Executive Summary / Key Takeaways

• Strategic Reawakening and Investment: Tactile Medical is undergoing a significant strategic transformation, investing heavily in its commercial organization and technology infrastructure (CRM, AI, e-prescribing) to unlock a vast, underserved market for lymphedema and chronic respiratory conditions. These foundational investments are expected to drive scalable, profitable growth into 2026 and beyond, despite near-term impacts on EBITDA.
• Robust Product Innovation and Market Leadership: The company maintains a market-leading position in advanced pneumatic compression devices (PCDs) for lymphedema, with its Nimbl platform outpacing broader market growth. The AffloVest for airway clearance is demonstrating strong momentum, aiming for market share leadership through strategic DME partnerships and product differentiation.
• Favorable Reimbursement Tailwinds: The transition to the National Coverage Determination (NCD) as the sole Medicare policy for PCDs is a significant positive, simplifying patient access to advanced therapies and reducing administrative burdens, which should support future growth.
• Solid Financial Position and Prudent Capital Allocation: Tactile Medical reported strong Q2 2025 revenue growth of 7.8% year-over-year to $78.9 million, exceeding expectations. The company maintains a healthy cash balance of $81.5 million (post-share buyback and term loan payoff) and has expanded its revolving credit facility, providing ample liquidity for strategic initiatives.
• Long-Term Growth Potential Amidst Short-Term Variability: While full-year 2025 revenue guidance of $310 million to $315 million (6-8% YoY growth) and adjusted EBITDA guidance of $33 million to $35 million reflect ongoing investments and temporary disruptions, management is confident in returning to double-digit growth, leveraging its enhanced commercial capabilities and expanding market opportunities.

Setting the Scene: A Deep Dive into Tactile Medical's Mission and Market

Tactile Systems Technology, Inc. ($TCMD), operating as Tactile Medical, is a medical technology company dedicated to revealing and treating underserved chronic conditions at home. Founded in 1995 and publicly listed in 2016, the company has built its foundation on advancing the standard of care for patients suffering from lymphedema and, more recently, chronic respiratory conditions. Its mission centers on improving clinical, patient, and economic outcomes through home-based solutions.

The market opportunity for Tactile Medical is substantial and largely underpenetrated. An estimated 145,000 patients in the U.S. are currently diagnosed and treated for lymphedema with pneumatic compression devices (PCDs) or non-PCDs, a population growing at a robust 10% annually. Beyond this, approximately 2 million diagnosed patients are not yet receiving PCD or non-PCD treatment, representing a significant near-term commercial focus. The long-term potential is even greater, with an estimated 20 million Americans undiagnosed with lymphedema, often symptomatic for years before receiving a definitive diagnosis. Similarly, the airway clearance market addresses 5 million diagnosed and undiagnosed bronchiectasis patients in the U.S. This vast, underserved patient base underscores Tactile Medical's strategic imperative to expand access and treatment options.

Technological Edge: The Power Behind Tactile's Solutions

Tactile Medical's core competitive advantage lies in its differentiated pneumatic compression technology and patient-centric digital tools. The company's lymphedema portfolio includes the Flexitouch Plus system, an advanced PCD, and the Entre Plus and Nimbl systems, which are basic/simple PCDs.

The Flexitouch Plus system, with its multiple FDA 510k clearances, addresses lymphedema of the head and neck, phlebolymphedema, and lipedema, offering comprehensive treatment options. Its clinical efficacy is being further validated through ongoing research, including a randomized controlled trial for head and neck lymphedema, which is expected to influence payer policies and expand access.

The Nimbl platform, Tactile's next-generation basic PCD, represents a significant leap in patient convenience and adherence. Compared to its predecessor, Entre Plus, Nimbl is 68% lighter, 40% smaller, and uses 33% less hosing, making it the smallest PCD of its kind. These quantifiable benefits translate directly into enhanced portability and ease of use, crucial for patients managing a lifelong chronic condition at home or on the go. Nimbl's commercial launch for upper extremity lymphedema in October 2024, followed by lower extremity in February 2025, has been met with strong adoption, outpacing broader market growth and even Flexitouch, demonstrating clear patient and provider preference.

