Q2 2026 Tactile Systems Technology Inc Earnings Call

Speaker #1: Please stand by. Welcome, ladies and gentlemen, to the second quarter 2026 earnings conference call for Tactile Medical. At this time, all participants have been placed in a listen-only mode.

Operator 2: Please stand by. Welcome, ladies and gentlemen, to the Q2 2026 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. I would now like to turn the call over to Sam Bentzinger, investor relations at Gilmartin Group, for a few introductory comments. Please go ahead.

Speaker #1: 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.

Speaker #1: I would now like to turn the call over to Sam Bentzinger, investor relations at Gild Martin Group, for a few introductory comments. Please go ahead.

Speaker #2: Good afternoon, and thank you for joining today's call. With me from Tactile's management team are Sheri Dodd, Chief Executive Officer, and Elaine Birkemeyer, Chief Financial Officer.

Sam Bentzinger: Good afternoon, and thank you for joining today's call. With me from Tactile's management team are Sheri Dodd, Chief Executive Officer, and Elaine Birkemeyer, Chief Financial Officer. Before we begin, I'd 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. These 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.

Speaker #2: Before we begin, I'd 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.

Speaker #2: These could cause actual results to differ materially from those indicated, including those identified in the risk factor 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.

Speaker #2: 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.

Speaker #2: 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.

Sam Bentzinger: This call will also include references to certain financial measures that are not calculated in accordance with Generally Accepted Accounting Principles, or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the investors relations portion of our website. With that, I'll now turn the call over to Sheri.

Speaker #2: Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website.

Speaker #2: With that, I'll now turn the call over to Sheri.

Speaker #3: Thanks, Sam. Good afternoon, everyone, and welcome to our second quarter 2026 earnings call. Here with me is Elaine Birkemeyer, our Chief Financial Officer. We delivered another strong quarter of execution in Q2, highlighted by continued strength in our lymphedema business and meaningful profitability expansion.

Sheri Dodd: Thanks, Sam. Good afternoon, everyone, and welcome to our Q2 2026 earnings call. Here with me is Elaine Birkemeyer, our Chief Financial Officer. We delivered another strong quarter of execution in Q2, highlighted by continued strength in our lymphedema business and meaningful profitability expansion. Total revenue was $85.7 million, up 9% year-over-year, with lymphedema contributing $73.6 million, up 12% year-over-year. AffloVest contributed $12.1 million, a 7% decline year-over-year due to temporary inventory management dynamics among several of our large DME partners associated with the launch of the AffloVest system during the quarter. Importantly, on a trailing 12-month basis, AffloVest revenue remains up 32% year-over-year, underscoring the durability of the underlying growth trend, even as we work through this near-term dynamic, which I will touch on shortly. Our strong revenue performance was complemented by another quarter of meaningful profitability expansion.

Speaker #3: Total revenue was $85.7 million, up 9% year over year, with lymphedema contributing $73.6 million up 12% year over year. Affovist contributed $12.1 million a 7% decline year over year, due to temporary inventory management dynamics among several of our large DME partners, associated with the launch.

Speaker #3: Affovist system during the quarter. Importantly, on a trailing 12-month basis, Affovist's revenue remains up 32% year over year, underscoring the durability of the underlying growth trend, even as we work through this near-term dynamic which I will touch on shortly.

Speaker #3: Our strong revenue performance was complemented by another quarter of meaningful profitability expansion. Gross margin improved 180 basis points year over year, and adjusted EBITDA increased 49% to 11.4 million dollars, reflecting both operating leverage and disciplined execution across the business.

Sheri Dodd: Gross margin improved 180 basis points year-over-year, and adjusted EBITDA increased 49% to $11.4 million, reflecting both operating leverage and disciplined execution across the business. We continue to be strategic and measured in our capital allocation, ending the Q2 with approximately $70 million in cash. Our cash balance sheet is strong, providing flexibility to invest in growth and return capital to shareholders over the short, medium, and long-term horizons. Based on our H1 performance, we are updating our full year 2026 revenue guidance to a range of $360 to $366 million. Within that outlook, we are projecting continued strength in revenue expectations for the lymphedema business while anticipating a more conservative view of the ordering patterns in our airway clearance business as some of our DME partners work through inventory as they convert to the next generation AffloVest system.

Speaker #3: We continue to be strategic and measured in our capital allocation, ending the second quarter with approximately $70 million in cash. Our balance sheet is strong, providing flexibility to invest in growth and return capital to shareholders over the short-, medium-, and long-term horizons.

Speaker #3: Based on our first half performance, we are updating our full year 2026 revenue guidance to a range of $360 to $366 million. Within that outlook, we are projecting continued strength in revenue expectations for the lymphedema business while anticipating a more conservative view of the ordering patterns in our airway clearance business as some of our DME partners work through inventory, as they convert to the next-generation Affovist system.

Speaker #3: I will now review our second quarter performance by business line and provide updates on our ongoing strategic priorities. Elaine will then discuss our financial results in greater detail and provide additional perspectives on our outlook for the balance of 2026.

Sheri Dodd: I will now review our Q2 performance by business line and provide updates on our ongoing strategic priorities. Elaine will then discuss our financial results in greater detail and provide additional perspectives on our outlook for the balance of 2026. Both the lymphedema market and our lymphedema business are healthy, and we are pleased to see the continued growth momentum reflected in a 12% year-over-year revenue growth in Q2. As we have shared in the past, our sales organization calls on a variety of payer types, including vascular and oncology practices, lymphatic therapists, and the VA, each of which tends to serve different patient needs. As a result, our revenue mix across payer types, Medicare, commercial, and VA, naturally reflects these points and is further influenced by the unique coverage policy dynamics.

Speaker #3: Both the lymphedema market and our lymphedema business are healthy, and we are pleased to see the continued growth momentum, reflected in a 12% year-over-year revenue growth in Q2.

Speaker #3: As we have shared in the past, our sales organization calls on a variety of vascular and oncology practices, lymphatic therapists, and the VA, each of which tends to serve different patient needs.

Speaker #3: As a result, our revenue mix across payer types, Medicare, commercial, NVA, naturally reflects these points and is further influenced by the unique coverage policy dynamics.

Speaker #3: Since aligning our documentation criteria with the now stable Medicare NCD policy, we continue to see increasing volume of flexitouch orders, driven in part by our large number of Medicare patients accessing advanced pump therapy more directly than was allowed under the previous LCD policy.

Sheri Dodd: Since aligning our documentation criteria with the now stable Medicare NCD policy, we continue to see increasing volume of Flexitouch orders, driven in part by our large number of Medicare patients accessing advanced pump therapy more directly than was allowed under the previous LCD policy. That growth was partially offset by the 13 April Medicare prior authorization requirement, which introduced additional administrative steps into the order process and contributed to some near-term moderation in Medicare order volumes during the quarter, even as Flexitouch adoption itself continues to grow. While the time from order completion to shipment is now slightly longer for these patients, prior authorization approval rates and adjudication timelines have tracked in line with our expectations. We moved quickly to prepare for these requirements ahead of the 13 April effective date and entered the quarter well-positioned to execute the new prior authorization process.

Speaker #3: That growth was partially offset by the April 13 Medicare prior authorization requirement, which introduced additional administrative steps into the order process and contributed to some near-term moderation in Medicare order volumes during the quarter, even as flexitouch adoption itself continues to grow.

Speaker #3: While the time from order completion to shipment is now slightly longer for these patients, prior authorization approval rates and adjudication timelines have tracked in line with our expectations.

Speaker #3: We moved quickly to prepare for these requirements ahead of the April 13 effective date, and entered the quarter well positioned to execute the new prior authorization process.

Speaker #3: With a full quarter of experience now behind us, we expect the initial impacts of the implementation to moderate and operational efficiency to continue improving, as our teams and the MACs gain familiarity with the new requirements.

Sheri Dodd: With a full quarter of experience now behind us, we expect the initial impacts of the implementation to moderate and operational efficiency to continue improving as our teams and the MACs gain familiarity with the new requirements. Our commercial revenue mix continues to demonstrate durable growth fueled by patient demand, product therapy options, and sales execution across the provider and clinician channels. While the coverage policies are not uniform across commercial payers, we continue to see broad access to our therapies. Our efforts remain focused on reducing administrative burden and expanding patient access in areas where payer requirements or coverage limitations have not yet evolved to reflect the growing body of clinical evidence, society-based guidelines, and current standards of care. Regarding the VA, revenue performance here has less quarter-to-quarter variability due to the stable reimbursement environment and a more streamlined operating model.

Speaker #3: Our commercial revenue mix continues to demonstrate durable growth, fueled by patient demand, product therapy options, and sales execution across the provider and clinician channels.

