Tactile Systems Technology, Inc. Q2 FY2026 earnings call

• Profitability & Balance Sheet

  • Gross margin expanded 180 basis points year-over-year to 76.3%, driven by lower manufacturing costs, stronger collections, and favorable mix effects
  • GAAP operating income increased 67% year-over-year to $6.8 million; net income increased 142% to $7.8 million ($0.34 per diluted share)
  • Adjusted EBITDA increased 49% year-over-year to $11.4 million
  • Ended the quarter with $69.9 million in cash and cash equivalents and no outstanding borrowings, maintaining a strong balance sheet for growth investment and shareholder returns

• Lymphedema Business Updates

  • Growth was driven by broad-based strength: healthy referral trends, improved territory productivity, and growing adoption of FlexiTouch following alignment with the stable Medicare National Coverage Determination (NCD) policy
  • The April 13 Medicare prior authorization requirement caused moderate near-term order volume moderation and extended processing timelines, but approval rates have matched management expectations, and operational efficiency is improving as teams gain experience
  • Commercial payer revenue continues durable growth, with ongoing efforts to expand access by aligning coverage policies with new clinical evidence
  • The VA channel maintains stable performance; a new exclusive U.S. distribution agreement with Elastomed was announced to bring the MyoSleeve non-pneumatic compression device to VA and Department of Defense beneficiaries, expanding the company's addressable patient population within the channel
  • The Lymphatech acquisition, completed to address unmet needs for objective early lymphedema diagnosis and personalized therapy, is progressing: an expanded FDA indication for use as a lymphedema diagnostic aid has been submitted (expected approval 2027), and the company is pursuing a Category 3 CPT code to establish a reimbursement pathway for broader adoption

• Airway Clearance Business Updates

  • The 7% year-over-year revenue decline is isolated to a small number of large DME partners that are burning down existing legacy AfloVest inventory ahead of the next-generation system launch; underlying demand and fundamentals remain strong
  • On a trailing 12-month basis, AfloVest revenue is still up 32% year-over-year, with a 28% 2-year compound annual growth rate
  • The new next-generation AfloVest system offers improved size adjustability, lighter weight, untethered design, and new connectivity, and remains the market leading product in high-frequency chest wall oscillation

• Strategic Initiatives

  • Improving Access to Care: The 6-month results of the 236-patient randomized controlled trial (the largest to date) for FlexiTouch in head and neck cancer-related lymphedema were published in the International Journal of Radiation Oncology, Biology, and Physics, showing strong safety and efficacy comparable to therapist-guided care. Management is now engaging commercial payers to remove restrictive experimental/investigational coverage designations.
  • Expanding Treatment Options: MyoSleeve adds a discreet, wearable, battery-powered early-stage lower leg compression option that complements the company's existing pneumatic compression portfolio, specifically expanding offerings in the VA channel.
  • Enhancing Lifetime Patient Value: Ongoing care navigation and operational transformation work is reducing patient leakage, improving the patient experience, and driving long-term operating leverage by reducing administrative burden on sales teams.

Total Q2 2026 revenue was $85.7 million, an increase of $6.8 million (9% year-over-year). The Lymphedema segment (which includes FlexiTouch, Nimble, and Lymphatech systems) generated revenue of $73.6 million, an increase of $7.7 million (12% year-over-year), representing 85.9% of total company revenue. The Airway Clearance segment (which includes the AfloVest system) generated revenue of $12.1 million, a decrease of $0.9 million (7% year-over-year), representing 14.1% of total company revenue. The 7% year-over-year decline in the Airway Clearance segment is attributed to temporary inventory rebalancing by a small number of large DME partners ahead of the launch of the next-generation AfloVest system.

