Tactile Systems Technology, Inc.

Welcome, ladies and gentlemen, to the second quarter 2025 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 Bensinger, Investor Relations at Gilmartin Group, for a few introductory comments. Please go ahead.

Good afternoon, and thank you for joining the call today. With me from Tactile's management team are Sherry Dodd, Chief Executive Officer, and Elaine Berkemeyer, Chief Financial Officer. Before we begin, I would like to remind everyone that our remarks and responses to your questions today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties. 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. This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the investor relations portion of our website. With that, I'll now turn the call over to Sherry.

Thanks, Sam. Good afternoon, everyone, and welcome to our second quarter 2025 earnings call. Here with me is Elaine Berkemeyer, our Chief Financial Officer. We delivered a strong performance this quarter, marked by total revenue growth of 7.8% year-over-year to 78.9 million, ahead of our previously stated Q2 expectations. By business line, lymphedema revenue increased 2% year-over-year to 66 million, and airway clearance revenue increased 51.6% year-over-year to 12.9 million. Q2 gross margins increased 60 basis points year-over-year to 74.5%. On the bottom line, adjusted EBITDA of $7.7 million was down 15% year-over-year, as expected, due to our planned technology and sales headcount investments. From a balance sheet perspective, we ended Q2 with $81.5 million after accounting for additional stock buyback under our recently completed stock repurchase program. We have moved past the early disruptive stages of our Q1 CRM implementation and Salesforce rebalance and optimization plans. Our growth and leverage strategies are in their execution phase, and we are increasingly confident in our ability to drive consistently improving results. Elaine will elaborate on our full second quarter results, as well as provide an update on our financial guidance for 2025. I will focus the rest of my remarks on a review of our individual business line performances and share progress on our key 2025 strategic priorities. improving access to care, expanding treatment options for lymphedema patients, and enhancing the lifetime patient value. Beginning with a Q2 review of our lymphedema business line, lymphedema revenue grew 2% year-over-year and over 30% sequentially. Our performance reflects focused execution of our go-to-market commercial strategy and including strong adoption of Nimble. From a field perspective, Our Q1 Salesforce rebalance and optimization process provided us with a strategic investment roadmap for the right roles in the right geographic locations to meet and drive demand across our lymphedema business. Specific to headcount, we ended the quarter with 293 total reps, split between 161 account managers and 132 product specialists. This is an 11% increase compared to our sales headcount at the end of Q1. We continue to experience manageable attrition, and our goal for 2025 remains to employ over 300 total reps by year end. We are pleased with the pace of our talent acquisition and the caliber of our recent hired reps. Their time to productivity is enhanced by a well-designed CRM and a structured onboarding plan that exposes them to all channel call points, which includes vascular, oncology, therapists, and the VA. For newer reps in particular, the combination of Nimble and our e-prescribing tool, in addition to well-established vascular call points, has positively influenced their initial selling activity. We are confident that all channels are healthy, and with more capacity and feed on the street moving forward, we expect to see continued growth in all channels over time. As a reminder, each of our channels has a different inherent product mix, and based on those demographics, a different payer mix. With increased and strategically placed field resources, coupled with the CRM module enhancement and developing proficiency, we expect RAP productivity, as measured by referrals per territory, to incrementally improve over the year. Compared to where we were in Q1, we are very pleased with the momentum and remain committed to our 2025 go-to-market plan. We also remain confident in the attractive fundamentals of the broader lymphedema market, We estimate there are approximately 145,000 patients in the U.S. that are diagnosed with lymphedema and currently being treated with either a pneumatic compression device or a non-pneumatic compression device. We estimate this patient population is growing at 10% annually. Then there are approximately 2 million U.S. patients who are diagnosed with lymphedema and not currently receiving a PCD or non-PCD treatment. Further penetration into this patient population represents our near-term commercial focus. Finally, there are approximately 20 million U.S. patients with lymphedema who are undiagnosed, and an even larger population beyond that of patients who fall within our product indication. This represents our mid- to long-term commercial focus, and we are eager to build out those strategies. From a reimbursement perspective, we continue to see favorable near-term payer policy environment following last year's challenging Medicare coverage dynamic. Through successful claims to justification and direct engagement with the MACs, we are gaining more clarity on the interpretation