some of the new products that I alluded to, I think the head and neck results that we'll be able to socialize through 2025. And then just some of the normalized Afflo growth that we're not going to have to confront in the first half of this year -- next year. So I think we'll be certainly entering the on-ramp of 2025 with some good momentum at our back, and those are the targets that we're still pursuing for sure.
Our next question comes from the line of Ryan Zimmerman with BTIG.
This is Izzy on for Ryan. So just first to start off on guidance. I read your comments on expecting the first quarter to be flat to up low single digits. But I was wondering if you could provide a little bit of color on what's driving that expectation? And how you're thinking about the cadence or pacing for both revenue and margins for the balance of the year?
Yes. Let me -- I'll start and then if Elaine has anything she wants to add. I think as we thought about, Izzy, in the first quarter, we know Afflo is going to be a bit of a headwind as we called out earlier. So that's one we have to offset for. We had somewhat modest lymphedema guidance in the first quarter in part because we probably don't benefit quite as much from the demo assignments in the first quarter, it's the quarter we have the highest co-pays since patients' copays reset. So our sales force, I would say, is a bit more protective of allocating some of those in the first quarter. We added head count started in December, and we'll continue to add some more heads in the first half of this year. But as we know, those heads historically won't be really productive until the second half. And then I think if you look at it from a historical standpoint, it's a step down sequentially of somewhere in the mid-20% from Q4, which is pretty typical. If you looked over the last 3 or 4 years, I think history would show that, that's pretty much in the normal range. And I think the last one is it is the quarter where we're going to have the toughest comp. It's a little bit of an inverted scenario from last year where we had the easiest comps at the beginning of the year, and they progressively got more difficult. We kind of turned it upside down. So getting past Q1, I think those are some of the assumptions that we had applied in.
Great. That's really helpful. And then just a follow-up for me. So what are you guys thinking about or how are you thinking about the impact from -- past your Medicare collections in terms of cash flow and your subsequent use of cash?
Yes. So I think as I alluded to a little earlier, we do think there's still opportunity for us to continue to work on improving our cash collections and improving working capital. That being said, we made a lot of traction last year. And so to expect to repeat that, we don't think is realistic, but we do think there's still some runway ahead for the year. As far as kind of use of cash, I think one thing we did do at the end of the year was retire our line of credit. We also completed our AffloVest earnout. As we look forward, we still have more debt that we have to continue to service, and we are making investments in technology and head count that Dan alluded to. But clearly, this stronger balance sheet position that we were proud to now have does offer us some good optionality as we think about continuing to grow the business in the future.
Our next question comes from the line of Margaret Andrew with William Blair.
There's a couple of things I wanted to follow up on. And so first, I wanted to talk a little bit about first quarter guidance. Dan, I know you just said that maybe it's typical of historical sequential patterns. If I look at like '18 and '19, it's typically maybe in the mid-20s, maybe even in kind of like the 23%, down 24%. This seems like it's maybe a little bit worse. I guess I'm asking because Q4 obviously was also a little bit lighter relative to typical seasonal patterns for Q4. So I guess is there anything else underlying, is it -- maybe you didn't quite have the number of sales reps or so on. And so that starts to change trajectory throughout 2024. But just wanted to push on that seasonality pattern, especially as it implies for Q1 and pushes more of that pressure into the second half of the year for growth.
Yes. Thanks, Margaret. So yes, I think our current guidance suggests a decline in Q1 of about 25% to 27%. So if you take a look back, it's fairly similar. I went back to 2020, and it's in line with what we've seen over the past several years. I think as we think about Q1 and what Dan mentioned, again, it will be our hardest comp. We had a 22% growth last quarter, and we're making a lot of investments in the first half of the year, which really will accelerate growth in the back half, the sales rep adds, the technology. And I think the other thing just to note that we saw in Q4 and we'll continue to see is in this year as well as that Entre growth continues to outpace Flexitouch. We're still growing Flexitouch, but the Entre growth, as Dan mentioned, is a bigger segment that we've chosen to focus on. And that does mute growth a little bit in the sense that our patient served is actually growing faster than our revenue growth. And so that's another piece that we saw in Q4, and we'll continue to see in Q1 as well.
Okay. And then the second thing that I wanted to push on a little bit as well is that 2025 LRP. And so again, just to put some finer numbers on it. If I look at what that implies for '25, you do need a 15% top line growth number in 2025, which is maybe up from 10%, right, just this year. So 50% acceleration, I guess, in sales growth and a pretty sizable kind of margin expansion of 300 basis points plus. So as you kind of look at that, are you assuming a meaningful uptick in head and neck or acceleration relative to that next-generation system to reach those numbers? And then kind of a similar comment on the margin side. What gets you to get that pretty meaningful step-up as you go into 2025?