• Full year 2026 total revenue guidance is revised upward to a range of $360 to $366 million, representing 9% to 11% year-over-year growth, up from the company's prior guidance range
• Lymphedema segment full year revenue growth is still projected to be in the low double-digit range, with Lymphatech contribution already incorporated into this forecast
• Airway Clearance segment full year revenue is now projected to be nearly flat year-over-year, downward from prior expectations, to reflect the temporary inventory dynamic impacting Q2 and Q3 ordering
• GAAP gross margin is projected to be 76% to 76.5% for the full year
• GAAP operating expenses are projected to increase 10% to 12% year-over-year, reflecting annualized sales organization investments and ongoing technology investments
• Adjusted EBITDA guidance is maintained at $49 to $51 million for the full year 2026, balancing the temporary inventory and prior authorization impacts against stronger than expected first half profitability
• Management expects the temporary DME inventory dynamic to resolve by Q4 2026, with ordering patterns normalizing in that quarter
• Management expects the near-term impact of Medicare prior authorization implementation to moderate, with Q3 2026 sequential revenue growth expected to be larger than typical, reflecting the timing shift of Medicare orders from Q2 to Q3

• The new Medicare prior authorization requirement could continue to cause near-term order delays and volume moderation if adjudication timelines or approval rates underperform management expectations
• Payer coverage policy changes for lymphedema and airway clearance therapies could impact patient access and revenue growth
• The temporary DME inventory rebalancing for AfloVest could last longer than management currently projects, pressuring near-term revenue in the Airway Clearance segment
• Commercial payers may take longer than expected to update coverage policies for head and neck lymphedema therapy following the new clinical publication, delaying expected adoption growth
• FDA approval of Lymphatech's expanded diagnostic indication and Category 3 CPT code reimbursement approval could be delayed, slowing commercial adoption of the platform
• Achieving expected operating leverage from operational and sales force transformations depends on successful implementation of new technology and process changes

Q: Given prior expectations of revenue shifting from Q2 to Q3 due to Medicare prior authorization, how much of a shift occurred, and why did Q2 lymphedema growth exceed expectations? / A: The upside in Q2 lymphedema revenue was driven by healthy underlying referral trends, improved territory productivity, and continued NCD-driven FlexiTouch adoption that began after the company aligned its policies with the new NCD in late 2025. The prior authorization requirement did create the expected timing shift of some Medicare orders, but this impact is already starting to normalize, and adjudication policies across MACs are converging as expected. The company's team stood up required capabilities ahead of the rule change, leading to better than feared performance. The expected timing shift will result in stronger sequential Q3 growth, similar to last year's pattern.

Q: How will the new Elastomed MyoSleeve distribution agreement impact operating expenses and revenue, and when will contributions begin? / A: MyoSleeve is expected to be an incremental growth contributor in the VA channel over time, but no material revenue contribution is included in the 2026 full year guidance. The agreement leverages Tactile's existing VA sales and infrastructure, since the company already has established VA relationships and a dedicated sales team calling on the channel, so incremental operating expense will be minimal. The product is complementary to Tactile's existing pneumatic compression portfolio, expanding the addressable patient population by adding an option for earlier-stage lymphedema patients that do not need advanced pneumatic therapy.

Q: Why do you expect AfloVest ordering patterns to normalize only in Q4, and what is the underlying patient demand for the product? / A: The inventory dynamic is a temporary, one-time effect triggered by the next-generation product launch, which forced a small number of large DME partners to re-evaluate their existing legacy inventory. This dynamic is limited to just a few of the company's top DME partners, who need to burn down excess inventory before resuming normal ordering. Underlying patient demand and market growth remain strong, and DME partners are eager to offer the improved next-generation product to patients. The size of the excess inventory is known and fully incorporated into the full year guidance, with burn down expected to be complete by the end of Q3, leading to normalized ordering in Q4.

Q: What are the next steps for expanding commercial access after the publication of the head and neck lymphedema clinical data, and how are AI initiatives progressing? / A: Tactile is already engaging with commercial payers and Medicare Advantage plans to request immediate reconsideration of existing experimental/investigational coverage policies, or placement on the agenda for upcoming coverage updates, supported by the new peer-reviewed data. While Medicare fee-for-service already covers the therapy under the NCD, commercial plan policy changes take time, so immediate near-term large changes are not expected, but management is confident the evidence will drive policy updates over time. AI implementation to streamline prior authorization and order processing is progressing well, reducing friction for providers and speeding up patient access, with no material issues to report.