of the unique characteristics requirements. We believe the coverage landscape is becoming more supportive for patients that need advanced pump therapy. These patients now have a clearer path to receive the right product that meets their clinical needs at the right time. Turning now to our airway clearance business line. Sales of AfloVest increased 52% year-over-year and 21% sequentially in Q2, demonstrating sustained momentum following our strong start to the year. The key drivers of performance are consistent with what we had previously shared. We are executing well against secured partnerships across top 10 respiratory DMEs and see growing demand due to increased awareness of bronchiectasis. Our product priority position with leading DMEs is also supported by training and education events for providers and hospital care coordinators and respiratory DMEs, including their sales, trainers, and operations staff. In the first half of this year, our team educated nearly 1,200 respiratory DME partners and clinical customers on bronchiectasis and the role of AfloVest in its care. We expect broader awareness of bronchiectasis and available treatment options, including Afloves, to benefit our market share, and we remain focused on fortifying relationships with each of our top DME partners and penetrating deeper within these accounts to continue our strong growth throughout the rest of 2025. Continued commercial acceleration in this area will pull us closer to being the number one market shareholder in the space. And as a result, help introduce Aflavest to the 5 million diagnosed and undiagnosed bronchiectasis patients in the U.S. Earlier this year, I shared our three strategic priorities for 2025 to unlock the lymphedema TAM and enable scalable, profitable growth. Similar to Q1, I will share progress updates on each of these priorities. Beginning first with our goal to improve access to care. We are working diligently to remove the longstanding training and education policy and evidence barriers that prevent more lymphedema patients from accessing the right treatment options that best fit their clinical conditions. Our target and associated investments are focused on increasing PCV therapy adoption in the diagnosed population. One area of focus is simplifying the workflow process of patient identification, patient referral, and order processing. This is a foundational investment for scale, and we expect it to support both top and bottom line growth through increased referrals as well as operating expense leverage. An example is the CRM tool, which helps our sales and marketing teams identify where new patient identification opportunities are within our existing channels, and it supports sales effectiveness during those prescriber interactions. A second key investment in workflow process improvement is in our e-prescribing tool, Parachute, designed to streamline the order process by more efficiently collecting the required patient documentation. Since its full launch late last year, we have been growing adoption, resulting in over 25% of nimble orders to date being generated through Parachute. We are building the required interfaces to support expansion of Parachute and FlexiTouch orders and plan to launch this functionality for both providers and clinicians later this year. E-prescribing solves for the order, processing speed, and increased accuracy, but we know that not all clinicians will adopt this type of technology. Our third workflow improvement investment is embedding an AI-based technology to support speed, accuracy, and leverage in our order intake and medical record review processes for traditional non-e-prescribed orders. For order intake, the AI tool can quickly analyze patient referrals and extract required information, regardless of whether that referral comes by a fax, e-portal, or email. For context, we receive roughly 1,000 faxes per day as part of the order intake alone. Similarly, the tool is trained to scan patient medical records, which can range from a few pages to over 100. This medical record review step is currently done manually, and it identifies if the payer-required medical necessity criteria is documented. With AI, this process will be faster and will provide an early initial assessment of patient eligibility. To ensure accuracy, our team would then validate this assessment by reviewing the required or missing information flagged by the tool. From a P&L perspective, we expect the top line to benefit from faster referral to order conversion. which should help mitigate patient leakage due to a historically protracted onboarding experience. On the bottom line, increased automation translates to leveraged operating expense by decreasing manual data entry tasks and increasing accuracy to minimize human error. We will start with the pilot of the AI tool over the next few months so that we can learn and ensure seamless integration with our other IT systems and change management of our order operations team. Clinical evidence is another element of improving access to care, and in the second quarter, we delivered tangible progress on this front with the presentation of two-month data from our head and neck lymphedema randomized control trial at the American Society of Clinical Oncology's annual meeting in June. As a reminder, this trial examines the effectiveness of FlexiTouch Plus compared to usual care in treating lymphedema among head and neck cancer survivors. Current modalities