Speaker #3: While the coverage policies are not uniform across commercial payers, we continue to see broad access to our therapies. Our efforts remain focused on reducing administrative burden and expanding patient access in areas where payer requirements or coverage limitations have not yet evolved to reflect the growing body of clinical evidence, society-based guidelines, and current standards of care.

Speaker #3: Regarding the VA, revenue performance here has less quarter-to-quarter variability due to the stable reimbursement environment and a more streamlined operating model. We continue to view the VA as a strategic long-term opportunity given the breadth of providers and patient needs.

Sheri Dodd: We continue to view the VA as a strategic long-term opportunity, given the breadth of providers and patient needs. To that end, we are really excited about our recently announced distribution agreement with ElastiMed to bring a novel compression therapy device specifically to veterans, active duty service members, and other beneficiaries served through the Department of Defense. We believe this opportunity will be an incremental growth contributor within the VA channel over time by expanding the range of treatment options available to patients and clinicians. I will come back to this partnership in more detail shortly when we discuss our strategic initiatives. Turning now to airway clearance. As I mentioned, sales of AffloVest were down 7% year over year in Q2, reflecting temporary inventory management dynamics among several of our large DME partners associated with the launch of our next generation AffloVest system during the quarter.

Speaker #3: To that end, we're really excited about our recently announced distribution agreement with Elastomed to bring a novel compression therapy device specifically to veterans, active-duty service members, and other beneficiaries served through the Department of Defense.

Speaker #3: We believe this opportunity will be an incremental growth contributor within the VA channel over time, by expanding the range of treatment options available to patients and clinicians.

Speaker #3: I'll come back to this partnership in more detail shortly, when we discuss our strategic initiatives. Turning now to airway clearance. As I mentioned, sales of Affovist were down 7% year over year in the second quarter, reflecting temporary inventory management dynamics among several of our large DME partners, associated with the launch of our next-generation Affovist system during the quarter.

Speaker #3: As we work closely with the DMEs around the launch of our next-generation Affovist system, we learned of a few larger partners that had been carrying elevated Affovist inventory levels.

Sheri Dodd: As we work closely with the DMEs around the launch of our next generation AffloVest system, we learned of a few larger partners that had been carrying elevated AffloVest inventory levels. We expect this to moderate purchasing activity among these particular organizations as they work through existing inventory. As many of you know, this type of inventory management dynamic is common among DMEs. Based on our visibility today, we expect these inventory management dynamics to continue influencing ordering patterns throughout Q3, with purchasing activity beginning to normalize in Q4 as their inventory levels rebalance. The underlying fundamentals of this business remain strong. The patient demand, coverage environment, and AffloVest competitive position are favorable. AffloVest is a differentiated product in a market leadership position, supported by strong DME partnerships and a large addressable market.

Speaker #3: We expect this to moderate purchasing activity among these particular organizations as they work through existing inventory. As many of you know, this type of inventory management dynamic is common among DMEs.

Speaker #3: Based on our visibility today, we expect these inventory management dynamics to continue influencing ordering patterns throughout the third quarter, with purchasing activity beginning to normalize in the fourth quarter as their inventory levels rebalance.

Speaker #3: The underlining fundamentals of this business remain strong. The patient demand, coverage environment, and Affovist competitive position are favorable. Affovist is a differentiated product in a market leadership position, supported by strong DME partnerships and a large addressable market.

Speaker #3: On a trailing 12-month basis, Affovist revenue has grown at a compound annual rate of approximately 28% over the past two years, and remains up 32% year over year in Q2, again on a TTM basis.

Sheri Dodd: On a trailing 12-month basis, AffloVest revenue has grown at a compound annual rate of approximately 28% over the past 2 years and remains up 32% year over year in Q2, again, on a TTM basis. This underscores the durability of the underlying growth trend, despite the near-term inventory management dynamics associated with the launch of our next generation AffloVest system during the quarter. Importantly, airway clearance remains a profitable contributor to our business. We are confident that the recently launched next generation AffloVest system will continue to solidify our category leadership position in high-frequency chest wall oscillation and remain the product of choice for DME partners, clinicians, and the patients they serve. Turning now to an update on LymphaTech. We believe this acquisition addresses 2 of the most important unmet needs in the lymphedema patient journey.

Speaker #3: This underscores the durability of the underlining growth trend despite the near-term inventory management dynamics associated with the launch of our next-generation Affovist system during the quarter.

Speaker #3: Importantly, airway clearance remains a profitable contributor to our business. We are confident that the recently launched next-generation Affovist system will continue to solidify our category leadership position in high-frequency chest wall oscillation and remain the product of choice for DME partners, clinicians, and the patients they serve.

Speaker #3: Turning now to an update on Lymphatec, we believe this acquisition addresses two of the most important unmet needs in the lymphedema patient journey: earlier, more objective diagnosis and monitoring of disease progression, and the ability to personalize therapy to a patient's specific clinical needs over time.

Sheri Dodd: Earlier, more objective diagnosis and monitoring disease progression, and the ability to personalize therapy to a patient's specific clinical needs over time. Starting with diagnosis, lymphedema is a chronic progressive disease that is largely diagnosed and monitored today through clinician evaluation, including girth measurement and patient-reported symptoms, inputs that are hard to standardize and unreliable for early detection. There are 20 million patients in the US who have lymphedema but remain undiagnosed, and unlocking that population is a significant growth opportunity for us, and more importantly, for patient care. LymphaTech's FDA-cleared platform addresses the undiagnosed patient issue directly, providing objective, quantitative assessment of limb volume and circumference, and generating a clinical-grade 3D model of the affected anatomy. This provides clinicians with a clear view of disease progression and gives patients a visual understanding of their own condition, which we believe strengthens engagement and supports more timely access to therapy.

Speaker #3: Starting with diagnosis, lymphedema is a chronic progressive disease that's largely diagnosed and monitored today through clinician evaluation, including girth measurement and patient-reported symptoms. Inputs that are hard to standardize and unreliable for early detection.

Speaker #3: There are 20 million patients in the US who have lymphedema, but remain undiagnosed and unlocking that population is a significant growth opportunity for us, and more importantly, for patient care.

Speaker #3: Lymphatec's FDA-cleared platform addresses the undiagnosed patient-issued directly, providing objective, quantitative assessment of limb volume and circumference, and generating a clinical-grade 3D model of the affected anatomy.

Speaker #3: This provides clinicians with a clear view of disease progression and gives patients a visual understanding of their own condition, which we believe strengthens engagement and supports more timely access to therapy.

Speaker #3: Today, Lymphatec is deployed as a software-as-a-service solution, primarily in oncology centers, where clinicians use it to establish patient baselines and monitor change over time.

Sheri Dodd: Today, LymphaTech is deployed as a Software as a Service solution, primarily in oncology centers where clinicians use it to establish patient baselines and monitor change over time. We see a larger opportunity ahead in expanding LymphaTech's role specifically as a diagnostic aid, helping close the gap for the millions of undiagnosed patients I just mentioned. As the market leader in this space, we would like to be the first to begin supporting these diagnostic needs of physicians and the complex patients they treat. To that end, we have submitted for an expanded indication as a diagnostic aid for lymphedema with an FDA expected approval in 2027. In parallel, we are advancing efforts to secure a Category III CPT code, which would establish a reimbursement pathway and support broader adoption over time.

Speaker #3: We see a larger opportunity ahead in expanding Lymphatec's role specifically as a diagnostic aid, helping close the gap for the millions of undiagnosed patients I just mentioned.

Speaker #3: As the market leader in this space, we would like to be the first to begin supporting these diagnostic needs of physicians and the complex patients they treat.

Speaker #3: To that end, we have submitted for an expanded indication as a diagnostic aid for lymphedema, with an FDA-expected approval in 2027. In parallel, we are advancing efforts to secure a category 3 CPT code, which would establish a reimbursement pathway and support broader adoption over time.

Speaker #3: Looking ahead, Lymphatec is also expanding our R&D capabilities toward the second unmet need: integrating sensing and measurement directly into personalized therapy delivery, so treatment can be tailored to the patient's specific lymphatic care needs over time.

Sheri Dodd: Looking ahead, LymphaTech also expands our R&D capabilities towards the second unmet need, integrating sensing and measurement directly into personalized therapy delivery, so treatment can be tailored to this patient's specific lymphatic care needs over time. We continue to advance integration activities with early clinician feedback reinforcing these key strategic opportunities we see ahead, and we will provide additional updates as we make progress on commercialization, reimbursement, and product development initiatives. Our Q2 performance was anchored by continued execution of our three ongoing strategic priorities: improving access to care, expanding treatment options, and enhancing the lifetime patient value. Beginning with improving access to care, our stated focus has been on internal and external initiatives aimed at breaking down the barriers and friction points along the patient care journey. From an external perspective, improving market access conditions is supported by clinical evidence generation, guideline dissemination, and engagement with government and commercial payers.