In the airway clearance segment, the AffloVest stands out as a portable, wearable, high-frequency chest wall oscillation (HFCWO) device. Its key technological differentiator is its true mobility, being battery-powered versus tethered, and its lightweight design. These features offer significant advantages over alternatives, enabling patients with chronic respiratory conditions like bronchiectasis to receive therapy without being confined.

Complementing its hardware, Tactile Medical's Kylee mobile app, launched in July 2022, serves as a digital engagement platform. It allows patients to track treatments, symptoms, and access educational resources. With over 53,000 registered patient profiles and 1.1 million total check-ins as of June 30, 2025, Kylee provides a connected care pathway and invaluable insights for future product and service innovation. The company plans to further increase Kylee's utilization by integrating it earlier into the patient care journey.

Tactile Medical's R&D roadmap includes the development of a next-generation advanced lymphedema pump and further enhancements to the Nimbl platform. These initiatives aim to maintain the company's technological leadership and expand its competitive moat, ensuring it can continue to offer clinically effective and patient-preferred solutions across the spectrum of lymphedema and airway clearance needs. The "so what" for investors is clear: these technological differentiators drive market adoption, enhance patient adherence, and support premium positioning, contributing directly to sustainable revenue growth and strong gross margins.

Competitive Landscape: Dominance in Niche, Growth in Airway Clearance

Tactile Medical operates in a competitive landscape, but its specialized focus and innovative technology provide distinct advantages. In the lymphedema market, Tactile Medical holds a market-leading position in both basic and advanced pneumatic compression devices. This leadership is sustained by its direct-to-patient and -clinician business model, which allows for deep engagement and understanding of patient needs.

Direct competitors in the broader medical device space, such as Arjo AB (ARJOB), Smith & Nephew plc (SNN), and Baxter International Inc. (BAX), offer various solutions that may overlap with Tactile's offerings. Arjo, with its global distribution and integrated patient handling solutions, presents a challenge in scale and market reach. However, Tactile's Flexitouch Plus and Entre systems emphasize user-friendly, at-home pneumatic compression, potentially offering a qualitative edge in patient adherence for chronic conditions.

Smith & Nephew, a leader in wound care and orthopedics, also provides compression therapies. While Smith & Nephew benefits from established brand recognition and extensive clinical partnerships, Tactile's specialized devices, like the AffloVest, may offer qualitative advantages in portability and targeted therapy, making them more appealing for at-home chronic disease management.

In the airway clearance market, Tactile Medical is currently the #2 market share leader with AffloVest, aiming to become #1. Baxter International, a major player in medical devices, is the current market leader. AffloVest's unique selling proposition as the only truly mobile, battery-powered, and lightweight HFCWO device provides a significant competitive edge over tethered alternatives. This differentiation is crucial for patient quality of life and adherence, directly impacting market share gains. Tactile's strategy of securing prioritized placement agreements with top respiratory Durable Medical Equipment (DME) partners and extensive provider education is instrumental in challenging Baxter's dominance.

Tactile's competitive advantages are rooted in its proprietary technology, patient-centric design, and specialized market focus. These factors allow it to command strong customer loyalty and potentially higher average selling prices in its niche markets. However, its smaller scale compared to diversified giants like Baxter and Smith & Nephew could lead to vulnerabilities in cost efficiency and global reach. The company mitigates these by focusing on targeted innovation, robust clinical evidence, and strategic partnerships, ensuring its offerings remain highly differentiated and clinically superior for its patient populations.

Strategic Imperatives: Fueling Future Growth

Tactile Medical's 2025 strategy is built on three pillars designed to unlock its total addressable market (TAM) and enable scalable, profitable growth.

The first priority, improving access to care, addresses the protracted and complex patient journey. Tactile is investing in workflow simplification through technology. Its e-prescribing tool, Parachute, is already used for over 25% of Nimbl orders and will expand to Flexitouch, streamlining order processing and reducing friction for clinicians. An upcoming pilot of an AI-based tool for traditional orders aims to process up to 1,000 faxes per day and review extensive medical records faster and more accurately, mitigating patient leakage. Clinical evidence generation, such as the head and neck lymphedema RCT, is crucial for influencing payer policies and expanding coverage. The company's payer advocacy efforts, particularly around the NCD, are designed to ensure patients with "unique characteristics" can access advanced pump therapy without unnecessary basic pump trials.