for managing head and neck cancer-related lymphedema include therapist-guided lymphedema treatment and lifelong home-based self-care. We are very pleased with the two-month data as it validates FlexiPatch Plus as a clinically supported alternative to usual care. We are proud to have these results accepted for presentation at a total of three different clinical conferences. Our next study deliverable is finalization of the six-month analysis and then manuscript submission in early Q4. In the meantime, we continue active discussions with commercial payers regarding their current experimental and investigational policy language for head and neck lymphedema, and we aim to influence those policies going forward. Our second strategic priority is aimed at ensuring diagnosed patients have appropriate treatment options available to them based on their individual condition, symptoms, and needs. Nimble is a notable example of our strategy to expand treatment options. Strong adoption of Nimble continues through the second quarter, driven by both patient and provider preferences for the product, given its unique features and capability. We believe this sustained demand since its initial rollout last fall is helping grow the overall market for lymphedema PCDs, particularly as Nimble so far is outpacing broader market growth. Among our lymphedema PCD offerings, Nimble is also growing faster than PlexiTouch. While FlexiTouch still represents the majority of our lymphedema revenue, we are pleased with Nimble's success to date and believe it is a testament to our ability to serve the broad lymphedema market needs across both basic and advanced pumps, which we now enjoy a market-leading position in both categories. We remain committed to new product innovation and are not stopping with Nimble. Development of our next-generation advanced lymphedema pump is underway and progressing in line with scope, budget, and timelines. And our product roadmap also includes further nimble enhancement. Finally, our third strategic priority is focused on enhancing the lifetime patient value. We believe there's an opportunity for us to support lymphedema patients more efficiently over a longer duration as they manage their disease symptoms and treatments both prior to and during the order and shipment process. There are several ways we are approaching this. Last quarter, we established a patient services organization, which centralized our patient education consultants, or PECs, and back office patient support team into one consolidated function. These teams within patient services interface most directly and frequently with our patients, and we will now benefit from a consistent approach when engaging with patients pre, during, and post-shipment. The PEC team specifically supports in-home patient product demo and training. This workforce has been a vital resource for our sales team since its inception in 2023. We ended Q2 with 60.5% of patient demos performed by PECs, up from 52% at the end of Q4. Looking ahead, we envision staffing our large, well-developed territories with dedicated PEC resources rather than shared. This will help ensure our account managers and product specialists can allocate even more of their time to engaging with clinicians and hand off the patient support requirements to the PEC. We are also looking at new ways we can support patients at the front end of the order process. Given the dynamic payer nuances in the order process, including medical necessity documentation and prior authorization, this portion of the patient journey is often the most complex and drawn out. We recently launched a care navigation pilot designed to proactively reach out to patients earlier and more consistently throughout the order process. During the pilot and subsequent expansion, we will gain insight into the moments that matter most for patients to receive more information and solidify their engagement in the process. This is important because many times the order progression requires the patient to do something, such as follow up with their clinician post four weeks of conservative therapy, or to be available for a product demo and initial treatment. At scale, care navigation should further reduce the need for the sales rep involvement in the order process, help mitigate patient leakage, and enhance the overall patient support connectivity and experience. We are also utilizing our patient engagement tool, Kiley, as a mean to enhance overall patient connectivity. At the end of June, we hit over 53,000 individual patient profiles registered with Kiley and 1.1 million total check-ins. We plan to further increase utilization by introducing Kiley at the onset of the patient care journey, which can be supported through our care navigation evolution and with our PEC teams. Regardless of how patients are introduced to Kylie, we have a digitally connected platform that can support order progress visibility, symptoms, measurements and therapy treatment tracking, product training and disease education, warranty submissions, e-commerce, troubleshooting, and product support, as well as sharing patient-reported data and photos with clinicians. Kiley enables a more connected care pathway and provides our organization with more insights into opportunities to help support patients with products and service innovation. With that, I will now have Elaine review our Q2 financial results in more detail and provide an update on our guidance for 2025.