Tactile Systems (TCMD) Q1 2026 Earnings Transcript

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DATE

Monday, May 4, 2026 at 5 p.m. ET

CALL PARTICIPANTS

• Chief Executive — Sheri Louise Dodd
• Chief Financial Officer — Elaine M. Birkemeyer
• Investor Relations — Sam Bentzinger

TAKEAWAYS

• Total Revenue -- $75.3 million, up 23% year over year, driven by strength across both lymphedema and airway clearance businesses.
• Lymphedema Revenue -- $62.2 million, a 23% increase, supported by Flexitouch and Nimble growth, with Flexitouch outpacing Nimble.
• Airway Clearance Revenue -- $13.0 million, up 22% year over year, reflecting continued execution with AffloVest and robust DME relationships.
• Gross Margin -- 76.5%, a 250 basis point increase from 74% last year, with gains attributed to lower manufacturing costs, stronger collections, and favorable product and payer mix.
• Adjusted EBITDA -- $3.7 million, a $4 million improvement over prior year, moving from a loss of $300,000 to positive territory.
• GAAP Operating Loss -- $1.5 million, down 66% from a $4.5 million loss, reflecting improved operating leverage despite increased expense base.
• Operating Expenses -- $59.1 million, up $9.3 million or 19%, including $5.2 million higher sales and marketing, $1 million more in R&D, and $3 million in reimbursement, general, and administrative expenses.
• Medicare Channel Sales -- Grew 40% year over year, partially benefiting from order acceleration ahead of new April 13 prior authorization requirements for pneumatic compression devices (PCDs).
• Cash Balance -- $75 million at quarter end, down from $83.4 million, mainly due to the Lymphotech acquisition, share repurchases, and annual bonus payouts.
• Prior Authorization Transition -- New prior authorization mandate for Medicare PCDs went live April 13; company deployed an AI-enabled prior auth module early to support process changes.
• 2026 Revenue Guidance -- Raised to $360 million to $368 million, up from prior guidance, reflecting Lymphotech inclusion and ongoing commercial execution.
• 2026 Adjusted EBITDA Guidance -- $49 million to $51 million, includes non-cash expenses such as $9 million stock compensation, $3.6 million intangible amortization, $3.2 million depreciation, $1 million litigation, and $1.3 million one-time acquisition/integration costs.
• FDA 510(k) Clearance -- Achieved for next-generation AffloVest, with improvements including weight reduction, digital connectivity, and expanded size adjustability, on track for commercial launch later this year.
• Lymphotech Acquisition -- Integration progressing as planned; minimal Q1 revenue contribution, with GUIDE grant revenue now incorporated in fiscal outlook.
• AI Back-Office Transformation -- Expanded AI capabilities in order intake and record review, aiming for further automation in eligibility and benefits verification to support speed, accuracy, and future margin expansion.

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RISKS

• Chief Executive Dodd said, "we are only three weeks into this entire process, so it is still new," and acknowledged "some early variability that we are seeing within the MACs," which could impact approval rates and sales timing in the near term.
• Chief Financial Officer Birkemeyer noted a "meaningful reduction in days sales outstanding" and a "change in cash during the quarter," primarily reflecting one-time costs and the Lymphotech acquisition, suggesting potential short-term liquidity adjustments.

SUMMARY

Tactile Systems Technology (NASDAQ:TCMD) delivered a 23% year-over-year revenue increase to $75.3 million and saw both lymphedema and airway clearance segments posting double-digit growth. Management raised 2026 revenue guidance to $360 million to $368 million, explicitly including Lymphotech's GUIDE grant contribution and citing commercial execution as a driver, yet maintained adjusted EBITDA guidance of $49 million to $51 million due to lower-margin grant revenue and discrete non-operating expenses. New Medicare fee-for-service prior authorization for pneumatic compression devices began on April 13, with the company accelerating deployment of its AI-enabled workflow to address process changes, but early MAC variability introduces some near-term uncertainty. FDA 510(k) clearance was granted for the next-generation AffloVest, timed for the upcoming respiratory season; its launch is expected to support continued airway business growth.

• Recent lower extremity lymphedema clinical guidelines, presented at AVS and soon to be published, position pneumatic compression devices as evidence-based standard of care, with management planning further clinician education efforts.
• Lymphotech's integration is advancing, and the GUIDE grant is booked as revenue, but material commercial impact from diagnostics or bioimpedance-enabled garments is not expected in the current year.
• Headcount and CRM investments are considered mature, with Chief Executive Dodd describing a shift "from capacity building and onboarding to true productivity," forecasting ongoing improvements in referral volume and per-rep revenue.
• Management described order acceleration ahead of the April 13 prior authorization transition as non-material and aimed at patient benefit, not as revenue pull-forward or Q2 cannibalization.
• Pharmaceuticals for bronchiectasis are described by management as complementary to airway clearance, not replacements, and are said to be "helping awareness for the broader category."