The second priority is expanding treatment options for diagnosed lymphedema patients. The strong adoption of Nimbl, which is 68% lighter, 40% smaller, and uses 33% less hosing than Entre Plus, demonstrates the success of this strategy. Nimbl's growth, outpacing both the broader market and Flexitouch, highlights its appeal. The company's product roadmap includes a next-generation advanced lymphedema pump and further Nimbl enhancements, ensuring a continuous pipeline of innovative solutions.

Finally, enhancing lifetime patient value focuses on supporting patients throughout their entire care pathway. The newly centralized Patient Services organization, comprising Patient Education Consultants (PECs) and back-office support, ensures consistent patient engagement. PECs performed 60.5% of in-home patient demos in Q2 2025, up from 52% in Q4 2024, freeing sales reps to focus on clinician engagement. A new care navigation pilot aims to proactively engage patients earlier in the order process, further reducing sales rep involvement and mitigating patient leakage. The Kylee app, with over 53,000 patient profiles and 1.1 million check-ins, is central to this, providing a digitally connected platform for tracking, education, and communication.

To execute these strategies, Tactile Medical is optimizing its commercial organization. It aims to increase its total sales force to over 300 reps by year-end 2025, focusing on distinct roles for account managers (clinical education, referral development) and specialists (documentation support, e-prescribing onboarding). This investment in human capital, coupled with technology, is designed to improve sales rep productivity and overall operational efficiency.

Financial Performance and Outlook: Investing for Scalable Profitability

Tactile Medical delivered a strong financial performance in Q2 2025, signaling a recovery from earlier disruptions and a clear path forward for its strategic investments. Total revenue for the second quarter increased 7.8% year-over-year to $78.9 million, exceeding previous expectations. This growth was primarily fueled by a remarkable 51.6% year-over-year increase in airway clearance revenue to $12.9 million, driven by increased AffloVest placements and strategic DME partnerships. Lymphedema revenue also saw a modest 2% year-over-year increase to $66 million in Q2, attributed to improved sales force headcount and productivity.

For the first six months of 2025, total revenue grew 4% year-over-year to $140.2 million. While airway clearance revenue surged 36.6% to $23.6 million, lymphedema revenue experienced a slight 0.4% decrease to $116.5 million during this period. This six-month dip in lymphedema revenue was primarily due to temporary disruptions in Q1 from the new Salesforce CRM implementation and delayed hiring during a sales force rebalance. However, management has indicated moving past these early disruptive stages by Q2, with reps gaining proficiency and headcount targets being met.

Profitability metrics showed positive trends. Gross margin for Q2 2025 expanded to 74.5%, up from 73.9% in Q2 2024. This improvement was largely attributable to lower manufacturing and warranty costs, reflecting product design enhancements and stronger collections. Adjusted EBITDA for Q2 2025 was $7.7 million, down from $9.1 million in Q2 2024, as expected due to planned technology and sales headcount investments. Net income for Q2 2025 was $3.2 million, compared to $4.3 million in the prior year.

The company's balance sheet remains robust. Tactile Medical ended Q2 2025 with $81.5 million in cash and cash equivalents.

Post-quarter, on July 31, 2025, the company strategically paid off its outstanding $24.4 million term loan using cash on hand. Concurrently, it expanded its revolving credit facility from $25 million to $40 million and extended its maturity to July 31, 2028, enhancing liquidity and financial flexibility.

The company also completed its $30 million share repurchase program by June 24, 2025, repurchasing 2.34 million shares, demonstrating a commitment to shareholder value. Management believes current cash and operating cash flows will be sufficient for at least the next twelve months, even with anticipated increases in expenditures for sales, marketing, and IT investments.

