Tactile Systems Technology, Inc.

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. 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 Guild Martin Group, for a few introductory comments. Please go ahead.

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 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. 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 Investors Relations portion of our website. With that, I'll now turn the call over to Sheri.

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. Total revenue was $85.7 million, up 9% year over year. with lymphedema contributing $73.6 million, up 12% year-over-year. Afloves 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 our next generation Afloves system during the quarter. Importantly, on a trailing 12-month basis, AfloVest revenue remains up 32% year-over-year, underscoring the durability of the underlining 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. Growth margin improved 180 basis points year-over-year and adjusted 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 second quarter 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 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 AfloVest system.

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. 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. 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 April 13th 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 April 13th effective date and entered the quarter well-positioned to execute the new prior authorization process. 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 in the MAX 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. We continue to view the VA as a strategic, long-term opportunity, given the breadth of providers and patient needs. 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. 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'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 AfloVest were down 7% year over year in the second quarter, reflecting temporary inventory management dynamics among several of our large D&E partners associated with the launch of our next generation AfloVest system during the quarter. As we worked closely with the DMEs around the launch of our next-generation AfloVest system, we learned of a few larger partners that had been carrying elevated AfloVest 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 the third quarter, with purchasing activity beginning to normalize in the fourth quarter as their inventory levels rebalance. The underlining fundamentals of this business remain strong. The patient demand, coverage environment, and AfloVest competitive positions are favorable. AfloVest is a differentiated product in a market leadership position supported by strong DMA partnerships and a large addressable market. On a trailing 12-month basis, AfloVest 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. This underscores the durability of the underlining growth trend despite the near-term inventory management dynamics associated with the launch of our next generation AfloVest system during the quarter. Importantly, airway clearance remains a profitable contributor to our business. We are confident that the recently launched next generation AfloVest 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 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. 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. There are 20 million patients in the U.S. who have lymphedema but remain undiagnosed, and unlocking that population is a significant growth opportunity for us, and more importantly, for patient care. Lymphatex 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. 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. 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. 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 3 CPT code, which would establish a reimbursement pathway and support broader adoption over time. 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 the 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'll 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. 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. This study, a 236 patient trial across 10 sites, represents the largest randomized control trial to date, evaluating advanced pneumatic compression therapy for head and neck cancer-related lymphedema. 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. 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. 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 U.S. distribution agreement with Elastomed to bring MyoSleeve to veterans, active duty service members, and other beneficiaries served through the Department of Defense. 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, Myoslee 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. 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. 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. Thanks, Sheri.

Unless noted otherwise, all references to second quarter financial results are on a gap 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 the second quarter 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, Nimble, and Lymphatex systems, increased $7.7 million, or 12%, to $73.6 million. And sales of our aeroid clearance products, which includes our AfloVest system, decreased $0.9 million, or 7%, to $12.1 million, reflecting temporary inventory management dynamics associated with the launch of our next-generation AfloVest system among a few DME partners during the quarter. Turning to profitability, growth margin was 76.3% of revenue compared to 74.5% in the second quarter of 2025. The increase in growth margin was attributable primarily to lower manufacturing costs, stronger collections reflected in revenue, and favorable mixed benefits. Second quarter 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. 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 December 31, 2025. The decline in cash during the quarter primarily reflects the upfront payments made to Elastomen to secure the exclusive distribution rights for MyoSlate in the VA and Department of Defense, and Sherry Purchases completed during the quarter under our repurchase program. Excluding the 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 review of our 2026 outlook. For the full year 2026, we are updating your 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 the second and third quarters that Sheri discussed earlier. For modeling purposes for the full year of 2026, we expect our gap growth margins to be 76 to 76.5%, our gap operating expenses to increase 10 to 12% year-over-year as we annualize our sales organization investments and 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 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. Our adjusted EBITDA expectation assumes certain non-cash items, including stock compensation expense of approximately $8.6 million, and tangible amortization of approximately $4.2 million, 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?

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. 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, Lymphatec expands our platform across the lymphedema care continuum, including upstream diagnosis and monitoring. The next-generation AfloVest system reinforces our commitment to innovation and 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. 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.

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. And our first question will come from Adam Meader with Piper Sandler.

Hi, this is Wynn Boren on for Adam. Thanks for taking our questions. Thank you for joining us. 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. 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. 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?

Yeah, thanks for the question. So, a couple 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've got more referrals coming in, that productivity is happening. 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. 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 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 Flexi-Touch Adoption, and what we expected to see on that fire off on Medicare. Really, really pleased with the results on lymphedema.

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 impact 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.

Yes, thanks. So I'll answer your last question first. So we do see Myosleaf as an incremental growth contributor within the VA channel over time. But our current guidance does not assume any material contribution from Myosleaf. 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. So 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. 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.

That's helpful. Thank you.

Yeah, thank you. And our next question will come from Ryan Zimmerman with U.S. Bancorp BTIG.