INDUSTRY GLOSSARY

• DME: Durable Medical Equipment; refers to specialized medical products provided for long-term home use, such as compression devices.
• PCD: Pneumatic Compression Device; medical device used for treating lymphedema through mechanized pressure sequences.
• MAC: Medicare Administrative Contractor; regional organizations responsible for processing Medicare fee-for-service claims and operational oversight of policy implementation.
• NCD / LCD: National Coverage Determination / Local Coverage Determination; Medicare coverage policies at the national and regional level, respectively.
• GUIDE Grant: Advanced Research Projects Agency for Health (ARPA-H) program funding aimed at supporting lymphatic disease diagnosis and therapeutics, specifically referenced as driving grant revenue for Lymphotech.

Full Conference Call Transcript

Operator: Please stand by. Welcome, ladies and gentlemen, to the First Quarter 2026 Earnings Call for Tactile Systems Technology, Inc. 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.

Sam Bentzinger: Good afternoon, and thank you for joining the call today. With me from Tactile Systems Technology, Inc.’s management team are Sheri Louise Dodd, Chief Executive, and Elaine M. Birkemeyer, 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-Ks 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 will now turn the call over to Sheri.

Sheri Louise Dodd: Thanks, Sam. Good afternoon, everyone, and welcome to our first quarter 2026 earnings call. Here with me is Elaine M. Birkemeyer, our Chief Financial Officer. We are pleased to report a strong start to 2026, with first quarter results reflecting focused execution of our three strategic priorities, continued strength and durability of our commercial action plan, and operational excellence including preparing for recent changes regarding the introduction of prior authorization for fee-for-service patients. Specifically, in Q1, we delivered total revenue of $75.3 million, representing growth of 23% year over year. By business line, lymphedema revenue grew 23% year over year to $62.2 million, and airway clearance revenue increased 22% year over year to $13.0 million.

Q1 results include a minimal contribution from our recent acquisition, Lymphotech. Our revenue performance reflects continued strategy and execution against key revenue drivers: our phased technology and people go-to-market investments, which drive referrals and market share; NCD-related tailwinds, which drive favorable advanced pump product mix; depth and breadth of our DME relationships, which drive market expansion and share; and, not to be understated, disciplined operational execution across the enterprise. Further, top-line strength drove meaningful margin expansion, gross margins increased 250 basis points to 76.5%, and adjusted EBITDA increased $4 million year over year to $3.7 million. We ended the first quarter with approximately $75 million in cash, maintaining substantial financial flexibility as we continue to invest for long-term growth.

For 2026, we are updating our full-year revenue guidance to a range of $360 million to $368 million. This update reflects the inclusion of Lymphotech and our increased confidence in commercial execution while maintaining a disciplined approach as prior authorization outcomes under new Medicare requirements for our category continue to mature. For the remainder of the call, I will review our Q1 performance by business line and then provide updates on our ongoing strategic priorities. Elaine will follow with a review of our first quarter financial results and an update on our outlook for 2026. Turning first to lymphedema. Revenue grew 23% year over year in Q1.

We are pleased to see the significant growth compared to last year, which was expected given the momentum of our field and back-office strategy execution. Our go-to-market investments are delivering. Our sales organization is fully resourced with broad geographic coverage and a well-balanced staffing model of one account manager for every product specialist. With those resources in place, we are shifting our focus from capacity investment and onboarding to productivity and operating leverage. Territory productivity increased meaningfully in Q1 year over year. Robust CRM utilization, combined with continued enhancements including workflow tools, is increasingly supporting referral management prioritization and account development, and we expect continued territory optimization and sustained productivity gains over time.

From a products perspective, overall lymphedema growth in the quarter was supported by both Nimble and Flexitouch, with Flexitouch growth outpacing Nimble. As expected, this dynamic was largely tied to our decision in October 2025 to align our advanced pump documentation criteria with the Medicare NCD. While this alignment had always been planned, the timing reflected our increasing confidence that the MAC administration of the NCD had stabilized. Importantly, the NCD has created a more direct and clinically aligned pathway for patients who require advanced pump therapy compared to the prior LCD policy. This will continue to be a tailwind for Flexitouch as we continue to educate providers on the policy change and drive the right patient, right pump messaging.

Notably, the NCD policy language also allows for advanced pump coverage for patients with head and neck lymphedema, and we are pleased to see increasing clinical adoption for these underserved patients who have no other pneumatic or nonpneumatic compression device options. This NCD-driven Flexitouch strength was also evident in our Q1 payer mix with sales in our Medicare channel growing 40% year over year. To a smaller extent, Medicare strength also reflects some order acceleration ahead of the April 13 effective date for the new prior authorization requirements for PCDs billed under traditional Medicare fee-for-service. Importantly, underlying demand remains healthy, and as the new prior authorization process settles, we expect quarterly ordering patterns to normalize.