For the full year 2025, Tactile Medical has revised its total revenue guidance to a range of $310 million to $315 million, representing 6% to 8% year-over-year growth. This guidance reflects the Q1 disruptions but also the strong Q2 recovery and anticipated momentum. Lymphedema product line growth is projected at 1.5% to 3%, while airway clearance is expected to grow significantly at 40% to 43%. Adjusted EBITDA guidance for 2025 is set at $33 million to $35 million, reflecting continued strategic investments. GAAP gross margin is expected to be approximately 75%, with GAAP operating expenses increasing 10% to 11% year-over-year. The company also anticipates a full-year 2025 cash tax benefit of approximately $4.6 million from the One Big Beautiful Bill Act (OBBBA). These figures underscore a deliberate strategy to invest for future scale and profitability, with management expecting operating expense leverage to return in 2026.

Reimbursement Dynamics: A Policy Tailwind

A significant positive development for Tactile Medical and its patients is the evolution of the Medicare coverage policy for pneumatic compression devices. Effective November 14, 2024, the restrictive Local Coverage Determination (LCD) policy was retired, making the National Coverage Determination (NCD) the sole governing policy. This is a substantial win for lymphedema patients, as the NCD is a less restrictive, more patient-friendly policy with fewer administrative burdens.

Crucially, the NCD removes the requirement for all patients to undergo a basic pump trial before being eligible for an advanced pump like Flexitouch Plus. This means patients with "unique characteristics," such as chest and trunk swelling or specific skin changes, can now progress directly from conservative therapy to an advanced pump if clinically appropriate. This change eliminates a historically protracted and often ineffective step in the patient journey, ensuring patients receive the right product for their clinical indication the first time. Tactile Medical has extensive experience operating under the NCD and is actively engaging with Medicare Administrative Contractors (MACs) to clarify interpretations of "unique characteristics," aiming to establish clear pathways for advanced pump therapy.

Further supporting future access, the company's head and neck lymphedema randomized controlled trial (RCT) presented positive 2-month data in June 2025, validating Flexitouch Plus as a clinically supported alternative to usual care. The 6-month analysis and manuscript submission are planned for early Q4 2025. These results are expected to influence commercial payer policies, with a larger impact anticipated in 2026 and beyond, further expanding the addressable market for Flexitouch Plus, particularly given the high incidence of lymphedema in head and neck cancer survivors.

Risks on the Horizon

While Tactile Medical's outlook is positive, investors should be aware of several key risks. Legal proceedings, specifically two qui tam complaints unsealed in January 2025, allege false claims related to government payers. While the U.S. government has not intervened, these matters remain ongoing and could result in damages, statutory penalties, and legal costs, potentially impacting financial performance.

Ongoing global trade policies and tariffs also pose a risk. The company estimates a full-year 2025 tariff impact on cost of goods sold of $1 million to $1.5 million, though it is actively pursuing mitigation strategies like reshoring manufacturing and leveraging exemption policies. Any further escalation or changes in tariff frameworks could negatively impact the supply chain and increase costs.

Finally, the company's strategic investments in sales force expansion and new technology implementations, while crucial for long-term growth, carry inherent execution risks. The Q1 2025 disruptions from the CRM launch and sales force rebalance highlight the potential for short-term variability in productivity and revenue. While management is confident in its ability to manage these, the successful ramp-up of new reps and seamless integration of new AI tools will be critical to achieving its ambitious growth targets.

Conclusion

Tactile Medical stands at a pivotal juncture, strategically investing to capitalize on vast, underserved markets in lymphedema and chronic respiratory conditions. The company's commitment to innovation, exemplified by its differentiated Flexitouch Plus, Nimbl, and AffloVest technologies, positions it as a leader in patient-centric, home-based care. The recent policy shift to the NCD, coupled with robust clinical evidence generation, creates a favorable reimbursement environment that should significantly improve patient access to advanced therapies.

Despite short-term operational disruptions and investment-driven moderation in adjusted EBITDA, Tactile Medical's strong Q2 2025 performance and raised full-year guidance underscore management's confidence in its strategic initiatives. The company's healthy balance sheet, prudent capital allocation, and focus on enhancing commercial infrastructure and patient value are foundational for durable, scalable growth. For discerning investors, Tactile Medical represents a compelling opportunity to participate in a company poised for long-term value creation, leveraging its technological leadership and strategic vision to transform chronic disease management.