Speaker #3: We continue to advance integration activities with early clinician feedback, reinforcing these key strategic opportunities we see ahead. And we'll provide additional updates as we make progress on commercialization, reimbursement, and product development initiatives.

Speaker #3: Our Q2 performance was anchored by continued execution of our three ongoing strategic priorities: improving access to care, expanding treatment options, and enhancing the lifetime patient value.

Speaker #3: Beginning with improving access to care, our stated focus has been on internal and external initiatives aimed at breaking down the barriers and friction points along the patient care journey.

Speaker #3: From an external perspective, improving market access conditions is supported by clinical evidence generation, guideline dissemination, and engagement with government and commercial payers. With respect to clinical evidence generation, today I'm pleased to share that the six-month manuscript for our head-and-neck clinical evidence program has been published in the International Journal of Radiation Oncology, Biology, and Physics.

Sheri Dodd: With respect to clinical evidence generation, today I am pleased to share that the six-month manuscript for our head and neck clinical evidence program has been published in the "International Journal of Radiation Oncology • Biology • Physics." This study, a 236 patient trial across 10 sites, represents the largest randomized controlled trial to date evaluating advanced pneumatic compression therapy for head and neck cancer-related lymphedema. The results show that Flexitouch delivered patient-reported outcomes comparable to therapist-guided care in a treatment-naive population with a strong safety profile and durable benefit over the six-month study period. We believe these findings are clinically meaningful because many head and neck lymphedema patients face barriers to accessing lymphatic massage therapy, including travel burden, cost, and delays in care. An at-home advanced pneumatic compression option can help address that access gap and support more timely treatment for this underserved patient population.

Speaker #3: This study, a 236-patient trial across 10 sites, represents the largest randomized controlled trial to date evaluating advanced pneumatic compression therapy for head-and-neck cancer-related lymphedema.

Speaker #3: The results showed that FlexiTouch delivered patient-reported outcomes comparable to therapist-guided care in a treatment naive population, with a strong safety profile and durable benefit over the six-month study period.

Speaker #3: We believe these findings are clinically meaningful because many head-and-neck lymphedema patients face barriers to accessing lymphatic massage therapy, including travel burden, cost, and delays in care.

Speaker #3: And at-home advanced pneumatic compression option can help address that access gap and support more timely treatment for this underserved patient population. With this publication, we will continue to focus on translating the evidence into broader provider awareness and payer engagement.

Sheri Dodd: With this publication, we will continue to focus on translating the evidence into broader provider awareness and payer engagement. Notably, the NCD policy language already allows advanced pump coverage for patients with head and neck lymphedema. Our efforts post-publication will now be centered on working with commercial payers to remove restrictive experimental and investigational designations so coverage policies can reflect the growing body of clinical evidence. We view this as a deliberate, evidence-driven effort to expand awareness, improve access to care, and support broader adoption over time. Next, on expanding treatment options, where we have an exciting update to highlight. In July, we announced an exclusive US distribution agreement with ElastiMed to bring MyoSleeve to veterans, active duty service members, and other beneficiaries served through the Department of Defense.

Speaker #3: Notably, the NCD policy language already allows advanced pump coverage for patients with head-and-neck lymphedema. Our efforts post-publication will now be centered on working with commercial payers to remove restrictive, experimental, and investigational designations so coverage policies can reflect the growing body of clinical evidence.

Speaker #3: We view this as a deliberate evidence-driven effort to expand awareness, improve access to care, and support broader adoption over time. Next, on expanding treatment options, where we have an exciting update to highlight.

Speaker #3: In July, we announced an exclusive U.S. distribution agreement with Elastomed to bring MyoSleeve to veterans, active-duty service members, and other beneficiaries served through the Department of Defense.

Speaker #3: MyoSleeve is a discreet, wearable, non-pneumatic compression device for the lower leg, providing an additional treatment option for patients in the earlier stages of chronic swelling, where consistent therapy adherence is important for slowing disease progression.

Sheri Dodd: MyoSleeve is a discreet, wearable, non-pneumatic compression device for the lower leg, providing an additional treatment option for patients in the earlier stages of chronic swelling where consistent therapy adherence is important for slowing disease progression. Compression therapy is not one size fits all. Clinicians benefit from having a range of treatment options that can be matched to the patient's clinical needs, anatomy, lifestyle, and disease stage. The device is designed to integrate seamlessly into daily life. It can be worn beneath clothing, allowing patients to receive therapy while going about their normal activities, which provides a more discreet and flexible compression solution. Leveraging electroactive polymer technology, MyoSleeve delivers dynamic compression through the flexible bands that contract in sequence, all within a fully battery power design that requires no tubing, cords, or external controller.

Speaker #3: Compression therapy is not one-size-fits-all. Clinicians benefit from having a range of treatment options that can be matched to the patient's clinical needs, anatomy, lifestyle, and disease stage.

Speaker #3: The device is designed to integrate seamlessly into daily life. It can be worn beneath clothing, allowing patients to receive therapy while going about their normal activities, which provides a more discrete and flexible compression solution.

Speaker #3: Leveraging electroactive polymer technology, MyoSleeve delivers dynamic compression through the flexible bands that contract in sequence, all within a fully battery-powered design that requires no tubing, cords, or external controller.

Speaker #3: Importantly, the device can function in both active and passive compression modes, providing flexibility to support patient preferences while helping promote long-term therapy adherence and engagement.

Sheri Dodd: Importantly, the device can function in both active and passive compression modes, providing flexibility to support patient preferences while helping promote long-term therapy adherence and engagement. MyoSleeve expands our market-leading portfolio of lymphatic care solutions and is specifically a natural fit within the VA channel, where we have historically not offered a basic compression product. It is designed specifically for lower leg patients earlier in their care continuum who may not require foot or knee coverage, or the advanced capabilities of a pneumatic compression device. As a result, we view MyoSleeve as complementary to, rather than a replacement for, our pneumatic compression therapies, including Flexitouch. We plan to leverage our established VA relationships, reimbursement expertise, and patient support infrastructure to launch MyoSleeve.

Speaker #3: MyoSleeve expands our market-leading portfolio of lymphatic care solutions and is specifically a natural fit within the VA channel, where we have historically not offered a basic compression product.

Speaker #3: It is designed specifically for lower leg patients, earlier in their care continuum, who may not require foot or knee coverage, or the advanced capabilities of a pneumatic compression device.

Speaker #3: As a result, we view MyoSleeve as complementary to, rather than a replacement for, our pneumatic compression therapies, including FlexiTouch. We plan to leverage our established VA relationships, reimbursement expertise, and patient support infrastructure to launch MyoSleeve.

Speaker #3: While adoption is expected to build over time, we believe the product increases are addressable patient populations within the VA channel and further advances our strategy of delivering comprehensive solutions across the lymphatic care continuum.

Sheri Dodd: While adoption is expected to build over time, we believe the product increases our addressable patient population within the VA channel and further advances our strategy of delivering comprehensive solutions across the lymphatic care continuum. We look forward to providing additional updates as we progress through commercialization. Finally, our third strategic priority of enhancing lifetime patient value. Consistent with previous updates, we are continuing our targeted care navigation work, designed to give patients clear guidance earlier in the process and reduce administrative friction. We believe embedding this work in our referral to ship process will reduce patient leakage, enhance the patient experience, and over time, reduce sales rep involvement in the order process, supporting both referral growth and operating leverage. With that, I'll now have Elaine review our Q2 financial results in more detail and provide an update on our outlook for 2026.

Speaker #3: We look forward to providing additional updates as we progress through commercialization. Finally, our third strategic priority of enhancing lifetime patient value. Consistent with previous updates, we are continuing our targeted care navigation work, designed to give patients clearer guidance earlier in the process and reduce administrative friction.

Speaker #3: We believe embedding this work in our referral-to-ship process will reduce patient leakage, enhance the patient experience, and, over time, reduce sales rep involvement in the order process, supporting both referral growth and operating leverage.

Speaker #3: With that, I'll now have Elaine review our Q2 financial results in more detail and provide an update on our outlook for 2026.

Speaker #1: Thanks, Sheri. Unless noted otherwise, I'll reference this as second quarter financial results on a GAAP and year-over-year basis. Revenue and profitability exceeded our expectations during the quarter, driven by continued strength in our lymphedema business and disciplined execution across the organization.

Elaine Birkemeyer: Thanks, Sheri. Unless noted otherwise, all references to Q2 financial results are on a GAAP and year-over-year basis. Revenue and profitability exceeded our expectations during the quarter, driven by continued strength in our lymphedema business and disciplined execution across the organization. Total revenue in Q2 increased by $6.8 million or 9% to $85.7 million, driven by continued strength in our lymphedema business. By product line, sales and rentals of lymphedema products, which includes our Flexitouch, Nimbl, and LymphaTech systems, increased $7.7 million or 12% to $73.6 million. Sales of our airway clearance products, which includes our AffloVest system, decreased $0.9 million or 7% to $12.1 million, reflecting temporary inventory management dynamics associated with the launch of our next generation AffloVest system among a few DME partners during the quarter. Turning to profitability.