As a reminder, the inclusion of the prior authorization process for basic and advanced PCDs for Medicare patients was announced in January 2026 and aligns with prior authorization decisions in other growing DME categories. During our Q4 call, we discussed our expectation that this new requirement will add additional steps to the order process, such as assembling and submitting a prior authorization documentation packet and checking the status of each submission in order to process the claim. Additionally, these new requirements require patients to have a face-to-face clinical visit with a treating physician, not just a therapist, to establish and document medical necessity.

To be ready for the go-live date, we accelerated the prior authorization module in our AI portfolio, which had originally been planned for launch in 2027. In the weeks leading up to April 13, we demonstrated operational agility in validating the technology and systems, training and staffing our team, and successfully deploying a new process on schedule. The Medicare PCD prior authorization requirement has been in place for just three weeks. We are actively managing early transition dynamics as both we and the MACs adjust our respective processes.

As the industry leader and a DME provider with extensive experience operating in other prior authorization environments across Medicare Advantage and commercial plans, we believe we are well positioned to support patients through this transition. Turning to our other payer channels, our commercial business remains healthy and is demonstrating quarter-over-quarter consistency. In the VA channel, performance reflects a different operating and growth profile than Medicare and commercial. Unlike those channels where reimbursement policies are more dynamic and have driven more pronounced year-over-year comparisons, the VA reimbursement environment is notably more stable, which naturally results in less quarter-to-quarter volatility.

From a commercial execution standpoint, the VA call points span a diverse set of specialties, including vascular, oncology, and therapy practices, with success driven by sustained relationship-based engagement and navigation of local VA systems. As our recently expanded field organization continues to deepen engagement, establish workflows, and build trusted relationships within these accounts, we expect the VA to become a more meaningful contributor over time. We view the VA as a strategic long term opportunity that is well aligned with our evolving portfolio and an incremental growth contributor alongside our Medicare and commercial channels, with growth unfolding in a deliberate and durable manner. Turning now to airway clearance. Sales of AffloVest increased 22% year over year in the first quarter.

The key drivers of our robust performance remain consistent with what I have shared previously. Our relationships with the top respiratory DMEs remain strong, including at the C-suite, and AffloVest continues to be well placed across these accounts. There are additional opportunities to deepen engagement within our top 10 DME partners, given the breadth and scale of their national footprints and alignment of individual branch performance goals.

We are committed to delivering high-quality medical education and training for providers and DME staff, supporting sales skills of AffloVest and airway clearance therapies at the DME national and area sales meetings, manufacturing a superior airway clearance product, and providing AffloVest account manager continuity to our DME partners, all of which we believe are critical inputs to driving consistent growth and valued partner status. As the market leader in airway clearance therapy, we remain focused on serving the millions of diagnosed and undiagnosed bronchiectasis patients in the U.S.

We expect our commercial strategy, clinical education efforts, and strong DME partnerships to continue driving growth throughout the year, in addition to the launch of our next-generation AffloVest product, which I will touch on shortly. We are committed to evolving our lymphedema strategy for growth from that of a product company to an integrated solutions leader for lymphatic dysfunction, and the acquisition of Lymphotech is an important milestone in this exciting evolution. Lymphotech sits squarely within our strategy to support patients across the full continuum of care, which begins with getting an accurate, timely, and objective lymphedema diagnosis.

Lymphotech’s 3D measurement and monitoring addresses this need directly, replacing traditional manual measurement methods that are time consuming, highly variable, and dependent on clinician technique. Currently, the Lymphotech platform is FDA cleared and commercially available as a SaaS-based solution. As we shared last quarter, a key element of this acquisition is broadening our R&D capabilities to support next-generation approaches to disease assessment and treatment, and we look forward to sharing updates on our progress in the quarters ahead. The integration is progressing as planned since closing in February.

The Lymphotech cofounders and team are actively contributing to both the go-to-market commercialization strategy as well as helping to identify the capabilities and integration points across the diagnostic and therapy product development road maps. We are being deliberate and strategic in our approach to maximizing the provider, clinician, and patient experience. Beyond the team and the technology, Lymphotech also earned selection as a funding recipient under a new federal research program focused on lymphatic disease. Specifically, the Advanced Research Projects Agency for Health recently announced two landmark programs, LIGHT and GUIDE, committing a combined more than $290 million across all awardees over five years to advance lymphatic diagnosis and therapeutics.

Lymphotech was selected as one of seven GUIDE funding recipients and is focusing its research on the development of a new responsive garment using bioimpedance feedback to deliver adaptive compression with Bluetooth-enabled remote monitoring. We believe this program has the potential to extend personalized treatment to millions of diagnosed patients. Along with the first U.S. clinical practice guidelines for lower extremity lymphedema presented in March, which validated PCD therapy, we believe awareness of lymphatic disease and evidence-supported therapies is reaching a historic inflection point for the category.