Sure, Margaret. As I said, it's tough to do a 3-year plan linearly. But if you look at 2023, 14% lymphedema growth was ahead of the 13% CAGR we've kind of put out there for a 3-year window. So I think that while we expect this might be a little bit less than that in 2024, there are some things that we think are going to be really well positioned as we enter 2025. Remember, last year, we added 0 heads, and we just got productivity out of the ones from the past, in expanding demo performance with other allied support folks on the training side. We think that there's still opportunity to continue to expand that in the second half of this year. And we would enter next year then with a higher productivity profile, presumably in our entire sales force, along with some folks that we would add in the first half of this year that should be entering 2025 with just a naturally higher train productivity quotient on top of it. This tech employed -- deployed work that we're working on to try and simplify the process for HCPs to submit their referrals, it's not an insignificant one. We saw at the beginning of last year that when we can make things a little bit easier, whether through forms or process, it does actually have an impact on prescriber behavior. So the investments that we're making this year are intended to introduce by the back half of this year an electronic EMR experience that should be easier for the prescriber. And we think that influences their vendor choice and it also influences just the volume of patients they'll take the time to prescribe for. Head and neck, as you alluded to, that one is certainly going to be a more contributor once the results are complete this year -- into next year. And I think the other one is we've clearly stated that AffloVest is going to have a headwind in the first half of this year, and we'll have a more normalized expectation for next year. So I think there's reason to believe that our top line growth can have some ebbs and flows. But we think that, as I said, we should enter the on-ramp of 2025 with some things nicely set at the table. I think from a profitability standpoint, I'll just let Elaine add a little bit of color to the other half of the question.
Yes. I think as I mentioned, 2024, we don't expect large EBITDA margin gains, and really, this is -- we've got sales reps that we will be carrying on our books that are not going to achieve productivity until later in the year. Similarly, we'll be making investments in technology that we will not have fully ramped and adoption until later in the year. So those things change in 2025. Those are now fully productive assets. And then we will continue the opportunity to optimize once they're in place to see further OpEx improvement. So that's really why that profile for 2025, we think is going a little different from an EBITDA margin expansion compared to 2024.
[Operator Instructions] Our next question comes from the line of Suraj Kalia with Oppenheimer & Company.
Dan, Elaine, can you hear me all right?
We can. Thank you.
Pardon the background noise. Dan, so let me stick with some SRP questions, okay, short range. Specifically, you all mentioned sales rep productivity is up 14% year-over-year. The number of in-home training is up 30% or exited at 30%, and lymphedema sales are up 6% year-over-year. So maybe, Dan, help dissect this? I know it's not a linear correlation, but how much incremental reproductivity is there in the existing sales force? And how is the decision made to add more heads versus squeeze extra productivity going into '24 to maybe '25?
Yes. I think good question. Look, we still believe, as we said, Suraj, that there is additional productivity by expanding the demos being reassigned. I think that said, we still fashion ourselves as a growth company, and we want to make sure that we're continuing to invest in growth, and I don't think that it's binary, right? It's not continue to expand productivity and abandon the expansion of the sales force headcount. I think it's a combination of the two that we intend to continue. And I think trying to find the right balance on those is what we're certainly striving for. Having been able to deliver double-digit growth on a relatively flat head count last year, I think, demonstrated the productivity gains were real. But knowing that still only roughly 1/3 of those in-home demos have been taken off the plate of the sales force, that means that there's more opportunity. So kind of how we thought about, Suraj, is for 2024, it's probably half the growth comes from increased productivity as we continue to make some of the improvements that we've talked about. And then the other half ultimately probably comes from adding headcount, but that's more a second half contribution. We know we don't hire between December and the first half of this year and just flip a switch and they become productive.
So we would expect them to be contributing more in the back half, like our historical lead time has looked like, and that should certainly, as I've mentioned in a previous question, put us in a much better position as we enter 2025 as well, with another step-up in sales force for the most part, having all achieved kind of their productivity targets and increased number of that.
Got it. Elaine, I'll send one question your way. So Elaine, how should we think about same store, new store growth in the quarter? And also moving forward, should we think about more about OpEx leverage rather than the typical mantra of top line growth at all costs.
So yes, I think, Suraj, to your first question there around the new store, same store, I think there's still a good opportunity for us to continue to both acquire work with new prescribers as well as to increase volume from existing prescribers. So it's -- we're pursuing both angles as we look at both our vascular and oncology and lymphatic therapist spaces. As far as OpEx, could you repeat that part of the question one more time?
So Elaine, what I was just trying to understand is should we expect OpEx leverage? I mean, you've generated pretty good OpEx leverage in the quarter. Is that what we should keep expecting moving forward? And is that coming at a cost of investing for top line growth at any cost?
So I think for this year, we are still achieving OpEx leverage, but also making investments. And I think we're doing both, which is why the OpEx leverage is not a larger as you look at last year, we drove OpEx leverage to a great extent. This year, we still have opportunity to do so, but it will be muted by continued investment. As I just mentioned, when you think about 2025 those investments then will be largely done and behind us and now at scale where we can generate more efficiencies. And so we would expect to see more operating margin expansion in 2025 as well.
Thank you. We are currently seeing no remaining questions at this time. That does conclude our conference for today. Thank you for your participation.
Thanks, everyone.