Thank you, and good afternoon. Just on the airway clearance dynamics, I'm wondering if we could dig in a little further there. You know, why, I guess, why do the ordering patterns normalize in 4Q? What are you seeing right now in terms of, you know, inventory levels that need to kind of burn through, burn down? And, you know, when do we see the impact of the new AfloVest product start to kick in?

Yes. Hi, Ryan. So, thanks for that. From a dynamic standpoint, you know, the not complicated territory, you know, in launching our next-gen kind of product, it really forces are partners to take a look at overall inventory. 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, 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. So that's why we're saying we believe that Q3, they'll start to burn through that inventory, and then starting in Q4, they'll start to pick back up on their overall ordering pattern. So we feel confident that we have good visibility now to what the current inventory is. We know what normal buying patterns are. You know, this business can be a little bit lumpy on things we can't control, which would be like, you know, cold and flu seasonality, a little bit on patient affordability dynamics. 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. 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's no incremental reimbursement for this. 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. 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. 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.

Okay. And just maybe to dig in a little bit, 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 Lymphatec? And then arguably, how much are you taking the airway clearance guidance down? If it's overall $1 million at the midpoint, is there any incremental contribution, say, from Lymphatec? that are maybe offsetting that incremental airway clearance revenue.

Yeah, so Lymphatec is already built into the overall guide. 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 business. growth for us. Again, that growth's 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 in alignment's really helping with our overall FlexiTouch adoption. 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. On the AfloVest, you know, that is just us Knowing what we know right now has been the philosophy of what's called a shot based on what we know right now, what we believe to be the ordering patterns, 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.

Okay, fair enough. And I just sneak one little tiny little question in. You said there's a near-term moderation in... from 2Q in the lymphedema business just because of the prior off 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 3Q?

So 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. That was reflective of kind of what we're talking about. that typically we wouldn't have expected to kind of to 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, more similar to last year. when you think about we have 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.

Thank you.

Thanks, Ryan. And as a reminder, that is star one if you would like to ask a question. We'll go next to Brandon Vasquez with William Blair.

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

Sure. I mean, the good news about the AtholVest 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 kind of 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 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. So, 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.

Got it. Okay, thanks. And then 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? And then the other market access question, if you could just talk a little bit more. I know you were using AI internally to improve market access on the Medicare front, I think it was. Just 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. Thanks.

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 and eager to both have that in the hands of payers as well as clinicians so that they can see the benefits Again, a flexi-touch 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 flexi-touch benefit in outcomes and sustaining those outcomes at two, four, and six months is going to show a lot of benefit, both from a payer's side as well as a clinician and a patient's side. 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. 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 E&I policy, 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. So that is going on right now, and we're 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've got the data to support it, but ultimately it is the payer's decisions on when they change that policy. And I'm saying when they change because I'm expecting that they will change, but that timing is challenging. But we're moving on that fast. Just 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 in identifying more patients. Your second question was on AI and operations. It was interesting. We didn't discuss a lot on operations, and that's actually hopefully seen as a positive. 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, 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'll provide an update as something material is there but it's going really well and we're pleased with the way we're leveraging the existing technology and upcoming technology that's going to help make this aspect of the journey a little easier for providers, easier for us and hopefully get the access to the therapy sooner for patients.

Thanks, Brandon.

We'll go next to Ben Hainer with Lake Street Capital.

Good afternoon. Thanks for taking the question. One more, maybe on the Apple vest. It sounds like it's a handful of distributors or DMEs. Can you maybe share how much of the sales of Apple vests are coming from the top half of DMEs versus the bottom half of DMEs that you deal with? You know, just trying to get a sense of whether that's 68% or 90%, you know, what's kind of the mix of sales volumes at these places.

Sure. And so, Ben, there are 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. And again, these are respiratory DMEs. So they focus in 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. specifically as it relates to different DMEs have different inventory management policies. Some of them are super hyper diligent and some of them kind of get triggered and kind of do, if you will, reassess and clean up when there's a triggering event. 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. But they're But 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 in 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, you know, on our next gen product. So that's, I hope that's helpful to you.

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 thousands of the DMEs that are out there. It's relatively high selling folks to begin with.

Correct. Yeah. And look, 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. 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 and starting in Q4.

That's definitely helpful. I think I got it. And then on lymph attack, you've got the FDA submission in, you're working on getting a Category 3 code. Once you get kind of those things in place, what's the plan to take this thing out there more broadly? Okay.

Yeah, so we're currently working on, you know, 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 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 help identify those patients. and then with the CPT-3 code, you know, there's various steps, but it definitely does start that broader path to reimbursement coverage, starting to track the code. It helps to kind of support the broader reimbursement payment, et cetera. 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.

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

Yeah, you know what? We're only down two than what we reported in Q1. So I think we're... Oh, my bad. Yeah, no, that's okay. So I call that flat. You know, 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 and 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. Okay, great.

Thanks for taking the questions and congrats on the quarter and the progress.

Thank you, Ben. 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.