As the industry leader, Tactile Systems Technology, Inc. is well positioned at the center of this momentum, further bolstered by our three ongoing strategic priorities focused on improving access to care, expanding treatment options, and enhancing lifetime patient value. Let me now provide a few updates on each of these. Beginning with improving access to care, where we are focused on several internal- and external-facing initiatives. Internally, we continue to transform each step of the order process with new technology infrastructure and more efficient workflows. AI-enabled technology is playing an increasingly meaningful role in our back-office transformation.

Over the past several months, we have been leveraging AI capabilities in our order intake processes and parts of our medical record review and have been pleased with both the technology performance and the enhanced workflow efficiencies it is enabling. As I shared earlier, this quarter we successfully accelerated and launched the prior authorization component of our AI platform for Medicare fee-for-service orders ahead of the April 13 deadline. Looking ahead, we remain on track to further expand the use of AI capabilities across the entire order process, including patient eligibility and benefits verification, and full medical record review.

With the rollout of these expanded features, we believe we will accelerate speed of therapy, reduce revenue-impacting human errors, and improve operational efficiency, each of which should support margin expansion over time. Externally, improving market access conditions is supported by clinical evidence generation, guideline dissemination, and engagement with government and commercial payers. For commercial payers, we continue to make steady progress on head and neck coverage and are working to align certain commercial policies to the NCD rather than their current alignment to the retired LCD. As part of that work, our head and neck clinical evidence program continues to advance with data progressing through the peer-reviewed and publication process.

Payer engagement is a continued patient advocacy commitment we make for all patients, operationalized through payer education, appealing denials, and activating clinical support with medical directors as needed. Next, on expanding treatment options. We are excited to share we recently received FDA 510(k) clearance for our next-generation AffloVest product. Key enhancements with this next-generation device are focused on improving the patient experience and include further weight reduction, new digital connectivity, and improved size adjustability to allow for a more customized fit. Additionally, the clearance maintains our indication for use across the full patient age spectrum, from pediatrics through geriatric populations, reinforcing AffloVest’s position as a solution for bronchiectasis patients at every stage of life.

We remain on track for commercial launch this year to ensure the product is available for the 2026 to 2027 winter respiratory season, and we look forward to sharing more updates with respect to timing as we get closer. Our second innovation area is focused on the advanced pump category. As we shared last quarter, our product roadmap includes the introduction of incremental features and product enhancements for Flexitouch focused on the patient experience. These include a new controller, reduced external hosing, and remote control functionality through our Kylie patient engagement application. We anticipate go-to-market readiness in 2027 for these features.

Beyond these innovation updates, we are also focused on identifying integration points across the combined Lymphotech and Tactile product development portfolios. While it is too early to share specific details of a Lymphotech-integrated product portfolio, we are excited by the expansion of diagnostic and therapy delivery opportunities. Finally, our third strategic priority of enhancing the lifetime patient value encompasses more efficient and personalized engagement before, during, and after the order and delivery process. As we shared last quarter, we are continuing to focus on targeted care navigation pilots designed to provide clearer guidance to patients earlier in the process and reduce administrative friction.

Results to date continue to support our thesis that patients value clear communication and guidance earlier in the process. We are refining these pilots to optimize touchpoints, and we are evaluating how to expand their impact in a measured and scalable way. We believe this work will reduce patient leakage, enhance the patient experience, and over time decrease the need for sales representative involvement in the order process, supporting both growth and operating leverage. Taken together, our progress across these strategic priorities reinforces our confidence in the durability of our commercial momentum.

Our Q1 results reflect strong execution across both business lines, meaningful progress and agility in our operation transformation initiatives, and the expected return on our go-to-market people and technology investments. Intentionality and discipline are key constructs in the way we are operationalizing our strategy; as a result, the business performance is there. This approach is supported by a strong balance sheet and a thoughtful capital allocation strategy that balances growth investments with shareholder returns. We are confident in the trajectory of our business and the multiple catalysts ahead as we move through 2026 and beyond. With that, I will now have Elaine review our Q1 financial results in more detail and provide an update on our outlook for 2026.

Elaine M. Birkemeyer: Thanks, Sheri. Unless noted otherwise, all references to first quarter financial results are on a GAAP and year-over-year basis. Total revenue in the first quarter increased by $14 million, or 23%, to $75.3 million. By product line, sales and rentals of lymphedema products, which includes our Flexitouch, Entre, Nimble, and Lymphatex systems, increased $11.7 million, or 23%, to $62.2 million, and sales of our airway clearance products, which includes our AffloVest system, increased $2.3 million, or 22%, to $13.0 million. Growth was broad based and reflected strength across both volume and revenue per unit, including higher shipments, strong collections, and a favorable mix across payer and product category.