Speaker #1: Total revenue in the second quarter increased by 6.8 million dollars or 9% to 85.7 million dollars driven by continued strength in our lymphedema business.

Speaker #1: By product line, sales and rentals of lymphedema products, which include our FlexiTouch, Nimble, and Lymphatek systems, increased $7.7 million, or 12%, to $73.6 million.

Speaker #1: And sales of our airway clearance products, which include our Aflovest system, decreased 0.9 million dollars or 7% to 12.1 million dollars. Reflecting temporary inventory management dynamics associated with the launch of our next-generation Aflovest system among a few DME partners during the quarter.

Speaker #1: Turning to profitability, gross margin was 76.3% of revenue, compared to 74.5% in the second quarter of 2025. The increase in gross margin was attributable primarily to lower manufacturing costs, stronger collections reflected in revenue, and favorable mix benefits.

Elaine Birkemeyer: Gross margin was 76.3% of revenue compared to 74.5% in Q2 2025. The increase in gross margin was attributable primarily to lower manufacturing costs, stronger collections reflected in revenue, and favorable mix benefits. Q2 operating expenses increased $3.8 million or 7% to $58.5 million, reflecting continued strategic investments to support long-term growth, including investments in our commercial organization, technology initiatives, and operational capabilities. The change in GAAP operating expenses reflected a $2 million increase in sales and marketing expenses, a $0.5 million increase in research and development expenses, and a $1.3 million increase in reimbursement general and administrative expenses, including and primarily driven by strategic investments. Operating income increased $2.7 million or 67% to $6.8 million. Interest income decreased $0.3 million or 34% to $0.6 million due to our decreased cash position. Interest expense decreased $0.4 million or 95% to $19,000.

Speaker #1: Second quarter operating expenses increased 3.8 million dollars or 7% to 58.5 million dollars. Reflecting continued strategic investments to support long-term growth, including investments in our commercial organization technology initiatives and operational capabilities.

Speaker #1: The change in GAAP operating expenses reflected a $2 million increase in sales and marketing expenses and a $0.5 million increase in research and development expenses.

Speaker #1: And a $1.3 million increase in reimbursement general and administrative expenses including and primarily driven by strategic investments. Operating income increased 2.7 million dollars or 67% to 6.8 million dollars.

Speaker #1: Interest income decreased 0.3 million dollars or 34% to 0.6 million dollars due to our decreased cash position. Interest expense decreased 0.4 million dollars or 95% to 19,000 dollars.

Speaker #1: Income tax benefit was 0.4 million dollars compared to income tax expense of 1.3 million dollars. Net income increased 4.6 million dollars or 142% to 7.8 million dollars or 34 cents per diluted share compared to 3.2 million dollars or 14 cents per diluted share.

Elaine Birkemeyer: Income tax benefit was $0.4 million compared to income tax expense of $1.3 million. Net income increased $4.6 million or 142% to $7.8 million or $0.34 per diluted share, compared to $3.2 million or $0.14 per diluted share. Adjusted EBITDA increased 49% to $11.4 million compared to $7.7 million in the prior year period, driven by revenue growth, gross margin expansion, and disciplined expense management. With respect to our balance sheet, we had $69.9 million in cash and cash equivalents and no outstanding borrowings at quarter end. This compares to $83.4 million in cash and no outstanding borrowings as of 31 December 2025. The decline in cash during the quarter primarily reflects the upfront payments made to ElastiMed to secure the exclusive distribution rights for MyoSleeve in the VA and Department of Defense, and share repurchases completed during the quarter under our repurchase program.

Speaker #1: Adjusted EBITDA increased 49% to 11.4 million dollars compared to 7.7 million dollars in the prior year period driven by revenue growth, gross margin expansion, and disciplined expense management.

Speaker #1: With respect to our balance sheet, we had $69.9 million in cash and cash equivalents and no outstanding borrowings at quarter end. This compares to $83.4 million in cash and no outstanding borrowings as of December 31, 2025.

Speaker #1: The decline in cash during the quarter primarily reflects the upfront payments made to Elastomed to secure the exclusive distribution rights for MyoSleeve in the VA and Department of Defense, and share repurchases completed during the quarter under our repurchase program.

Speaker #1: Excluding these strategic uses of cash, we generated positive operating cash flow during the quarter and our balance sheet continues to provide meaningful flexibility to invest in growth and return capital to shareholders.

Elaine Birkemeyer: Excluding new strategic uses of cash, we generated positive operating cash flow during the quarter, and our balance sheet continues to provide meaningful flexibility to invest in growth and return capital to shareholders. Turning to a review of our 2026 outlook. For the full year 2026, we are updating our guidance and now expect total revenue in the range of $360 to $366 million, representing growth of approximately 9% to 11% year over year. At the product line level, we continue to expect lymphedema revenue growth in the low double-digit range for the full year, while airway clearance revenue is now expected to be closer to flat year over year. This range reflects continued strength across our lymphedema business and a temporary impact of the inventory management dynamics within the airway clearance channel during Q2 and Q3 that Sheri discussed earlier.

Speaker #1: Turning to our review of the 2026 outlook: For the full year 2026, we are updating our guidance and now expect total revenue in the range of $360 to $366 million, representing growth of approximately 9% to 11% year-over-year.

Speaker #1: At the product line level, we continue to expect lymphedema revenue growth in the low double-digit range for the full year, while airway clearance revenue is now expected to be closer to flat year-over-year.

Speaker #1: This range reflects continued strength across our lymphedema business and the temporary impact of the inventory management dynamics within the airway clearance channel during the second and third quarters that Sheri discussed earlier.

Speaker #1: For modeling purposes for the full year 2026, we expect our GAAP gross margins to be 76% to 76.5%. Our GAAP operating expenses are expected to increase 10% to 12% year-over-year as we annualize our sales organization investment and advance our tech-related investments throughout the year.

Elaine Birkemeyer: For modeling purposes for the full year 2026, we expect our GAAP gross margins to be 76% to 76.5%, our GAAP operating expenses to increase 10% to 12% year-over-year as we annualize our sales organization investments in advance our tech-related investments throughout the year, net interest income of approximately $2.4 million, a tax rate of 28%, and a fully diluted weighted average share count of approximately 23 million shares. We continue to expect to generate adjusted EBITDA of approximately $49 to $51 million in 2026. While we are pleased with our strong H1 profitability, maintaining our outlook reflects a balanced view of temporary airway clearance inventory dynamics, the Medicare prior authorization transition, and continued investment in strategic growth initiatives. Our adjusted EBITDA expectation assumes certain non-cash items including stock compensation expense of approximately $8.6 million, intangible amortization of approximately $4.2 million

Speaker #1: Net interest income of approximately $2.4 million at a tax rate of 28% and a fully diluted weighted average share count of approximately 23 million shares.

Speaker #1: We continue to expect to generate adjusted EBITDA of approximately 49 to 51 million dollars in 2026. While we are pleased with our strong first-half profitability, maintaining our outlook reflects a balanced view of temporary airway clearance inventory dynamics the Medicare prior authorization transition and continued investment in strategic growth initiatives.

Speaker #1: Our adjusted EBITDA expectation assumes certain non-cash items including stock compensation expense of approximately 8.6 million dollars, intangible amortization of approximately 4.2 million dollars, depreciation expense of approximately 3.3 million dollars, litigation-related cost of approximately 1 million dollars, and one-time acquisition-related and integration cost of 1.3 million dollars.

Elaine Birkemeyer: depreciation expense of approximately $3.3 million, litigation-related costs of approximately $1 million, and one-time acquisition-related and integration costs of $1.3 million. With that, I'll turn the call back to Sheri for some closing remarks. Sheri?

Speaker #1: With that, I'll turn the call over for remarks. Sheri?

Speaker #2: Thank you, Elaine. We believe our second quarter top- and bottom-line results reinforce the strength and resilience of our business model. We are growing.

Sheri Dodd: Thank you, Elaine. We believe our Q2 top and bottom line results reinforce the strength and resilience of our business model. We are growing, our profitability profile continues to improve, and we have the financial flexibility to continue to invest in opportunities that can further strengthen our long-term growth profile while maintaining a disciplined approach to execution. Our focus remains clear: improving access to care, broadening treatment options, and creating lifetime value through an enhanced patient experience. At scale, these strategies will drive growth through market leadership, market development, and operational excellence. Notably, LymphaTech expands our platform across the lymphedema care continuum, including upstream diagnosis and monitoring. The next generation AffloVest system reinforces our commitment to innovation in airway clearance, and our MyoSleeve distribution agreement broadens our portfolio with an additional treatment option for veterans and active duty service members and their beneficiaries through the Department of Defense.