Continuing down the P&L, gross margin was 76.5% of revenue, compared to 74% in 2025. The increase in gross margin was attributable primarily to lower manufacturing costs, stronger collections, and favorable product and payer mix reflected in our revenue. Importantly, these improvements reflect structural enhancements in the business rather than temporary cost actions. First quarter operating expenses increased $9.3 million, or 19%, to $59.1 million. The change in GAAP operating expenses reflected a $5.2 million increase in sales and marketing expenses, a $1.0 million increase in research and development expenses, and a $3.0 million increase in reimbursement, general, and administrative expenses.

As we discussed previously, we are annualizing investments made in 2025 while continuing to invest in IT infrastructure and automation to support long-term growth. Despite these ongoing investments, operating loss decreased $3.0 million, or 66%, to $1.5 million. Interest income decreased $200,000, or 26%, to $700,000 due to our decreased cash position. Interest expense decreased $400,000, or 93%, to $28,000. Income tax expense was $900,000 compared to an income tax benefit of $1.1 million. Net loss decreased $1.2 million, or 41%, to $1.8 million, or $0.08 per diluted share, compared to $3.0 million, or $0.13 per diluted share.

Adjusted EBITDA increased to $3.7 million compared to an adjusted EBITDA loss of $300,000 in the prior year, with margin expanding to 4.9% from negative 0.4%, reflecting a meaningful improvement in operating leverage. With respect to our balance sheet, we had $75 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 12/31/2025. The change in cash during the quarter primarily reflects the Lymphotech acquisition, share repurchases, and normal seasonal items such as bonus payments. We continue to see improvement in working capital, including a meaningful reduction in days sales outstanding. Turning to a review of our 2026 outlook.

For the full year 2026, we are raising our guidance and now expect total revenue in the range of $360 million to $368 million, representing growth of approximately 9% to 12% year over year. This guidance assumes both our lymphedema and airway clearance businesses will grow in a similar overall range, with airway clearance growing modestly faster. The increase in guidance is driven by three primary factors. First, we continue to expect strength in the commercial execution across the business. Second, we have included the contribution from Lymphotech. Third, we have incremental early confidence in how the MACs are navigating the new prior authorization requirements we discussed on our last call.

More broadly, we believe underlying demand remains durable, and our tools and processes designed to support prior authorizations are tracking well against plans. While prior authorization approval data is still early and continuing to take shape, our outlook appropriately reflects discipline until we have a longer track record of consistent outcomes.

For modeling purposes, for the full year 2026, we expect our GAAP gross margins to be 76% to 77%, our GAAP operating expenses to increase 10% to 12% year over year, the increase relative to our prior outlook reflects one-time acquisition and legal related costs, net interest income of approximately $3 million, a tax rate of 28%, and a fully diluted weighted average share count of approximately 22 to 23 million shares. We continue to expect to generate adjusted EBITDA of $49 million to $51 million in 2026. This outlook reflects the annualization of 2025 investments and continued strategic investments in 2026, which we believe are important to support long-term growth and operating leverage.

Our adjusted EBITDA expectation assumes certain noncash items, including a stock compensation expense of approximately $9 million, intangible amortization of approximately $3.6 million, depreciation expense of approximately $3.2 million, litigation-related expenses of approximately $1 million, and one-time acquisition-related and integration costs of $1.3 million. With that, I will turn the call back to Sheri for some closing remarks.

Sheri Louise Dodd: Thank you, Elaine. We are encouraged by a strong, balanced start to the year and the trajectory of our business. Our Q1 results demonstrated broad-based performance and reflect disciplined execution, improving productivity from a fully built commercial organization, and the increasing benefits from investments we have made in technology and infrastructure. As we look ahead, our focus remains on the fundamentals that matter most: expanding access to care, innovating across our product portfolio, and enhancing lifetime patient value. While we remain mindful of near-term adjustments related to Medicare prior authorization, ultimately, we believe this change reinforces our emphasis on clinical rigor, access durability, and long-term reimbursement stability, and we are well positioned to navigate it.

We are operating from a position of strength supported by a resilient balance sheet, multiple growth levers in motion, and a clear strategy to translate consistent execution into sustained growth over time. With that, operator, we will now open the call for questions.

Operator: Thank you. We will now be conducting a question and answer session.

Sheri Louise Dodd: You may press 2 if you would like to remove your question from the queue. Again, that is 1 to ask a question.

Operator: And our first question will come from Ryan Zimmerman with BTIG.

Ryan Benjamin Zimmerman: Good afternoon, and congrats on a nice start to the year here. I want to ask about some of the dynamics that are starting to occur in the second quarter. Sheri, I think you called out some pull-forward dynamic with, you know, lymphedema sales ahead of February. And so, you know, one, I think if I look at the beat versus kind of where you are raising guidance, came in, you know, there is about a $1.7 million difference there.

I just want to understand if that was the pull-forward effect, and then just anecdotally, kind of what you are seeing with the MACs in February, you know, how they are responding to this, how physicians are responding to this, and, you know, the cadence of sales we should think about. I apologize, there is a lot here. The cadence of sales we should think about over the balance of the year because you have historically seen, you know, kind of 2Q step up from 1Q. So, you know, is there a bit of a pause or dynamic in the market we need to think about for 2Q? Sorry for the multipart question there.

Sheri Louise Dodd: No, it is okay. Let us take it layer by layer here. So what I will first say is I want to kind of reorient this concept of a pull-forward, because it was not really a pull-forward. What we did is we had patients whose orders were in process, and if they were not all the way completed by that date, they would have been exposed to an overall denial. And so what we did is a little bit of an acceleration of that, but I would not characterize it as pulling orders, if you will, from Q2 and shipments from Q2 into Q1.

What we have been doing and what we have been seeing truly is great on our side in terms of our systems and our processes are working. We are really pleased. We accelerated what we were going to do next year and got it all in place by that go-live date, so very pleased with that. So what you are seeing in terms of our positioning on the prior authorization does not have anything to do with our readiness. It really has to do with some early variability that we are seeing within the MACs, and, again, Ryan, we are only three weeks into this entire process, so it is still new.

Orders are flowing through; we are seeing what those denial and approval rates are, but we are seeing some differences between the MACs. And so there should not be variability between the MACs. If you are in one state, you are a Medicare patient, and you have the exact same criteria, you should not be denied based on where you live. And so we are seeing a little bit of variability. This is not uncommon because MACs are trying to make sure their interpretation is the same, how the data and information is rolling through on their side, training and education.

So everything we are seeing, we do not think is anything other than administrative, and we are going to have an opportunity to talk to the MACs about this. We also do not see any of this being long standing. We believe we are going to be able to adjust, and with more experience in the prior authorization, we believe that our confidence in what that true process time is as well as those approval rates will increase.

From a guidance standpoint, we did pull through what would be the Lymphotech revenue into there as well as some of our overall business delivery confidence, and then we are going to hold a little bit until we have a few more weeks—it is not going to be the full year—until we start to see what that prior auth process looks like, again, more from the MACs’ side than on our side.

Elaine M. Birkemeyer: You did a great job. Ryan, I think the only other question you had was a little bit on sequencing and kind of Q2 and Q3. So, you know, we do continue to expect to see growth in Q2 over Q1 like we always have. I will say the Q2, Q3 this year will look a little bit different, I think. Together, those two quarters will be the same, but I would say we will see a little bit of a lighter step up in Q2 than some of the years past and probably a bigger step up in Q3 as it starts to normalize.

Just as that went into effect, it created a little bit of a delay as that prior auth made a way for those responses and for this whole new process to get going. So I would say collectively, the two quarters are going to be the same, but there will be a little bit of a difference between the two.

Ryan Benjamin Zimmerman: Okay. Very helpful. And then I am going to sneak one more, and I will get back in queue, because I probably have asked too many now. But just on the Lymphotech contribution, so I appreciate you guys calling that out. When do you expect that to be, you know, meaningful in the year, number one? So how should we think about when it really starts to deteriorate? And then two, you know, as we think about kind of what it can do over time, you know, how are you thinking about what Lymphotech can offer in terms of a contribution to the business as we look out further into 2027 and beyond? Thanks for taking the question.

Sheri Louise Dodd: You bet. So on Lymphotech, the grants that we discussed—super excited about the LIGHT and the GUIDE grants—actually come through as revenue, which is why now it is in the overall guidance that we put forward. But prior to that, when we did our original guidance, we did not see any real growth happening from Lymphotech or any big contribution. So what you are seeing now is really a result of the grant coming through as revenue. Where we are most excited about Lymphotech is not going to materially impact this year.

I mean, we did the acquisition on multiple fronts, but that ability and the R&D capabilities that Lymphotech brings will be a big part of how we are thinking about our go forward, not just as a Flexitouch next gen, but if you think about therapy in general. And when you see the details—as I described the details of that GUIDE—actually looking at garments that are using bioimpedance and delivering on personalized care, we are very excited about that.

I just cannot share any timelines on what that R&D portfolio looks like right now, but we will be able to share that much more in the quarters to come as that gets further defined in our overall strategy for therapy delivery. On the diagnostic side, one of the big drivers we know for Lymphotech is actually getting the FDA approval for more of that diagnostic indication and then getting through the CPT codes that actually enable a payment for the diagnostic.

So that is going to take a little bit of time, but on the here and now, we are super excited to have the federally funded government grants helping support the R&D efforts that we know are going to fit directly into our future portfolio.

Sheri Louise Dodd: Hey, Ryan, the last thing I will say—you had a great question, but I kind of want to bookend it about, you know, the guidance and the flow through. Again, we said it is only three weeks in. We saw and we held on the NCD when it converted from the LCD to the NCD because we knew there were going to be changes in interpretation and time needed to get progressing before we felt super confident about what we could do to lean into that. And so everything we are doing now is really based on precedent and what we have done before, and it worked well.