Speaker #2: Our profitability profile continues to improve, and we have the financial flexibility to continue to invest in opportunities that can further strengthen our long-term growth profile while maintaining a disciplined approach to execution.

Speaker #2: Our focus remains clear. Improving access to care, broadening treatment options, and creating lifetime value through an enhanced patient experience. At scale, these strategies will drive growth through market leadership, market development, and operational excellence.

Speaker #2: Notably, Lymphatech expands our platform across the lymphedema care continuum, including upstream diagnosis and monitoring. The next generation Aflovet system reinforces our commitment to innovation in airway clearance and our MyoSleeve distribution agreement broadens our portfolio with an additional treatment option for veterans and active-duty service members and their beneficiaries through the Department of Defense.

Speaker #2: Our clinical evidence and payer strategies will support broader access to care for underserved patient populations and our order operations transformation will continue to unlock leverage and referral expansion.

Sheri Dodd: Our clinical evidence and payer strategies will support broader access to care for underserved patient populations, and our order operations transformation will continue to unlock leverage and referral expansion. Tactile is well-positioned to generate sustainable, profitable growth and deliver meaningful long-term value for our shareholders. I want to thank the Tactile Medical employees for all they do for patients, our clinical customer, and for each other. With that, operator, we'll now open the call for questions.

Speaker #2: Tactile is well-positioned to generate sustainable, profitable growth and deliver meaningful, long-term value for our shareholders. I want to thank the Tactile Medical employees for all they do for patients, our clinical customers, and for each other.

Speaker #2: With that, operator will now open the call for questions.

Speaker #3: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad.

Operator 2: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question will come from Adam Maeder with Piper Sandler.

Speaker #3: A confirmation tone will indicate your line is in the question queue. You may press star-two if you would like to remove your question from the queue.

Speaker #3: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. In our first question, we'll come from Adam Meter with Piper Sandler.

Speaker #4: Hi, this is Kyle Wynborn on for Adam. Thanks for taking our questions. I guess maybe I'll start on lymphedema. The performance was good there in the quarter.

Kyle Windborn: Hi, this is Kyle Windborn on for Adam. Thanks for taking our questions. I guess maybe I will start on lymphedema. The performance was good there in the quarter. Maybe on the prior authorization updates that you gave. Given the performance and the momentum, it seems like maybe some of the ability to navigate some of the turbulence there was offset maybe by some strength, just in the underlying business momentum. Just curious, because last quarter we had a lot of discussion about sales acceleration in Q1 and maybe some shift in revenue into Q3 from Q2 due to the prior authorization requirements. Just kind of curious if you could maybe quantify any shift in orders and revenue between the quarters, just so we can kind of maybe get a sense of where normal order patterns are.

Speaker #4: And maybe on the prior authorization updates that you gave, given the performance and the momentum, it seems like maybe some of the ability to navigate some of the turbulence there was offset maybe by some strength just in the underlying business momentum.

Speaker #4: But just curious, because last quarter we had a lot of discussion about sales acceleration in Q1, and maybe some shift in revenue into Q3 from Q2 due to the prior authorization requirements.

Speaker #4: So just kind of curious if you could maybe quantify any shift in orders and revenue between the quarters just so we can kind of maybe get a sense of where normal order patterns are.

Speaker #4: Because, being that it was such a good quarter there, was it kind of just maybe these weren't as prevalent as feared, or did your team's experience with this process kind of carry you through successfully?

Kyle Windborn: Because being that it was such a good quarter there, was it kind of just maybe these weren't as prevalent as feared, or did your team's experience with this process kind of carry you through successfully?

Speaker #2: Yeah, thanks for the question. So, a couple of things. Definitely, lymphedema was a primary driver of the upside, and we continue to see really strong execution across our commercial organization.

Sheri Dodd: Yeah, thanks for the question. A couple of things. Definitely lymphedema was a primary driver of the upside, and we continue to see really strong execution across our commercial organization, which is both healthy referral trends. We have improved territory productivity and then the continued NCD driven Flexitouch adoption. Remember that we started to align our policy with that NCD change in November of last year. We added the additional reps, so we have got more referrals coming in. That productivity is happening. All of these things were really contributing to that overall growth. For sure the Medicare prior auth, as we reported in Q1, did have a timing impact on when we thought those orders would flow through, given there was more upfront administrative work. But that is starting to normalize more and more now.

Speaker #2: Which is both healthy referral trends—we have improved territory productivity, and then the continued NCZ-driven Flexitouch adoption. Remember that we started to align our policy with that NCD change in November of last year. We added the additional reps, so we've got more referrals coming in. That productivity is happening.

Speaker #2: So, all of these things were really contributing to that overall growth. For sure, the Medicare prior auth, as we reported in Q1, did have a timing impact on when we thought those orders would flow through, given there was more upfront administrative work.

Speaker #2: But that is starting to normalize more and more now. We're starting to see exactly what we expected to see, where the MACs are converging a bit more in terms of their adjudication of the policies.

Sheri Dodd: We're starting to see exactly what we expected to see, where the MACs are converging a bit more in terms of their adjudication of the policies. We were really proud of how our team stood up our capabilities, and we're seeing the MACs also starting to resource what they need on their side. So it really was a product of healthy referral trends, territory productivity, NCD driven Flexitouch adoption, and what we expected to see on that prior auth on Medicare. Really pleased with the results on lymphedema.

Speaker #2: We were really proud of how our teams stood up, our capabilities, and we're seeing the MACs also starting to resource what they need on their side.

Speaker #2: So it really was a product of healthy referral trends, territory productivity, NCD-driven Flexitouch adoption, and what we expected to see on that prior auth on Medicare.

Speaker #2: Really, really pleased with the results on lymphedema.

Speaker #4: Okay, great. That's helpful. And then maybe just continuing in the lymphedema business, with this new distribution agreement with Elastomed, I wanted to just kind of get a better understanding of how this will fit into the business model and what we should expect for impacts to our models I understand it looks like there was a commitment to minimum purchase agreements marketing and sales promotion so should we expect maybe some added opex here from the agreement or given kind of your already established infrastructure should this really just be more plug and play?

Kyle Windborn: Okay, great. That's helpful. Then maybe just continuing in the lymphedema business, with this new distribution agreement with ElastiMed. I wanted to just kind of get a better understanding of how this will fit into the business model and what we should expect for impacts to our models. I understand it looks like there was a commitment to minimum purchase agreements, marketing and sales promotion. So should we expect maybe some added OpEx here from the agreement? Or given kind of your already established infrastructure, should this really just be more plug and play? And what could we expect from a revenue impact perspective? Sorry if I missed if there was kind of any timing here when we could expect contribution. Thank you.

Speaker #4: And what could we expect from a revenue impact perspective? Sorry if I missed if there was any timing here when we could expect contribution.

Speaker #4: Thank you.

Speaker #2: Yes, thanks. So, I'll answer your last question first. We do see MyoSleeve as an incremental growth contributor within the VA channel over time.

Sheri Dodd: Yes, thanks. So I'll answer your last question first. So we do see MyoSleeve as an incremental growth contributor within the VA channel over time. But our current guidance does not assume any material contribution from MyoSleeve. So that answers the revenue side of your question. As it relates to OpEx, what we really like about this agreement is we are leveraging our existing infrastructure. So we already have the VA as a call point. We already have very talented reps. Of course, they call on all call points, but they already have relationships within the VA. They are already used to selling in multi-provider specialties within the VA with Flexitouch. The MyoSleeve now offers them another opportunity of going in with a more expansive portfolio, kind of using the same talent that we already have within our current sales force.

Speaker #2: But our current guidance does not assume any material contribution from MyoSleeve, so that answers the revenue side of your question. As it relates to opex, what we really like about this agreement is we are leveraging our existing infrastructure.

Speaker #2: So we already have the VA as a call point. We already have very talented reps. Of course, they call on all call points, but they already have relationships within the VA.

Speaker #2: They are already used to selling in multi-provider specialties within the VA with Flexitouch. The MyoSleeve now offers them another opportunity to go in with a more expansive portfolio, kind of using the same talent that we already have within our current sales force.

Speaker #2: So we're really excited to be leveraging the resources that we have as a starting point for that product introduction.

Sheri Dodd: So we're really excited to be leveraging the resources that we already have, which made the VA a really great starting point for that product introduction.

Speaker #4: That's helpful. Thank you.

Kyle Windborn: That's helpful. Thank you.

Speaker #2: Yeah, thank you.

Sheri Dodd: Yeah, thank you.

Speaker #3: In our next question we'll come from Ryan Zimmerman with US Bancorp BTIG.

Operator 2: Our next question will come from Ryan Zimmerman with BTIG.

Speaker #5: Thank you, and good afternoon. Just on the airway clearance dynamics, I'm wondering if we could dig in a little farther there. Why, I guess, why do the ordering patterns normalize in Q4?

Ryan Zimmerman: Thank you, and good afternoon. Just on the airway clearance dynamics, I wonder if we could dig in a little farther there. Why do the ordering patterns normalize in Q4? What are you seeing right now in terms of inventory levels that need to burn through, burn down? When do we see the impact of the new AffloVest product start to kick in?

Speaker #5: What do you see right now in terms of inventory levels that need to kind of burn through, burn down? And when do we see the impact of the new Aflovest product start to kick in?

Speaker #2: Yes. Hi, Ryan. So thanks for that. From a dynamic standpoint, the not complicated in launching our next-gen kind of product, it really forces our partners to take a look at overall inventory.

Sheri Dodd: Yeah. Hi, Ryan. Thanks for that. From a dynamic standpoint, the not complicated territory in launching our next-gen product, it really forces our partners to take a look at overall inventory. We also identified when they did that we had more inventory sitting in some of those partners, so it was very limited, where they do need to burn down that inventory before they pick up on their normal patterns. We are aware of what that inventory looks like, and that has been built into our back half guidance. That is why we are saying we believe that Q3, they will start to burn through that inventory, and then starting in Q4, they will start to pick back up on their overall ordering pattern.

Speaker #2: And in planning for the launch of a new product, they identified—so then we also identified when they did that—we had more inventory sitting in some of those partners.

Speaker #2: So it was very limited, where they do need to burn down that inventory before they pick up on their normal patterns. We're aware of what that inventory looks like, and that has been built into our back-half guidance.

Speaker #2: So that's why we're saying we believe that in Q3 they'll start to burn through that inventory, and then starting in Q4 they'll begin to pick back up on their overall ordering pattern.

Speaker #2: So we feel confident that we have good visibility now into what the current inventory is. We know what normal buying patterns are. This business can be a little bit lumpy on things we can't control, which would be things like cold and flu seasonality, and a little bit on patient affordability dynamics.

Sheri Dodd: We feel confident that we have good visibility now to what the current inventory is. We know what normal buying patterns are. This business can be a little bit lumpy on things we cannot control, which would be cold and flu seasonality, and a little bit on patient affordability dynamics. Right now, everything is really stable with the reimbursement. It really is this temporary, one-time dynamic that is happening with the introduction of a new product. As it relates to Gen 6 or our next generation product, our DMEs are really excited to be bringing this product to patients. Remember, there is no incremental reimbursement for this. This is just a better product on top of what was already the best product on the market. It has size adjustability, which is great. It is even lighter than our current product.

Speaker #2: But right now everything is really stable with the reimbursement. It really is this temporary kind of one-time dynamic that's happening with the introduction of a new product.

Speaker #2: As it relates to Gen 6, or our next generation product, our DMEs are really excited to be patients. Remember, there's no incremental reimbursement for this.

Speaker #2: This is just a better product on top of what was already the best product on the market. So, it has size adjustability, which is great.

Speaker #2: It has it's even lighter than our current product. It remains still the only untethered vest that's out there. And now it offers connectivity. So our DNA partners are excited to bring this to patients.

Sheri Dodd: It remains still the only untethered vest that is out there, and now it offers connectivity. Our DME partners are excited to bring this to patients. They just need to burn through some inventory in a few number of our partners at a few of their branches, and then we will be back off on exactly where we want to be starting in Q4 with regular ordering patterns.

Speaker #2: They just need to burn through some inventory. In a few number of our partners at a few of their branches and then we'll be back off exactly where we want to be starting in Q4 with regular ordering patterns.

Speaker #5: Okay. And just maybe to dig in a little bit further on the guidance, Sheri, Elaine, I mean, if you break down the contributions—I appreciate you gave the color for double-digit lymphedema growth, but I just want to dig in there.

Ryan Zimmerman: Okay. Just maybe to dig in a little bit further on the guidance, Sheri and Elaine, if you break down the contributions, I appreciate you gave the color for double-digit lymphedema growth, but I just want to dig in there. Does that include any contribution from LymphaTech? Arguably, how much are you taking the airway clearance guidance down if it is overall $1 million at the midpoint? Is there any incremental contribution, say, from LymphaTech that are maybe offsetting that incremental airway clearance revenue?

Speaker #5: I mean, does that include any contribution from Lymphatec? And then, arguably, how much are you taking the airway clearance guidance down if it's overall $1 million at the midpoint?

Speaker #5: Is there any incremental contribution, say, from Lymphatec that may be offsetting that incremental airway clearance revenue?

Speaker #2: Yeah. So Lymphatec is already built into the overall guides. That's reflected when we talk about the health of the lymphedema business. But we'll say that Lymphatec continues to be a really small portion of what is the broader lymphedema growth for us.

Sheri Dodd: Yeah. LymphaTech is already built into the overall guide that is reflected when we talk about the health of the lymphedema business. We will say that LymphaTech continues to be a really small portion of what is the broader lymphedema growth for us. Again, that growth is really on the back of having great referral trends. We love the momentum there. We love seeing the territory productivity. This NCD-driven change in alignment is really helping with our overall Flexitouch adoption. All of that is really in the strengths of the lymphedema business, which is why we are confident that we are going to be delivering in that low double-digit growth. On the AffloVest, that is just us knowing what we know right now.

Speaker #2: Again, that growth is really on the back of having great referral trends. We love the momentum there; we love seeing the territory productivity. And then this NCD-driven change and alignment is really helping with our overall Flexitouch adoption.

Speaker #2: So all of that is really in the strengths of the lymphedema business, which is why we are confident that we're going to be delivering in that low double-digit growth.

Speaker #2: On the Afflovest, that is just us knowing what we know right now, has been the philosophy of let's call the shot based on what we know right now, what we believe to be the ordering patterns.

Sheri Dodd: It has been the philosophy of let's call the shots based on what we know right now, what we believe to be the ordering patterns normalizing back in the H2 of the year. That is why we just changed the top end, but we held the bottom end of the overall guide.

Speaker #2: That normalizing back in the back half of the year, and that's why we just changed the top end, but we held the bottom end of the overall guide.

Speaker #5: Oh, okay. Fair enough. And can I just sneak one little, tiny, little question in? You said there's a near-term moderation from Q2 in the lymphedema business just because of the prior auth requirement.

Ryan Zimmerman: Oh, okay. Fair enough. I just sneak one little, tiny question in. You said there was a near-term moderation from Q2 in the lymphedema business just because of the prior auth requirement. Are you able to size that, Elaine, just as to what you may or may not make up as a result of that potentially in Q3?

Speaker #5: Were you able to size that, Elaine, just as to what you may or may not make up as a result of that, potentially in Q3?

Speaker #2: So, I think the best way to look at it, if you take a look—and you can see in our filing—the Medicare business was down in the quarter. That's reflective of kind of what we're talking about.

Elaine Birkemeyer: I think the best way to look at it, if you take a look at, and you can see in our filing, the Medicare business was down in the quarter.

Ryan Zimmerman: Right.

Elaine Birkemeyer: That is reflective of what we are talking about, that typically we would not have expected to see that. I think what we are saying is that over time, we think that will start to normalize. From a sequential perspective, I think we mentioned this before, and it is holding, that Q3 sequential growth is going to be on that bigger side compared to year's top, more similar to last year. When you think about we have that bigger step up there, that really is that timing push that we are talking about from that Q2 to Q3 related to Medicare.

Speaker #2: That typically, we wouldn't have expected to kind of see that. So, I think what we're saying is that over time, we think that will start to normalize, and from a sequential perspective—I think we mentioned this before, and it's holding—that Q3 sequential growth is going to be kind of on that bigger side compared to years past.

Speaker #2: More similar to last year. When you think about we had that bigger step up there and that really is kind of that timing push that we're talking about from that Q2 to Q3 related to Medicare.

Speaker #5: Thank you.

Ryan Zimmerman: Thank you.

Sheri Dodd: Mm-hmm. Thanks, Ryan.

Speaker #2: Thanks, Ryan.

Speaker #1: And as a reminder, that is *star one* if you would like to ask a question. We'll go next to Brendan Vasquez with William Blair.

Operator 2: As a reminder, that is star 1 if you would like to ask a question. We will go next to Brandon Vazquez with William Blair.

Speaker #6: Hey, everyone. Thanks for taking the question. I wanted to stick with Aflovest first. Is there any way you can talk a little bit about kind of the sell-through versus the sell into the channel just trying to get a better sense of and market demand?

Brandon Vazquez: Hey, everyone. Thanks for taking the question. I wanted to stick with AffloVest first. Is there any way you can talk a little bit about the sell-through versus the sell into the channel, just try to get a better sense of end market demand. Is it still growing in line with market? Can you quantify it, or even just talk about it a little bit?