We are confident that these administrative pieces in the early days of the prior auth will flow through, and we are in the best position to handle it. So it is a real thing, but we do not sit here with a lot of concern. We just want more time to be able to fully articulate what that benefit will be. So the question you did not ask, but I wanted to bookend it based on the questions that you did ask.

Ryan Benjamin Zimmerman: Thank you.

Sheri Louise Dodd: Yep. Thanks.

Operator: And our next question comes from Brandon Vazquez with William Blair.

Brandon Vazquez: Congrats on a nice quarter. I hate to do this, but can we stick for a second on this concept of the pull-forward versus accelerated? I am not sure I fully understand it, and I want to make sure it is clear because I think it will be important to understand, one, the strength in the quarter and, two, the sequential changes from here. So maybe just spend a second specifically on the nuances between why a pull-forward is—or sorry—why accelerated sales is not necessarily a pull-forward of sales from Q2?

Sheri Louise Dodd: We did the order acceleration for patient benefit, not to cover revenue. Typically, a pull-forward is because you are trying to cover revenue—you are trying to accelerate what you would have received in revenue in the next quarter and bring it into this quarter. When we talk about order acceleration, we really did this for the patient benefit. Those patients that had an order in process, if they did not clear the order by that April 13 date, it would have had to go all the way back and be resubmitted into a prior auth. So we had some orders—this is not a material amount—that were going to fall on that date of April 13.

We put extra resources to help make sure that order went through, but we were not taking an order from Q2 to book the revenue into Q1.

Brandon Vazquez: Okay. Got it. That is clear. Thank you. Maybe a follow-up here, a little bit of a broader picture. A lot of commercial investments you guys have that have gone through 2025 and are ramping into this year. Maybe help characterize where some of these are in terms of maturing. Should the benefits still be growing? Are we reaching maturity for some of them, like the commercial team, things like that? So maybe just talk to us about what inning we are in for some of these more meaningful commercial investments. Thanks.

Sheri Louise Dodd: Certainly. We are really pleased with where we sit right now in terms of our headcount, and as I stated in the prepared remarks, we are moving from capacity building and onboarding to true productivity. We are at a place where we have a fully resourced sales organization with that one-to-one ratio of our territory managers to our account specialists, so we feel in a really good place. As far as our CRM tool, our reps are continuing to use that tool, including workflow tools that really help support their activities—that is also going very well—and we expect that revenue per rep year-on-year growth to turn positive as we progress throughout the year.

Net-net, we are certainly transitioning from build-and-bring-the-tool to actually having a fully resourced field organization that is stepping up and continues to step up. We are seeing that increase in overall referrals per rep and feel in a really good place with that.

Operator: And as a reminder, that is star one if you would like to ask a question. We will go next to Adam Nader with Piper Sandler.

Kyle Edward Winborne: Yes, hi, this is Kyle on for Adam. Thanks for taking the questions, and congrats on a good start to the year. Maybe I will ask on the EBITDA guidance. The Q1 result beat expectations and then you raised revenue guidance. So just trying to help understand—or maybe you could help us unpack—keeping the EBITDA guidance kind of where it is. I know you mentioned some of the acquisition costs and some of the one-time expenses there, and I noticed the uplift in OpEx spend for the year. Should we understand a lot of that as kind of part of this acquisition, or is it more of this robust R&D pipeline? Can you just help us a little bit there?

Elaine M. Birkemeyer: In terms of that, I think there are probably two factors. One is a portion of the increase is due to Lymphotech. As Sheri mentioned, that is really related to the grant work we are doing, where it is really service-based work that is on the lower-margin side. Again, this is not the broader business model, but happens to be in our revenue this year. And so that is one of the reasons why. Then secondarily, as you said, we did have some in-period one-time costs in our OpEx as well. But I would say the biggest driver is really just the type of revenue lift that is coming from Lymphotech and the nature of that revenue.

Kyle Edward Winborne: Okay. Got it. That is helpful. And then, congrats on the clearance for the next-gen AffloVest. I know that was exciting to get through. Just wanted to ask on that specifically. It sounds like you will be able to have this launched for this winter season as you discussed. How should we think about that in terms of the growth with that product—with the next-gen system with the advanced features? And then is there very much of that baked into the guidance for the full year, maybe just a little bit towards the end of the year? Is it kind of just an upside lever at this point?

Sheri Louise Dodd: Yes, thanks for the question, and we are super excited to have gotten the FDA approval for this product and really excited to have these features that are going to help drive that patient experience. Just as a reminder, the reimbursement is exactly the same for our current generation as well as the next-generation AffloVest, so there is no additional reimbursement in place for that, and it definitely will be available.

We are currently working with our DMEs on the timing to make sure that they wind down the inventory that they currently have on the Gen 5 and that training and education are all done in time for that respiratory season at the end of this year and into next year. From an overall guidance standpoint, our guidance assumes both lymphedema and airway clearance are going to grow in a similar overall range, with airway clearance growing slightly faster, and that is already built into our guide. We anticipated having the product this year and, again, with no incremental dollars out there on the reimbursement.

It is simply a better patient experience, and we will continue to drive penetration and adoption within our DMEs.

Operator: And moving next to Ben Haynor with Lake Street Capital.

Benjamin Haynor: Good afternoon. Thanks for taking the questions. First off for me, wondering on the guidelines for lower limb—any more color you can share on what the initial reaction has been from clinicians? And then just maybe some commentary overall on mix of the lymphedema market—is 52% of cases lower limb? Any color you can provide for investors there would be helpful.

Sheri Louise Dodd: Sure. On the guideline standpoint, we are really pleased to have the guidelines presented at AVS in February, and it is anticipated that those guidelines will be published this summer. As always, it is great to have the guidelines. In terms of the dissemination of the guidelines and training clinicians, that is something that our teams are going to be prepared for and help with the overall education. We are really pleased that the guidelines specifically called out pneumatic compression devices as being part of guideline-based care, which is differentiating from non-PCD products. So we are excited to have us positioned well with the overall evidence-based care guidelines, and we will roll that out and help communicate that.

Elaine M. Birkemeyer: And then in terms of kind of mix of what is lower versus upper extremity, I think the best way to think about this is really what causes lymphedema for patients. We have said about a third of patients get lymphedema due to cancer, while the remainder are different other causes, with a big one being CVI. Cancer often can be upper body—if you think about breast cancer, head and neck cancer. There could still be some lower extremities with any type of pelvic cancer, but that is where you tend to see upper extremity, whereas the other drivers, typically CVI, happen to be lower extremities.

So that probably gives you a little bit of a sense of it, but it really has to do with what is the underlying cause or driver, which is what determines where the area of lymphedema is in the body.

Benjamin Haynor: That is definitely helpful. And would you expect additional clinical guidelines to be forthcoming for, you know, upper extremities or upper areas of the body?

Sheri Louise Dodd: There certainly is, as Elaine said, that is largely in the oncology area. So there are definitely some white papers positioned in this area, and that could definitely transpire. I am not aware of anything specifically that is in the works on the upper extremity side, but we are really pleased at how well positioned and adopted pneumatic compression therapy is in upper extremity patients, particularly with therapists, and in oncology it is well understood, whereas lymphedema in the lower extremity can be almost a process of elimination.

Certainly, with patients that have cancer, you know that you have removed a lymph node or you know that you have done something with the lymphatic system during a surgical procedure—different than lower extremity. So we tend to see that in the oncology space, and with lymphedema therapists there is more understanding of the lymphatic disruption that has happened with the specific oncology intervention. So guidelines could be helpful, but there is not as much of a disconnect as we have seen in the lower extremity.

Benjamin Haynor: So numerically, you have not only more patients but less penetration, if you will, amongst that group. So it is kind of a double whammy theoretically for you guys.

Sheri Louise Dodd: What you said is accurate.

Elaine M. Birkemeyer: I think it is accurate that the lower extremity is the larger population. I think what Sheri is highlighting is that the guidelines are more meaningful for that population because there is not an obvious trigger to the lymphatic disruption, and so these guidelines really help it get discovered earlier. Versus upper extremity, there is an obvious trigger, and so patients and clinicians are more likely to watch out for it in the absence of guidelines.

Benjamin Haynor: Okay. I think we are on the same page. Perfect. And then lastly for me, if I could sneak in one more. Is there any color you can provide on, you know, this new pharmaceutical out there for bronchiectasis? Has there been any impact that you find notable on the airway clearance side of things?

Sheri Louise Dodd: Certainly. We have said and believe that the introduction of the pharmaceutical product specifically for patients with bronchiectasis is helping awareness for the broader category, so it has been a nice category lift. The airway clearance, though—and they call it the vicious vortex—is that you have issues of inflammation, and you have got mucus, and then you have infection. The pharmaceutical product helps support inflammation, but inflammation is just one part of this whole vicious vortex associated with bronchiectasis. There is still going to be inflammation, and with inflammation you are still going to have mucus, and with mucus you are still going to have opportunities for infection.

So that need to actually clear the airway is still very relevant for this patient population. This is what we are hearing from our clinicians, and the positioning of the product as well is not to say it replaces airway clearance. It is actually alongside—could be used alongside and adjacent to it—but it is not one versus the other. We are happy that it is helping grow awareness and creating education around the disease of bronchiectasis, but we are not seeing this change the actual care pathway for these patients; it is just an option to be used alongside an airway clearance product.

Benjamin Haynor: Makes sense. Thanks for taking the questions, and congrats on the quarter.

Operator: Thank you. And ladies and gentlemen, thank you for your participation. This does conclude today’s teleconference. You may disconnect your lines, and have a wonderful day.

Operator: Thank you.

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