Speaker #6: Is it still growing kind of in line with market? Can you quantify it or even just talk about it a little bit?

Speaker #2: Sure. I mean, the good news about the Aflovest story here—and I know it may not seem like great news—but let's put this in context.

Sheri Dodd: Sure. The good news about the AffloVest story here, and I know it may not seem like great news, but let's put this in context. This is a temporary dynamic that was driven from us introducing a new product. This is not uncommon in DMEs. Whenever they have a next-gen product coming in, or a manufacturer is upgrading or changing out a platform, they typically go back and they check to make sure what do they currently have, so that they can determine what their buying patterns are. It's a forced function of launching a new product, and we're really excited, for both patients as well as clinicians, to be bringing a good product. This is just an unfortunate outcome that comes with that. But again, it's temporary, and it's very contained to a small number of our largest DMEs. Overall, from a market standpoint, nothing is changing.

Speaker #2: This is a temporary dynamic that was driven by us introducing a new product. This is not uncommon in DMEs. Whenever they have a next-gen product coming in, or a manufacturer is upgrading or changing out a platform, they typically go back and check to make sure what they currently have, so that they can determine what their buying patterns are.

Speaker #2: It's a forced function of launching a new product, and we're really excited for both patients as well as clinicians to be bringing a good product.

Speaker #2: This is just an unfortunate outcome that comes with that. But again, it's temporary, and it's very contained to a small number of our largest DMEs.

Speaker #2: Overall, from a market standpoint, nothing is changing. So we continue to see the market growing. There's more awareness of the disease state, and we already have the market-leading product.

Sheri Dodd: We continue to see the market growing. There's more awareness of the disease state, and we already have the market-leading product, and we're adding an even better product by the connectivity, the sizing adjustment, as well as being even lighter. So we feel very confident in this business. It's a great business for us. The patients are there. The clinicians are super excited about this next-gen product. It is a profitable product for us. It's a healthy part of our overall business, and we will get past this one-time temporary dynamic, again, triggered by the launch of a new product introduction.

Speaker #2: And we're adding an even better product by improving the connectivity, the sizing adjustment, as well as being even lighter. So we feel very confident in this business.

Speaker #2: It's a great business for us. The patients are there. The clinicians are super excited about this next-gen product. It is a profitable product for us.

Speaker #2: It's a healthy part of our overall business, and we will get past this one-time, temporary dynamic—again, triggered by the launch of a new product.

Speaker #2: Introduction.

Speaker #6: Got it. Okay, thanks. And then I'll ask maybe two reimbursement or market access questions that I'll lump together here. The first one: you have the new six-month head and neck data published.

Brandon Vazquez: Got it. Okay, thanks. I'll ask maybe two reimbursement questions or market access questions that I'll lump together here. The first one, you have the new six-month head and neck data published. Congrats. What are the next steps here? What are the timelines for us to be keeping a lookout for to improve market access on the private side? The other market access question, if you could just talk a little bit more. I know you were using AI internally to improve for market access on the Medicare front, I think it was. Just talk a little bit there on how those AI efforts are going, and how those trends are going into the rest of the year. Thanks.

Speaker #6: Congrats. What are the next steps here? What are the timelines we should be keeping a lookout for to improve market access on the private side?

Speaker #6: And then the other kind of market access question—if you could just talk a little bit more. I know you were using AI internally to kind of improve market access on the Medicare front.

Speaker #6: I think it was just to talk a little bit there on how those AI efforts are going, and kind of how those trends are going into the rest of the year.

Speaker #6: Thanks.

Speaker #2: Yeah, thanks for the question. I like talking about both of these. So we're very excited to have that head and neck publication—six-month data—finally in a great peer-reviewed journal.

Sheri Dodd: Yeah. Thanks for the question. I like talking about both of these. So we are very excited to have that head and neck publication, 6-month data, finally in a great peer-reviewed journal, and eager to both have that in the hands of payers as well as clinicians so that they can see the benefit. Again, of Flexitouch versus usual care. And again, this was in treatment-naive patients. These are patients who had never received even conservative care, and showing the great Flexitouch benefit in outcomes and sustaining those outcomes at 2, 4, and 6 months is going to show a lot of benefit, both from a payer side as well as a clinician and a patient side. So we had already been engaging with payers to share with them the 2-month data that we had, letting them know that we were going to be having that 6-month manuscript.

Speaker #2: And eager to both have that in the hands of payers as well as clinicians, so that they can see the benefit again of Flexitouch versus usual care.

Speaker #2: And again, this was in treatment—90 patients. These are patients who had never received even conservative care. And showing the great Flexitouch benefit in outcomes and sustaining those outcomes at 2, 4, and 6 months is going to show a lot of benefit, both from a payer side as well as a clinician and a patient side.

Speaker #2: So we had already been engaging with payers to share with them the two-month data that we had, letting them know that we were going to be having that six-month manuscript.

Speaker #2: Now we have it. We're back in front of payers right now, and we're asking for two things. We're asking for immediate reconsideration of their current ENI policy.

Sheri Dodd: Now we have it. We are back in front of payers right now, and we are asking for two things. We are asking for immediate reconsideration of their current E&I policy. Then if they do not agree to an immediate reconsideration, at least get it in the docket for when they do an update on their coverage policies. So that is going on right now, and we are having good discussions, and we really feel that the weight of this evidence is going to be very helpful. The thing I cannot control is their timing. We can help make a case for it. We can talk about it from a patient advocacy standpoint. We have got the data to support it, but ultimately, it is the payer's decisions on when they change that policy. And I am saying when they change, because I am expecting that they will change. But that timing is challenging.

Speaker #2: And then, if they don't agree to an immediate reconsideration, at least get it in the docket for when they do an update on their coverage policies.

Speaker #2: So that is going on right now. We're having good discussions, and we really feel that the weight of this evidence is going to be very helpful.

Speaker #2: The thing I cannot control is their timing. We can help make a case for it. We can talk about it from a patient advocacy standpoint.

Speaker #2: We've got the data to support it, but ultimately it is the payer's decision as to when they change that policy. And I'm saying "when they change" because I am expecting that they will change, but the timing is challenging.

Speaker #2: But we’re moving on that fast. Just don’t expect payer coverage to change immediately—it does take time. But I also wanted to do a reminder that the Medicare NCD already allows for head and neck patients to receive a product.

Sheri Dodd: But we are moving on that fast. Just do not expect payer coverage to change immediately. It does take time. But also wanted to do a reminder that the Medicare NCD already allows for head and neck patients to receive a product. So this is just in the commercial, straight-up commercial as well as Medicare MA plans that need to change their policy. But the commercial Medicare fee-for-service already allows for this path, and hopefully then the publication will just help drive that clinician awareness and identifying more patients. Your second question was on AI and operations. It was interesting. In this earnings call, we did not discuss a lot on operations, and that is actually hopefully seen as a positive. Our operations and the way we are adding AI and technology and our tech transformation is going really well.

Speaker #2: So this is just in the commercial—straight-up commercial—as well as Medicare MA plans that need to change their policy. But the commercial Medicare fee-for-service already allows for this path, and hopefully, then the publication will just help drive that clinician awareness and identifying more patients.

Speaker #2: Your second question was on AI and operations. It was interesting—in this earnings call, we didn’t discuss a lot on operations. And that’s actually, hopefully, seen as a positive.

Speaker #2: Our operations and the way we're adding AI and technology in our tech transformation is going really well. We continue to partner with AI companies, looking for ways to streamline the work and take the friction points out of moving documents from the physician into the order management process.

Sheri Dodd: We continue to partner with AI companies looking for ways to streamline the work, take the friction points out of moving documents from the physician into the order management process, and those continue to go really well, and we will provide an update as something material is there. But it is going really well, and we are pleased with the way we are leveraging the existing technology and upcoming technology that is going to help make this aspect of the journey a little easier for providers, easier for us, and hopefully get that access to the therapy sooner for patients. Thanks, Brandon.

Speaker #2: Those continue to go really well, and we will provide an update when something material is available. It's going really well, and we're pleased with the way we're leveraging both existing technology and upcoming technology. This is going to help make this aspect of the journey a little easier for providers, easier for us, and hopefully get patients access to therapy sooner.

Speaker #2: Thanks, Brandon.

Operator 2: And we'll go next to Ben Haynor with Lake Street Capital.

Speaker #3: And we'll go next to Ben Hayner with Lake Street Capital.

Speaker #7: Good afternoon. Thank you for taking the questions. Just one more, maybe on the affluence. It sounds like it's a handful of—can you maybe share how much of the sales?

Ben Haynor: Good afternoon. Thanks for taking the questions. Just one more, maybe on the AffloVest. It sounds like it's a handful of. Can you maybe share how much of the sales of AffloVests are coming from the top half of DMEs versus the bottom half of DMEs that you deal with? Just trying to get a sense of whether that's 60% or 90%. What's the mix of sales volumes at these places?

Speaker #7: Are Aflovests coming from the top half of DMEs versus the bottom half of DMEs that you deal with? Just trying to get a sense of whether that's 60% or 90%.

Speaker #7: What’s the mix of sales volumes at these places?

Speaker #2: Sure. So, Ben, there's a plus that there's a lot of DMEs that are out there. So we have been focused and have shared publicly that we are really focused on the top 10 DMEs by volume.

Sheri Dodd: Sure. Ben, there are, there's a lot of DMEs that are out there. We have been focused and have shared publicly that we are really focused on the top 10 DMEs by volume. Again, these are respiratory DMEs, so they focus in respiratory solutions for patients with respiratory illnesses. We call on non-top 10, or we help support them. Our focus with our 20 account managers is on that top 10 DMEs. Specifically as it relates to inventory management, different DMEs have different inventory management policies. Some of them are super hyper-diligent, and some of them get triggered and do, if you will, reassess and clean up when there's a triggering event.

Speaker #2: And again, these are respiratory DMEs. So they focus on respiratory solutions, patients with respiratory illnesses. So we call on non–top 10, or we help support them, but our focus with our 20 account managers is on that top 10 DMEs.

Speaker #2: And so, specifically as it relates to inventory management, different DMEs have different inventory management policies. Some of them are super hyper-diligent, and some of them kind of get triggered and do, if you will, reassess and clean up when there’s a triggering event.

Speaker #2: So, I would say the best I can say here is that this is limited to a very few partners, but they are larger partners because that's where our focus is.

Sheri Dodd: I would say, the best I can say here is that this is limited to a very few partners, but they are larger partners because that's where our focus is. The good news is here, we have a lot of visibility now, where we didn't before in an indirect model. There's a lot more visibility right now to what inventory they're carrying, and they are as eager as we are to help make sure that that inventory continues to move, and then they can have the next set of patients coming up on this next cold and flu season on our next-gen product. I hope that's helpful to you.

Speaker #2: But the good news is, we have a lot of visibility now where we didn't before in an indirect model. There's a lot more visibility right now into what inventory they're carrying.

Speaker #2: And they are as eager as we are to help make sure that inventory continues to move, and then they can have the next set of patients coming up on this next cold and flu season on our next-gen product.

Speaker #2: So, I hope that's helpful to you.

Speaker #7: No, that makes sense. I mean, it's not like the spread—it doesn't sound like from your 10th DME to the first DME is like the first to the thousandth of the DMEs that are out there.

Ben Haynor: No, that makes sense. It's not like the spread. It doesn't sound like from your 10th DME to the first DME is like the first to the thousandth of the DMEs that are out there. It's relatively high selling

Speaker #7: It's relatively high selling.

Speaker #2: Correct.

Sheri Dodd: Correct

Speaker #7: Folks to begin. Got it.

Ben Haynor: folks to begin.

Sheri Dodd: Correct.

Ben Haynor: Got it.

Speaker #2: Yeah. And look, so this is not inventory that we were pushing into the channel. It truly is DME partners. They all manage their inventory differently.

Sheri Dodd: Yeah. And look,

Ben Haynor: Okay

Sheri Dodd: also, this is not inventory that we were pushing into the channel. It truly is DME partners. They all manage their inventory differently, and that's why this is not widespread. This is not prolific across all DMEs. This is very focused and centered on a few of our larger partners. We're working with them. We all have awareness of the inventory they have. Then we, as per our guidance, and as we shared it in the script, we're eager to move through in Q3 with burning their current inventory, getting that placed on patients, and then starting to normalize ordering patterns starting in Q4.

Speaker #2: And that's why this is not widespread. This is not prolific across all DMEs. This is very focused and centered on a few of our larger partners.

Speaker #2: We're working with them. We all have awareness of the inventory they have. And then we, as per our guidance and as we shared in the script, we're eager to move through in Q3 with burning their current inventory, getting that placed on patients, and then starting to normalize ordering patterns starting in Q4.

Ben Haynor: That's definitely helpful. I think I've got it. Then on LymphaTech, you got the FDA submission in, you're working on getting a Category III CPT code. Once you get those things in place, what's the plan to take this thing out there more broadly?

Speaker #7: That's definitely helpful. I think I've got it. And then, on Lipitec, you've got the FDA submission in. You're working on getting the category three code.

Speaker #7: Once you get those things in place, what's the plan to take this out there more broadly?

Speaker #2: Yeah. So we're currently working on more full integration. The product right now is sold as software as a service, largely into oncology centers. But we continue to look at that broader opportunity, from a size where you've got 20 million patients that currently are undiagnosed.

Sheri Dodd: Yeah. We're currently working on more full integration. The product right now is sold as Software as a Service, largely into oncology centers. But we continue to look at that broader opportunity from a size where you've got 20 million patients that currently are undiagnosed, and those patients are sitting not just in oncology, but they're also in vascular and they're in the VA, they are with therapists. So getting the FDA clearance as a diagnostic aid is going to be a really important first step to us being able to market an objective tool for clinicians that help identify those patients. Then with the CPT3 code, there's various steps, but it definitely does start that broader path to reimbursement coverage. Starting to track the code, it helps to support the broader reimbursement payment, et cetera.

Speaker #2: And those patients are sitting not just in oncology, but they're also in vascular, and they're in the VA, as they are with therapists. So getting the diagnostic, getting the FDA clearance as a diagnostic aid, is going to be a really important first step to us being able to market an objective tool for clinicians that helps identify those patients. And then with the CPT3 code, there are various steps, but it definitely does start that broader path to reimbursement coverage. Starting to track the code helps to kind of support the broader reimbursement, payment, etc.

Speaker #2: So, getting the clearance on the diagnostic aid is our first step, but we continue to look at the broader integration and determine what is going to be the best step for commercialization.

Sheri Dodd: Getting the clearance on the diagnostic aid is our first step, but we continue to look at the broader integration and determine what is going to be the best step for commercialization.

Speaker #7: Got it. And then lastly, just real quickly on account managers, field sales force, and territories. It looks like there are a few fewer account managers this quarter versus last quarter.

Ben Haynor: Got it. Lastly, just real quickly on account managers, field sales force territories. It looks like there are a few fewer account managers this quarter versus last quarter. Just the plans for as we go into the end of the year, then anything that you might be able to suggest for what that looks like in 2027?

Speaker #7: Just kind of the plans as we go into the end of the year, and then anything you might be able to suggest for what that looks like in 2027.

Speaker #2: Yeah. You know what? We're only down two from what we reported in Q1. So I think we're—yeah—no, that's okay. So I'd call that flat.

Sheri Dodd: Yeah. You know what? We're only down 2 than what we reported in Q1, so I think we're-

Ben Haynor: Oh, my bad.

Sheri Dodd: Yeah. No, that's okay. So I'd call that flat. Any dynamics on any given day, you're going to have a little bit of flow. But we are very committed and have seen a lot of stabilization in that one-to-one territory manager to a product specialist model. So we're in good shape. We love seeing, again, as I mentioned, the strength of the business in Q2 really reflected increase in overall referrals and the productivity that we're seeing with that go-to-market investment in 2025, the maturation of that team, them using the CRM tools. So we're good there, and we're going to hold at this ratio. We'll continue to evaluate targeted additions where there might be an opportunity based on territory growth. But we're really focused right now on just making sure that we're optimizing both the people and the tools that we have.

Speaker #2: And with any dynamics on any given day, you're going to have a little bit of flow. But we are very committed and have seen a lot of stabilization in that one-to-one territory manager-to-product specialist model.

Speaker #2: So we're in good shape. We love seeing, again, as I mentioned, the strength of the business in Q2 really reflected—an increase in overall referrals.

Speaker #2: And that—and the productivity that we're seeing with that go-to-market investment in 2025, the maturation of that team, them using the CRM tools—so we're good there, and we're going to hold at this ratio.

Speaker #2: And we'll continue to evaluate targeted additions where there might be an opportunity based on territory growth. But we're really focused right now on just making sure that we're optimizing both the people and the tools that we have.

Speaker #7: Okay, great. Thanks for taking the questions, and congrats on the quarter and the progress.

Ben Haynor: Okay, great. Thanks for taking the questions and congrats on the quarter and the progress.

Speaker #2: Thank you, Ben.

Sheri Dodd: Thank you, Ben.

Speaker #1: And that concludes our question and answer session. Ladies and gentlemen, thank you for your participation. This also concludes today's teleconference. You may disconnect your lines and have a wonderful day.

Operator 2: That concludes our question and answer session. Ladies and gentlemen, thank you for your participation. This also concludes today's teleconference. You may disconnect your lines and have a wonderful day.